Upstarts join New Jersey health insurance market dominated by big three

VIOREL FLORESCU /STAFF PHOTOGRAPHER

For decades, the world of health insurance in New Jersey has been dominated by huge companies with billions of dollars in assets and millions of customers. But later this year, residents who shop for their own insurance will have a choice of two new companies - one launched by young tech entrepreneurs and the other a non-profit cooperative.

The two upstarts are Oscar Insurance, the brainchild of Joshua Kushner, scion of the Kushner real estate fortune, and Health Republic Insurance of New Jersey, conceived by the Freelancers Union, an association of independent workers, and funded with loans from the federal government. If they succeed, they may just goad the traditional behemoths of insurance into a different way of doing business. And by increasing the competition for people who buy their own coverage, they may already be helping to hold down premiums.

Mitsu Yasukawa/ Staff Photographer

'These innovative new entrants are shaking things up for the entire industry,' said Ceci Connolly, managing director of PriceWaterhouseCoopers' Health Research Institute, which recently released a report asking, 'Who will be the [health care] industry's next Amazon.com?'

With millions of new paying customers buying insurance nationwide, thanks to Obamacare, the market is wide open and attractive to both traditional and new insurance carriers. More than half a million people in New Jersey who didn't have insurance obtained it over the last year, according to a recent survey, receiving coverage through the new federal marketplace, the individual market, their jobs or Medicaid.

Oscar and Health Republic are among five companies that will offer insurance in New Jersey starting Nov. 15 through the Affordable Care Act's HealthCare.gov, the shopping site through which 162,000 residents here bought coverage for 2014. The others are Horizon Blue Cross Blue Shield of New Jersey, the state's largest insurer; AmeriHealth of New Jersey, and UnitedHealthcare, the nation's largest insurer. United jumps into New Jersey and two dozen other states with Obamacare plans for the first time this year, but already insures more than 1.6 million people here through Medicare, Medicaid and employer-sponsored plans.

So far, the start-ups have barely made a dent in the New Jersey market.

Health Republic suffered with the disastrous rollout of the HealthCare.gov website a year ago and enrolled just 4,000 New Jersey residents its first year. Oscar, which starts selling in the state in five weeks, has about 17,000 members in New York City and surrounding counties.

Their biggest impact, however, may lie in the way they disrupt business as usual. 'The new players typically are more nimble. They are more consumer-friendly,' Connolly said. 'That is serving as a wake-up call to the entire industry.' They are forcing insurers, who long have dealt with human-resources directors or other big purchasers, to focus on individual customers.

Each will do that somewhat differently: Oscar appeals to digital natives with its smartphone apps and integration of 'tele-health' into all its plans. Health Republic differentiates itself through its non-profit philosophy of membership control.

Subway ads

Oscar brought humor to the staid world of health insurance when it debuted its New York City subway ads last year. 'Get a bright, articulate doctor to call you back without having to join a dating site,' read one. 'Health insurance that won't make your head explode,' read another. 'And if it does, you're covered.'

That message will be coming soon to the Hoboken and Secaucus train stations and the insides of some NJ Transit buses and railcars. Oscar is licensed to sell policies in the state's nine northernmost counties, including Bergen and Passaic. The company's goal is to sell to about 10 percent of the people who buy during the three-month open-enrollment period.

Founded by three friends who graduated from Harvard Business School, Oscar is named after the 29-year-old Kushner's great-grandfather. (Kushner's father, Charles, a New Jersey native, is known for his real estate empire).

Mario Schlosser, 36, a co-CEO, is a computer scientist who founded a Latin American social-gaming company with Joshua Kushner and worked as a consultant at McKinsey & Co. Kevin Nazemi, 33, also a co-CEO, is a veteran of Microsoft's customer relations management division.

The company is built around its technology platforms, which are designed to make health insurance easy for individual consumers to buy and use. Ninety percent of its members have created personal logins to use the insurer's website, said Schlosser. And 90 percent of those completed a health assessment and agreed to have their health history imported into the insurer's data bank, he said - part of an Oscar promotion in which patients receive $10 for answering 10 questions about their health and preferences.

The company focuses on the retail experience - on the one hand, employing customer service staff at their headquarters in New York City's Puck Building to answer callers' questions about health insurance and, on the other hand, streamlining its website so people need spend only 15 minutes to buy insurance.

'I think the advantage we have is that we're fully focused on the individual market,' Schlosser said. 'That's it. That's what we do best - no small groups.' All of their marketing is tailored to people who are making their own decisions about which coverage to buy - not to benefits specialists or small-business owners. They aim their pitch at people who work for themselves, web-using freelancers such as Uber drivers and the errand runners of TaskRabbit.

Oscar also features doctor callbacks (guaranteed within an hour, usually within 10 minutes, said Schlosser) from board-certified doctors licensed in the state where the policy is sold. Notes from the doctor's call appear on a private, Facebook-like timeline for each member that includes details of each interaction with the insurer and the health system.

If medication is prescribed, the site links to drug information. It also guides the prescribing doctor to in-network pharmacies mapped out like a restaurant app around the member's location. For parents with small children, the ability to get a pediatrician on the phone in the middle of the night is welcome, Schlosser said, from firsthand experience, and he believes it will end up reducing insurance costs by cutting down on unnecessary ER or doctor visits.

