Obamacare startup Oscar racks up $45-million 3Q Loss; Trump’s healthcare agenda meddling with in-law’s $2.7-billion bet

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Oscar Insurance Corp. (New York City), the Silicon Valley-backed healthcare startup, continued to lose tens of millions of dollars in the third quarter as the company exits some markets and works to diversify away from of its Obamacare business.

@OscarHealth losses money, exits some markets, and diversifies away from #Obamacare business Click To Tweet

The company sells health insurance to individuals in new markets set up by the Affordable Care Act, according to Bloomberg. Its attempt to reinvent the insurance business has been marked by large losses–in the third quarter, closely held Oscar lost $45 million in New York, Texas and California, according to filings with regulators. That follows losses of $83 million in those states during the first six months of this year.

Even before the win by President-elect Donald Trump, who has promised to repeal or amend Obamacare, Oscar was working to expand the types of insurance it sells while exiting some markets.

About two-thirds of the losses this year are related to Oscar building out its business and technology, including setting up a network of hospitals and doctors in New York, and preparing to sell insurance to small companies. The rest of the losses stem from high medical costs, said a person familiar with the startup’s finances and who asked not to be identified because the details aren’t public.

“From the start, Oscar’s mission was to build an end-to-end healthcare system that is designed to put the needs of consumers first,” Anne Espiritu, an Oscar spokeswoman, said in a statement. “Our commitment has required meaningful, upfront investments as we put the necessary building blocks in place that position Oscar for long-term success.”

Trump’s election could be a negative for the insurer. The Republican has promised to repeal and replace the Affordable Care Act, though he’s softened that stance since his victory. The uncertainty could discourage some people from signing up for health plans, or Republicans could eliminate or reduce the tax subsidies in the law that are used to help pay for coverage.

“We anticipate that fundamental components of the future of health care will include consumer choice and competition in the marketplace, and Oscar, which has done significant pioneering work in the space, will continue to pave the way,” Espiritu said.

Oscar is on track to post a bigger net loss this year than in 2015, when the insurer lost about $105 million. The year-to-date loss doesn’t include results from New Jersey, which doesn’t make quarterly filings public. In the third quarter of 2016, the company lost $26.7 million in New York, $13.5 million in Texas, and $4.7 million in California, according to the filings.

Oscar also wants to start selling health coverage to small businesses by the middle of next year, and move into selling policies to larger companies. That could help mitigate damage from the Affordable Care Act, which is mostly focused on insurance sold to individuals.

Oscar is backed by venture capital firms including Josh Kushner’s Thrive Capital (New York City), Founders Fund (San Francisco) and GV, which is Alphabet Inc.’s (Mountain View CA) venture capital arm.

The company, with its cartoon ads on New York subways and consumer-focused approach, has run into many of the same problems that have forced bigger, more experienced rivals like UnitedHealth Group Inc. and Aetna Inc. to scale back from the Affordable Care Act’s exchanges.

Steve’s Take:

Jared Kushner, the 35-year-old husband of Ivanka Trump and confidant to his father-in-law, President-elect Donald Trump, has been gaining more and more publicity, starting with the Republican primaries, way back on February 1. That was when Mr. Trump added his name to the other 17 Republican presidential hopefuls. Some thought it a joke at the time; a publicity stunt having to do more with cultivating his television career.

That was then.

Fast-forward to now.

It’s quite possible no presidential son-in-law has ever been more in the spotlight than Jared Kushner. He was Donald Trump’s “de facto campaign manager” and helps run the executive committee of Trump’s riotous transition team, says Stat News correspondent, Dom Smith. And rumors are swirling that Trump’s team is trying to get him top-secret security clearance so he can attend the official presidential daily briefings.

But not so well known is that Jared Kushner’s younger brother, Joshua Kushner, is the co-founder of the startup Oscar Insurance, created to capitalize on the promise of the Affordable Care Act–which Mr. Trump has vowed to move quickly to dismantle.

Josh Kushner is not some ordinary, graying health insurance executive. A 31-year-old venture capitalist on the fast track, he’s been called “a modern day Vanderbilt,” “the boy wonder VC,” and “your mother’s dream man,” Smith points out.

