Tech: Google Bets on Insurance Startup Oscar Health

Assurance startup Oscar Health Insurance Corp. has a powerful new ally in its costly battle to win customers from entrenched insurance giants like UnitedHealth Group Inc. and Anthem Inc.

Google Capital, the Internet Company’s growth-equity fund, has invested $32.5 million in Oscar, the startup said in an interview. The deal values two-year-old Oscar at $1.75 billion, up from a valuation of $1.5 billion when it last took funding in April, said a person familiar with the transaction.

Mr. Oscar has amassed a considerable war chest of more than $350 million in its bid to use data and technology to make the insurance business work more like an Internet service. More than 40,000 patients have signed up in New York and New Jersey, Oscar’s first and only markets so far, and the company plans to open its service to users in California and Texas at the beginning of next year.

Mr. Mario Schlosser, who co-founded Oscar in 2012, said part of his goal is to help fuel the adoption of new healthcare technologies developed by other companies. Google, whose Life Sciences arm is developing a contact lens that monitors glucose levels from human tears, could eventually work with Oscar to distribute these types of new medical products to patients, Mr. Schlosser said.

“Google right now would need somebody to get these contact lenses to their patients and that somebody would have to have some economic incentive,” Mr. Schlosser said. “We can connect all those dots.”

Oscar signs up clients through online connections which were created by the 2010 Affordable Care Act. Unlike most large insurance providers, Oscar is focused on signing up individuals, rather than employers. The average customer pays $5,000 per year.

Departing after consumers directly is a costly and demanding policy for Oscar, because it means the startup will have to prove it can offer prices that are competitive with established insurance giants, said Gary Klaxton, vice president at the Kaiser Family Foundation.

“You can generally get better discounts [from healthcare providers] if you have a lot of enrollment, and if you’re new you don’t have a lot of enrollment,” Mr. Klaxton said. “That might mean you have to sustain some losses while you try to build enough market share.”

A few of Oscar’s cash is already going toward covering its losses, which total $27.5 million in 2014, the company said in an estimate it provided to New York’s insurance regulator. It that filing, it said last year’s revenue was $56.9 million.