Members in New Jersey will be able to use the network of nearly all of the state's acute-care hospitals and 24,000 physicians managed by QualCare, a Piscataway-based company that was founded in 1991 by some of the state's hospitals to insure their own employees. The hospitals will be grouped into different tiers, with a higher level of coverage for selected 'tier one' hospitals. Details of those selections are not yet final, a spokeswoman said.

A few insurance brokers interviewed said they were unfamiliar with Oscar, and not sure of the need for it, particularly because the QualCare network is also used by Health Republic.

'I think they will attract the younger crowd,' said Jeffrey Ingalls, a partner at Stratford Financial Group, a benefits consulting firm, 'the people who would rather text than call. If you're 55 and in cancer treatment, is it right for you?'

Poonam Alaigh, a former New Jersey commissioner of health, is a medical director and consultant to Oscar for clinical management in New Jersey. She said the company aims 'to demystify health insurance using technology. ... They've brought together all the key elements of what we need to do to bring change in health insurance and the health-care delivery system.'

The company received its New Jersey license on Aug. 18, and has capital reserves in New Jersey of $3.5 million, a spokes­woman said. Oscar has received investments of $155 million from Kushner's firm, Thrive Capital, and various other venture capital firms, including Khosla Ventures and the Founders Fund.

Non-profit experiment

Health Republic, in contrast, received its start-up funds from the federal government.

Tucked into the massive federal health-reform law was a provision that aimed to create non-profit competitors to the big for-profit companies that dominated the insurance industry. In Western states, co-ops provide electricity and water services. The Affordable Care Act essentially funded an experiment to see if the same principles would work in health care.

'It's historic,' said Dr. Ed Anselm, Health Republic's medical director. 'We change the dynamic. Recognizing we do everything health plans do, people want to join us to be part of the process of changing health care.'

Across the country, these new non-profit plans enrolled 400,000 people for 2014, and were the biggest sellers on the exchanges in New York and Maine. In the coming year, they'll offer coverage in 26 states.

Health Republic - which operates plans in New Jersey, New York and Oregon - was the idea of the Freelancers Union, an association of 246,000 independent workers nationwide who develop solutions to common concerns such as health insurance and retirement security, and its founder, MacArthur Fellow Sara Horowitz. The New Jersey plan received $13 million in start-up loans and $94 million in solvency loans, repayable over a 20-year period starting in 2019.

'We're the only true not-for-profit [insurance] company in the state,' said James A. Martin, its chief executive officer, in an interview at its Newark office.

What that means in practice is that the law requires surpluses to be returned to members. In the future, Martin said, a board dominated by members of the cooperative will decide how to spend the company's operating surplus. 'We can either return some of that premium to members,' he said. 'Or we can expand our offerings. Should we cover some of the non-traditional aspects of medicine that are very popular with people?' he added, joking that he'd like to issue Fitbits to every member. 'They will vote on how to do this.'

The first consumer board member will be elected from Health Republic's membership this year, and within three years, five of the nine board members will be consumers, he said.

First, however, the company needs enough customers to generate a surplus.

So far, they've had a tough road. For a start-up with no name recognition, the technical problems with HealthCare.gov were challenging. The marketing the company could do was limited by the terms of its federal loan. In addition, company executives said they were surprised to see their prices undercut by competitors whose premiums were based on coverage through a narrow network of hospitals and doctors. All of Health Republic's customers had access to all of the hospitals and doctors in QualCare's network, which encompassed nearly every hospital in the state, said Cynthia Jay, the company's marketing director. And that attracted patients who expected to take advantage of the full network's health services.

This year, the company plans to offer new types of plans - some with enhanced coverage for using selected providers - and also move aggressively into the small business market.

In response to member feedback, the company has added 'wrap-around coverage,' to enable patients to see doctors in neighboring states, and eliminated the need for a referral from a primary-care doctor before seeing a specialist. All members will get a 24/7 telemedicine benefit, allowing them to call a board-certified in-state doctor with medical questions. A check with the state Insurance Department showed that no member complaints have been filed against them.

Those adjustments, said Jay, illustrate the co-op philosophy. 'One of the things we pride ourselves on is customer service and listening. We get back to people quite quickly. We hear what they're saying.' She adds: 'There's a huge humanistic element to health care. There's a doctor-patient relationship that you can't discard through mobile apps.'

President Obama's health law has created millions of new customers for the insurance industry, giving 'opportunities for traditional players to grow and for new entrants to come in and get a piece of the action,' said Connolly, of PriceWaterhouseCoopers.

Over the next four months, the competition will play out in face-to-face marketing, such as Horizon's walk-in center in Moorestown and its mobile enrollment van; in mass transit campaigns; billboards; print ads, and digital marketing.

Longtime players point to their track records and brand identity: 'Our focus is on the needs of our more than 3.7 million members, not our competitors,' Horizon spokesman Thomas Vincz said. 'We have the largest network of patient-centered doctor practices in the state.'

Whether the new start-ups survive in a business based on risk remains to be seen. The changes they bring - in marketing, customer service and data transparency - also are just beginning to unfold.

Email: washburn@northjersey.com