Oscar Health Insurance Corp., founded in 2013 as an insurer in the Affordable Care Act (ACA) insurance marketplace, reported losses of $92.4 million and $12.8 million in New York and New Jersey, respectively.
The company’s CEO, Mario Schlosser, attributed the losses to a combination of ongoing startup expenses, higher-than-anticipated member costs and a shortfall in one of the ACA’s premium stabilization programs.
Large national insurers such as UnitedHealth Group Inc. and Aetna Inc. also reported losses for their 2015 marketplace business, noting that enrollees ended up being sicker than the companies expected. That may not be so surprising, given that many people who purchased coverage through the exchanges previously did not have insurance or had been denied coverage because of pre-existing conditions, and thus may have gone without medical care until they obtained coverage under the ACA.
Three premium stabilization programs were built into the ACA legislation to provide insurers with a safety net of sorts as they established their plans in an unknown market. Under the three-year risk corridor program, which is set to expire at the end of this year, insurers set a “target amount,” which essentially is the total of their premiums less administrative expenses. If an insurer’s allowable costs exceed its target amount by a certain percentage, the insurer can collect funds from the risk corridor program to offset those losses. Conversely, if an insurer’s target amount exceeds its allowable costs by a certain percentage, it pays into the program.
Insurers submitted requests for risk corridor funds totaling $2.87 billion in 2014, whereas they paid in just $362 million, creating a substantial shortfall. As a result, only 12.6 percent of the requests have been paid, leaving more than $2.5 billion still owed—along with whatever additional amounts might accrue in the 2015 and 2016 reporting periods.
Oscar, like Aetna, UnitedHealth Group and many other insurers in the marketplace, was affected by the shortfall. Compounding the problem in Oscar’s case, the company was required to pay into one of the ACA’s other two premium stabilization programs, the risk adjustment program. Under that program, funds are collected from insurers with healthier enrollees and are transferred to insurers with sicker enrollees. Oscar contributed $28.3 million to the program based on its New York business just, according to Bloomberg Business.
Oscar was valued at $2.7 billion in its latest round of funding, Bloomberg reported. As the insurer expands into markets in California and Texas this year, it reportedly is adjusting its strategies in an attempt to limit costs. To date, Oscar has gained approximately 145,000 members in the markets it serves.