With new parts of the Patient Protection and Affordable Care Act (aka Obamacare) going into effect next year, Thrive Capital’s Josh Kushner is betting that health insurance — an area long considered off-limits to tech entrepreneurs because of its legal and political complexities — is finally ripe for change.
Kushner, whose venture fund Thrive Capital has $200 million under management with bets in Instagram, Nasty Gal and Warby Parker, has amassed a team to revolutionize health insurance through a new stealth startup called Oscar.
While the company isn’t sharing details about the product yet or even talking publicly, you can bet that its health insurance offering will likely have a more customer-friendly experience that is transparent about costs. The startup is actually licensed as a health insurance operator in the state of New York, so it isn’t some kind of front-end for existing providers, sources tell us. It will have its own plans so it can offer something truly differentiated. The company launches later this fall and it will only be for New Yorkers at first.
Here’s the landscape: next year, some very key parts of the Patient Protection and Affordable Care Act go into effect. There will be an individual mandate, where consumers will be required to have coverage or pay a penalty. New health insurances exchanges are being established where consumers can compare and contrast different plans. Then there are also subsidies provided for those near the poverty line who can’t afford coverage.
This is already having a profound effect on health care insurance costs. New York state insurance regulators say rates approved for next year, are at least 50 percent lower on average than this year’s rates, according to The New York Times.
What that means is that there is a fresh market opportunity for new health insurance providers, especially ones that offer exceptionally good customer service, design, marketing and leverage big data.
Kushner put together a team including his old Vostu co-founder Mario Schlosser, a Harvard Business School classmate Kevin Nazemi who oversaw marketing for Microsoft’s CRM programs and Fredrik Nylander, who ran engineering and operations and Tumblr.
On the company’s board is Charlie Baker, who ran insurer Harvard Pilgrim out of Massachusetts, the only state with an insurance exchange before the Affordable Care Act was passed. The company also includes other long-time health care executives, who have at least a collective 250 years of experience working in health insurance between them.
Oscar raised $40 million from investors including Thrive (naturally), Founders Fund, General Catalyst and Khosla Ventures. Founders Fund and Khosla are both very active in the health and medical space, so their participation is no surprise here.
While Oscar’s initial funding round sounds like a lot of capital, $29 million of that round is kept in reserve because of state regulations for health insurance providers.
So only $11 million of the company’s funding is actually earmarked for operations. While working on Oscar, Kushner is going to simultaneously continue running Thrive.