Here's how Oscar Health plans to move into the Medicare Advantage market

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Oscar Health, a $3.2 billion health insurtech we pegged as a startup to watch last year, announced it will launch Medicare Advantage (MA) plans in New York City and Houston beginning next year - and its strategy provides some valuable insight regarding how new entrants could approach the MA market. Oscar will partner with Bronx-based health system Montefiore in New York, and with a mix of physician groups and individual hospitals in Houston.

The insurtech's plan is to experiment and find out which of the two competing approaches works best. "These are pretty much the competing models you have in Medicare Advantage, so we'll test them both," Oscar CEO Mario Schlosser said in a recent interview.

Here's a breakdown of Oscar's two-pronged Medicare Advantage strategy:

• Oscar's Montefiore partnership in New York is in line with its existing "narrow network" plans - but the approach could alienate Medicare-age patients. Oscar's membership more than doubledfrom around 100,000 in 2017 to 257,000 in 2018 - which it achieved despite shifting to narrow network plans, in which Oscar usually partners with a single, high-quality health system in a city. "We believe that we don't need to have every doctor, every hospital. You need to have good doctors, and good hospitals that will attract people," Oscar's Chief Policy and Strategy officer Joel Klein toldModern Healthcare in 2018. However, an especially narrow network - in which New York City members are only fully covered at Montefiore - may turn off potential elderly clients who are used to the security of traditional Medicare, which is accepted by 93% of primary care physicians.
• While its approach in Houston gives members access to more care options - it could be more expensive to run. Prior to February 2017, Oscar essentially rented its provider network from insurer MagnaCare, and outsourced its payment processes. The primary reason Oscar ditched wide coverage networks in favor of narrow network health plans in 2017 was to control costs. And despite moving payments in-house and signing its own deals with providers, managing a wider partner base for Oscar's MA launch in Houston will likely cost more than its exclusive deal with Montefiore in New York.

The bigger picture: Getting into the MA market as a startup is difficult and costly, so moving in slowly could pay off for Oscar if it can devise a way to attract patients, while keeping costs low.

Oscar is smart to plot its course into the MA market carefully: Big insurers dominate the space and patients are more costly than those on traditional Medicare. Oscar needs to pump up its membership after its growth greatly decelerated from 2018's explosive 170% year-over-year (YoY) increase to an 8% YoY uptick in 2019, which we've touched on as a cause of concern.

But three major US insurers control nearly 70% of the MA market, leaving little room for startups like Oscar to muscle their way in. Furthermore, MA patients pose a huge risk for a lean insurtech like Oscar, which found its stride by offsetting high deductibles with low-cost primary care visits and free telemedicine: MA members have higher rates of social and clinical risk factors than traditional Medicare enrollees - such as poverty, mental illness, and substance abuse - resulting in higher costs for payers, per a recent Avalere Health study.

It makes sense for Oscar to take time to understand how to manage the higher claims costs associated with courting an older, higher-risk demographic, which could help it accelerate faster than other MA entrants - fewer than 3% of which achieved growth of 10,000 or more members in the past five years.

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