He’s dating the supermodel Karlie Kloss, who’s perhaps best known as Taylor Swift’s best friend, and who posted a photo of herself on Instagram voting for Hillary Clinton, with the hashtag #ImWithHer.” (Josh Kushner reportedly didn’t vote for Trump either.)

If that’s not thorny enough, Josh Kushner counts Peter Thiel, the contrarian Silicon Valley venture capitalist, among his most loyal investors. Through his Founders Fund, Thiel has invested millions in both Josh Kushner’s health insurance startup and his venture firm. No wallflower, Thiel donated to Trump’s campaign, spoke at the Republican National Convention–and now sits alongside Jared Kushner on the executive committee of Trump’s transition team.

Meanwhile, Kushner’s Oscar Insurance is bracing for major insurance market disruptions. Mr. Trump has consistently pledged to repeal and/or dismantle Obamacare. Well, mostly; he’s recently been tap dancing around whether he’d do away with some–not all–of the law’s more popular features.

But the uncertainty surrounding President Obama’s signature domestic achievement under a Trump presidency and GOP-controlled Congress is already forcing insurance companies–including the tech-oriented Oscar, co-founded by Josh Kushner–to prepare for disorder at a minimum, and potentially complete chaos.

Oscar Health, a New York-based health insurance unknown, is endeavoring to streamline how people sign up for individual insurance plans and navigate the convoluted American health system with the help of digital apps. The company’s fortunes have been a hodgepodge during its budding years (despite a recent $2.7 billion valuation), which have generated massive financial losses that led Oscar to slash its medical provider network and hike premiums for 2017.

Sy Mukherjee at Fortune writes that a new blog post by Kushner and his Oscar co-founder CEO Mario Schlosser highlights the difficulties that their company, and others like it, may face in the aftermath of significant changes to the ACA, let alone its total repeal.

“Though the precise nature of these changes has not yet been determined, we believe it is important to set forth Oscar’s observations on the healthcare landscape. What will never change is this: Oscar believes that all Americans deserve healthcare coverage that is high-quality and affordable for everyone,” they wrote, adding that, “[in] introducing the first US healthcare market that incentivized a consumer-focused mindset and drove competition, the Affordable Care Act (ACA) undoubtedly helped us get off the ground.”

The two venture capitalists note that the unpredictability has persisted in Obamacare’s early years since insurance companies have been playing a guessing game as to who their customers would be and clearly underestimated just how many health services they would use.

But their implication is that the market would have eventually figured out how to deal with the initial rockiness, and that tweaks to Obamacare’s legitimate administrative problems could have helped that effort. They also pointed out that political grandstanding may have fostered these very issues in the first place.

Yikes! That’s calling it like it is.

Trump and the GOP may very well keep major aspects of the health law. But it’s an open question whether or not the statewide individual marketplaces where firms like Oscar operate will continue to persist, presenting major challenges for the new companies trying to capitalize on Obamacare.

It’s unclear whether the Affordable Care Act will be slightly fine-tuned or repealed and replaced with something unidentifiable. Since a large part of Oscar Health’s business still hinges on the law, its fortunes will be shaped, in part, by the Trump administration’s decisions on the ACA.

It remains to be seen whether Josh Kushner has or will seek his big brother’s ear when it comes to reforming the law that made his business possible. It also remains to be seen whether Mr. Trump’s apparent intention to bring family members into his new administration will sit well with the general public and Congress.

Appointees and nominees to key government jobs such as Steve Bannon, Lt. Gen. Michael Flynn, Rudy Giuliani, Jeff Sessions and Mike Pompeo reflect Mr. Trump’s predilection for loyalty. That, of course, is his prerogative. And he deserves his chance to govern his way.

Federal data released last Wednesday show that the first 12 days of this year’s enrollment is outpacing last year’s comparable period. In addition, the pace of enrollment has picked up considerably since Trump’s election. This comes as a surprise to many, including yours truly.

Is it possible that the same market forces that shaped a wobbly Medicare program in its budding years into the success it is today are remaking Obamacare into the parallel program envisioned by its framers, insurers and intended beneficiaries?

Steve's Take: It gets harder by the day for @realDonaldTrump to repeal #Obamacare Click To Tweet

As each day goes by, Mr. Trump’s promise to repeal and replace Obamacare is getting increasingly problematic, politically, personally, and actually. Welcome to the Oval Office.

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