Oscar Health falls in public debut

Mario Schlosser, Oscar Health CEO, joins Yahoo Finance’s Kristin Myers and Anjalee Khemlani to break down the company’s public debut on the New York Stock Exchange.

Video Transcript

KRISTIN MYERS: But I want to start with the IPO of the tech-driven health insurance company, Oscar Health. Now the company, as I mentioned, started trading today, opening at $36 a share. We have Oscar Health CEO, Mario Schlosser, here with us now, alongside Yahoo Finance's Anjalee Khemlani. Thank you both for joining us for this conversation.

Mario, I want to start with how much you view the pandemic, really, as a tailwind to your business. In short term, we have seen insurers paying out for healthcare costs. But longer term, you know, given the higher levels of unemployment and record employment levels for the Affordable Care Act during that special enrollment period that President Biden opened up, it seems as if there's a larger individual market for your company to tap into. Is that how you guys are looking at it?

MARIO SCHLOSSER: Yeah, first of all, it's great to be here. Thanks for having me on the program. A special day for us today for sure. And I think a special day for everything we set out to do eight years ago as Oscar, you know, even right in the middle of sell.

So I'd offer two thoughts on this one. One is that I think COVID put pressure on the healthcare system to move into these directions we, I think, started Oscar for. The system will become more virtual, become more consumerized. It'll share more risk between payers and providers. Those are all the trends that COVID's put an accelerant behind.

We feel very good about how we built the company up with the Heisenberg engagements and its own technology stack to play right in the middle of these three trends and nudge the system further in the direction of longer term care and better member outcomes, more built on member experience in the way that healthcare really should be.

The second thing I'd say is that yes, I do think that in the short term, there will be a bigger individual market because of the consumers of the virus. But what I really look towards is that in 10 years from now, I hope, first of all, that there will be no virus anymore, and that we have worked through all the bad consequences of it.

But at the same time, that people will have much more of an opinion what kind of healthcare they would want and the ability of buying the healthcare experience that they would want and stay with, and not have that be handed to them without a chance of quitting it if they don't like it. That would put us in a position where we can really invest in decades of your healthcare outcomes as an individual much earlier on. And that's what we started Oscar for all these years ago.

ANJALEE KHEMLANI: Mario, Anjalee here. I know that in the filing before you went public, you noted that you haven't made money since inception. How does going public help? What are you looking to get from the capital market?

MARIO SCHLOSSER: I think first of all, foremost, we wanted to tell our story. I started the company because my son was born. He was here early on the Stock Exchange, actually, today. It was fun to see him like, you know, sign the wall, try to ring the bell-- semi-successfully, I would say. It's actually a button you have to push, not like a bell you have to kind of bang there. Interesting learning for me. And so other companies I saw that health care was too expensive and too complicated.

And so it means that story how Oscar, I think, nudges the system in the right direction there by making it more member friendly, making it easier to navigate, and more affordable through the drug tiers we designed, the virtual care plans we designed, and so on. I think those are moves in the right direction and that story we wanted to really, really tell. I'm super glad we were able to tell that story and we're now out there trading, you know? And I can tell the story even more.

Anjalee, you know me. I love demoing the product, I love demoing the dashboards we have. I did that a lot in the last 10 days for investors and other folks who wanted to see it. And that, to me, is the most important thing. And I think that it just means we can keep investing in the right way in the future, I think, of Oscar and the future of health care. And, most importantly, we can show up for members and grow the company and make sure we are on that march of profitability that we've been on and that we will stay on.

ANJALEE KHEMLANI: Definitely. I know that one of the things that you've really prided yourself on is being very tech heavy. And that was one of the things I think earlier on, some of the traditional insurance CEOs that I used to talk to just sort of waved it off. But you've really been able to capitalize on that. One of the key things being telehealth being included with the package of services. Do you see that as a lost revenue right now when you're looking at the way the pandemic has rolled out and how others have been able to capitalize on that? Or any other things that you've learned to move into being able to gain revenues from?

MARIO SCHLOSSER: So, we always chose to go the hard way and the long routes. We're the only insurance company out there that's built its own claim system in the last couple of years. That invested in all the kind of basic, basic plumbing of US health care and health insurance. I think that's an investment that will pay off for, honestly, the next 10 years or so. It's comparatively easy to take a nice looking mobile app and create some member experience and slap it on top of a fundamentally unwieldy, difficult to navigate, and broken system.

Having built all that from the ground up, I think, yes, took investments, but will pay off I think in many, many ways in the years to come. We were the first ones to launch virtual plan designs where you can pick an Oscar doctor in the cloud-- an Oscar Medical Group doctor in the clouds. Well that cares for you and the downstream care gets discounted as well right in the moment when the doctor tells you, go get a lab test or an imaging test.

Those are the kind of things that we started doing, I think, and that we're very much at the kind of, like, at the absolute front of. And we'll say at the front of. To me there's always been a question of, if the health care system moves more in the direction of how technology markets work-- more innovation, faster flywheel spinning, faster duration, this works, this doesn't work, test this out-- that is what we built the company for. If they remain mired in sort of, like, you know, decade-old contracts and oligopolies and monopolies, local monopolies, you know, that's not the markets that we want to be in.

