Insurance in the U.S. is Broken. Oscar Wants to Fix It
It's not every day that a startup looking to disrupt one of the most change-resistant industries in the country manages to raise $150 million less than five months postlaunch. And yet that's exactly what fledgling venture capitalist Josh Kushner has done. Whereas his own firm, Thrive Capital, has invested in such Internet darlings as Instagram, NastyGal, Fab, GroupMe, and Spotify, Kushner has directed his own entrepreneurial aspirations to the wildly unsexy insurance industry. His health insurance company, Oscar, is to Aetna and United Healthcare what Amazon is to Sears. At least he hopes so.
Kushner, the son of real estate mogul Charles Kushner, first set his sights on finance while at Harvard "because that's what people did in 2008." But when Vostu, a social gaming company that he started in college, became highly successful in Latin America, his eyes lit up. He began investing in startups through his private equity job at Goldman Sachs and then started his own venture capital firm, Thrive, when he was just 25. The Princeton Endowment gave him his first $10 million, and he was off to the races. To date, Thrive has raised a quarter of a billion dollars.
You'd think a guy as accomplished as Kushner, now 29, would be able to make sense of an EOB, the abbreviation for explanation of benefits, or the document that your insurance company sends you after a doctor's visit. But you'd be wrong. "I had no idea what it meant," says Kushner. "I'm overeducated, I run a growing business, and I didn't know what my benefits were, how to file a claim, and the list goes on," he recalls. "At same time I was working with all of these entrepreneurs using technology to transform industries." And so the light bulb went on.
Joel Cutler of General Catalyst Partners, a friend of Kushner's and an investor in Vostu and, subsequently, Oscar, recalls first hearing Kushner talk about his idea in 2012. "He had a huge frustration with trying to figure out his health care bill, and he had a macro fascination with the Affordable Care Act," recalls Cutler. "But very few people can take a frustration they have with an incumbent industry, think about how to apply technology to it in a different way, and then do it. That's the special sauce."
Kushner's first step, toward the end of 2012, was to bring on two friends as co-founders. Mario Schlosser, now 35, a computer scientist from global consulting firm McKinsey & Co., and Kevin Nazemi, 32, a former director of health care at Microsoft, would help build the platform. "From a technology perspective, we wanted to create something that is similar to having a doctor in the family," says Kushner.
How is Oscar different? Named for Kushner's great-grandfather, Oscar features a care router, which allows users to type in, for example, "my lower back hurts." Patients are then routed to the correct kind of doctor and told how much a consultation will cost. Members also get unlimited free calls with physicians, a guarantee that calls will be returned within seven minutes, and free generic drugs. For Kushner, the goal was to create an insurance company that not only would make patient engagement easier but also enjoyable and more transparent.
With $40 million in initial capital from Khosla Ventures, General Catalyst, and others, Kushner and his team incubated Oscar within Thrive and had a finished product in October of last year, in time to start accepting enrollments on the New York Health Insurance Exchange (the marketplace for health insurance under the Affordable Care Act). The company was hoping for 7,500 enrollments; it got 16,000.
For now, Oscar operates only in New York and is focused on enrolling individuals, not companies. “It would be easy to start focusing on growth before we’re ready, because the market is so big,” says Kushner. “But slow and steady wins the race. As soon as we feel we have the right approach, we’ll step on the pedal.”
It’s hard to believe that won’t happen sooner rather than later. In May, Oscar landed another $80 million in Series A investment, bringing total investment to $150 million and the company’s valuation to $800 million. Is it an overblown valuation? “My prediction is that this is just a fraction of what the company will ultimately be worth,” says Cutler from General Catalyst Partners.
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DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.