Health insurance startup Oscar slashes commissions
The move came amid mounting losses. The startup was $41.5 million in the red through September.
By Jonathan LaMantia, Crain’s New York Business | December 3, 2015
Oscar became the most recent health insurer to slash the commissions it pays to brokers. The Manhattan startup last month sent a letter notifying brokers that rates would be more than halved starting in February.
Oscar had planned to pay brokers $14 per contract each month for individual subscribers and up to $26 for enrolled families. Instead, all policies Oscar received after Nov. 6 will generate only $6 a contract per month regardless number of people in the plan, according to the letter.
Many former enrollees of collapsed insurer Health Republic of New York have turned to Oscar. Its growing market share only compounds the squeeze on commissions for brokers. Jason Samel, owner of JayMar Insurance Agency in Glen Cove, Long Island, said that out of several hundred people he helped sign up for health coverage, about 80% chose Oscar, including many former Health Republic members.
“For [Oscar] to turn around just after open enrollment began, it has killed me,” he said.
The announcement came as Oscar reported a $41.5 million loss through the first three quarters of 2015—more than double its loss during the same period last year, according to financial statements filed to regulators. Oscar doubled its revenue ($83.8 million) and New York membership (34,000), but expenses for hospital and medical benefits and drugs nearly tripled, to $117.2 million. Oscar lost $27.5 million in 2014.
The insurer blamed the broker-fee cut on volatility in the insurance market.
“We recognize this will add to your challenges at an already difficult time,” Oscar wrote to brokers. “Given the unprecedented circumstances in the market, this change is necessary to ensure we are able to grow our business in a controlled manner and can continue to offer a great experience to all of our members.”
Oscar isn’t the only insurer to slash brokers’ commissions. UnitedHealthcare cut them to $10 per contract per month from $15 for plans sold on the exchange, as well as for Oxford off-exchange plans. For small-group plans, Oxford raised commissions to 3.25% of monthly premiums, from 3%.
The healthcare exchanges have led to a diminished role for brokers in signing up the small portion of individuals who obtain insurance on their own rather than through their employer. During the second year of open enrollment, which ended last February, just 4% of the 2.1 million people who bought plans or enrolled in Medicaid did so through a broker. That’s down from 5.9% a year earlier. Many New Yorkers signed up through the state’s website without assistance or used certification application counselors, typically healthcare provider staff or volunteers who assisted with enrollment.
Such changes have led Richard Varney Jr., owner of Insurance Suffolk in Amityville, Long Island, to reconsider his business model.
“I’m now really gearing more toward the small-group space. I’m going to put less of my time in the individual market,” he said.
“Oscar slashes commissions amid turmoil in health insurance market”originally appeared on the website of Crain’s New York Business.