And I think that's not the market the US health care system should be in as a whole because it didn't work. That got you bad health care cost inflation for the past four decades or so. It's moving in that direction very clearly. You hear everybody else now saying it. We're at the forefront of this. We've got the best stack there, the best member experienced by a mile, and I think that'll be a huge asset going forward.

KRISTIN MYERS: Mario, I want to drill down a little bit more into this tech piece because you're taking on some pretty large insurance companies like Anthem and UnitedHealthcare. How long do you think you'll be able to maintain a bit of this competitive advantage, given the innovation and the tech that you guys have at Oscar Health?

MARIO SCHLOSSER: As long as we have the people to do it, is my short answer there. I don't think that in health care you can build one algorithm, like page rank in Google's case, and sort of ride it out for the next 20 years. I mean, obviously Google's a fantastic company and many other innovations, but that was the original core of it. Health care is a game of inches and there's a ton of different ways. We got to show up every single way in network construction, consumer team management, utilization managements, out-network management and so on.

We have built ourselves an infrastructure where, as long as we have the most dedicated people inside of Oscar-- the ones who love the members the most, the ones who want to show up every single day, have a new idea and want to test it out and, you know, see how far we can get there in a novel way of approaching health care-- I think we'll be in ahead of the curve. It's not a question of level, it's a question of rate of change, I think, for me.

So, I love the discussion that everybody else now thinks they've got to be a technology company in health care because it's the story we've been telling for a while. And I-- again, I do think we're ahead there. The more it moves in the direction of consumerization, virtualization, digitization, and then risk sharing, I think the better. You see this also in the way we partner with other folks in health care, whether it's with insurance companies that we're building plans with, whether it's with innovative health systems, like AdventHealth First, Memorial Holy Cross, Montefiore. Cleveland is the one that we-- health systems we build plans for and with. I think we generally kind of push the envelope there and created models there that I think will be copied and will be imitated and that's fantastic and fine with us.

ANJALEE KHEMLANI: Absolutely looks like some of those partnerships are what people are going after, as well as the technology and being able to sell that service. But talk to me about premiums. I know that that's also sort of a point of contention now that we've seen, you know, the growth in the individual market, but also the competition that you're facing. How are you planning to price around that, especially now with more stability in the ACA?

MARIO SCHLOSSER: Yeah, it's-- look, I think it's a competitive market for the past couple of years already. I mean, it's been shrinking and premiums have been flat, which is, you know, below cost trend, generally, in the markets, that showed that, you know, insurers want to show up and what to get the membership lock are for a few years now. Now it's growing again, which is, I think, fantastic, first and foremost for people getting covered, right? Let's not even start talking about the business this year. Let's make sure that we get 20, 25 million people who are not covered yet in the US into coverage there. I'm glad that's moving that direction. We can show up there and do that.

I think, generally, in the last open enrollment period we saw again that we don't need to price the most competitive-- the lowest. We were only the lowest price in about 10% of our markets in the last open enrollment, and yet we outgrew the market by a factor of four or five or so again, while lowering our medical loss ratio, while lowering our overhead costs as well. A triple whammy is very difficult to get if you're an insurance company. That's because member engagements, because of the brand we have, the NPS we have, and the technology that we have that we can absolutely replicate.

We have so many ideas again for next year in terms of expansions. Benefit designs is the one that we can uniquely put in place that's-- I love the fact that the market's growing, that is getting-- that it's comparative. And I love the fact that people buy us because we're affordable-- more affordable, I think, than many others, have the best experience out there, and selling more than just being the lowest premium in any given year. That's a fleeting indication that, you know, will not always be the case. I'll tell you this. In the 10-- in 10 years from now, I think we'll have contributed to lowering health care costs. And that remains are far end goal and what we do everything for at Oscar.

KRISTIN MYERS: I want to end here, Mario. I want to ask about how you're approaching some of the political headwinds, especially as we have a new administration. President Biden has pledged to reform health care. And, of course, we're still awaiting a Supreme Court decision on the Affordable Care Act. How are you approaching that?

MARIO SCHLOSSER: I'd say with a cool head on the very, very long term. So, you know, we went through a couple of years where, I mean, literally, it wasn't clear to me when I would wake up in the morning whether the ACA was going to still be around, right? The famous John McCain thumbs down late at night.

Oscar always took the hard and the long route. It's a difficult health care system, most difficult segment in the health care system. We always thought, even when the ACA was really under threat, that, first of all, 12 million people covered wouldn't get thrown back on the streets. And that actually never happened, which is I think great to see. And I'm convinced in the long term we're going to individualize this market more and more.

And I do think the new administration has a recommitment about getting more people covered. Subsidization on the stimulus plan, special enrollments growing the market right at this moments. Those are all good indications and tailwinds, now, for the markets and so moving this in the right direction.

So, look, as long as we can get up in the morning at Oscar, and the folks within the company, and say, you know, holy shit, the company's public now. This is a real accomplishment for us and for our members as well. It gives us a chance to keep showing up there every day, get members happy and healthier, I think everything else will fall into place.

KRISTIN MYERS: All right, Oscar Health's CEO Mario Schlosser, Yahoo Finance's Anjalee Khemlani, thank you both for joining us. And Mario, you're going to have to send us some photos from today and some videos of your child ringing that bell. Or rather pushing that button, as you said.

MARIO SCHLOSSER: I will. I will. It was a fun moment. Thanks for having me on.

KRISTIN MYERS: Absolutely. Thanks so much.