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Fast-growing insurance startup Oscar Health is taking insurer Florida Blue, a licensee of the Blue Cross Blue Shield Association, to court over its exclusive policy agreements with brokers.
The New York-based company claims that the practice, which refers to pressuring local insurance brokers from selling plans other than those of Florida Blue, is anti-competitive and reduces customer choice, a major rationale behind the development of the ACA individual insurance marketplace.
Oscar Health was started in 2012 and is one of a crop of heavy capitalized insurance startups looking to disrupt the traditional payer industry. The company has raised $1.3 billion in funding, including a $375 million cash infusion from Google parent company Alphabet earlier this year.
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The company currently serves around 250,000 members in Ohio, Texas, New Jersey, Tennessee, California and New York through mainly individual health plans. In 2019, Oscar plans to offer its individual marketplace coverage to three new states: Arizona, Michigan and Florida.
Jacksonville-based Florida Blue is one of the largest insurers in the state, serving around 75 percent of the individual market plans across Florida, with a particularly high preponderance in the Orlando metropolitan area.
In 2018, roughly 1.75 million Florida residents purchased individual ACA plans, the most out of any state in the country, representing a major market opportunity for an upstart insurer like Oscar.
Oscar, which plans to start selling its plans in Orlando in 2019, says in the lawsuit that consumers are being blocked from purchasing cheaper and more feature-rich plans because of a policy that means brokers who sell Florida Blue plans are prohibited from selling other plans.
“Florida Blue wrongfully uses its monopoly power to compel brokers to sell only
its plans when industry standards require independent brokers to find the best options for consumers’ needs,” the lawsuit states.
The lawsuit goes on to claim that when Florida Blue learned of Oscar’s entry into the Orlando market, the company contacted brokers contracted by Oscar to threaten them with “permanent termination.”
Therefore, according to Oscar alleges, a broker who decided to sell Oscar plans in Orlando would be ineligible to sell Florida Blue plans across the state. So far, according to the lawsuit, more than 190 brokers contracted by Oscar have backed out of their agreements. That, in addition to the timing immediately prior to the state’s open enrollment period, have “substantially” lowered Oscar’s sales.
“In total, only about a quarter of the local brokers in the Orlando metro area, and very few of the brokers with the type of large client bases necessary for success, have been appointed by Oscar, which is far fewer appointed than in other markets Oscar has entered,” the lawsuit states.
Additionally the lawsuit states that Florida Blue blocks out-of-state brokers from selling its plans which serves to “preserve Florida Blue’s monopoly from disruption.”
By blocking the amount of plans it can sell in its initial Florida markets, Oscar claims that its efforts to expand across the state, which requires building provider networks and signing broker agreements, have been significantly damaged.
“The fact that Florida Blue plans are not the most affordable option this year makes its restrictions on Orlando brokers even more egregious. Orlando brokers should be allowed to operate as brokers do in every other market — representing all available plans and advising their clients accordingly. Oscar is committed to consumer choice and refuses to stand by as Florida Blue enforces this anti-consumer, anti-competitive policy” wrote Oscar Chief Policy and Strategy Officer Joel Klein in a blog post explaining the legal action.
Florida Blue has responded by emphasizing brokers’ status as independent contractors with free choice of carriers and pointed to the fact that exclusive arrangements have been widely used in the insurance industry for years by companies like State Farm, Nationwide, Farmers, as well as Florida Blue.
“There is also nothing about the Florida market which precludes any competitor — let alone a New York-based company with financial backing from Google and operations in nine states — from building an effective distribution channel. There are many agencies available that are not contracted with Florida Blue, and there are also other distribution channels from which they can sell their products,” Florida Blue spokeswoman Christie DeNave said in a statement.
“When you see that the Florida Department of Financial Services website shows that the New York company has 1,600 appointed agents in Florida, you can’t help but wonder why that is not enough and they have chosen to resort to a Plan C, for Courts, now that Open Enrollment is underway.”
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