Friday, April 9, 2010
ODS boosts revenue and members; profits next
Insurer becomes a major player after expanding ,into traditional health plans
Portland Business Journal - by Courtney Sherwood Business Journal staff writer
In less than two years, The ODS Cos. has quietly hired 350 workers, boosted revenue more than 50 percent, and added more than 100,000 members. Now the Portland-based health insurance company, which just completed a $30 million investment in new technology, expects profits to grow as well.
Its $84 million 2009 profit was down about 8 percent from the year before. Revenue over the same period, however, climbed 45 percent to $1.6 billion, said controller Dave Evans.
CEO Robert Gootee attributed the lower profit to higher-than-expected medical claims and to spending on infrastructure.
That spending, largely on new technology, is now coming to an end.
And as ODS adjusts its underwriting to better align with claims, profits should swell.
New underwriting standards will likely mean rate increases for some ODS members, but Gootee said rates will not go up across the board.
Though best-known for its dental plans, ODS has become a major player in the health insurance business.
In addition to being a major provider of self-insured medical benefits to large employers, it’s increasingly offering more traditional health insurance plans.
ODS doubled to 12,000 the number of people in its individual insurance program last year.
It now provides medical benefits to 264,810 people.
A 2008 bid to provide pharmacy benefits for uninsured and under-insured Oregonians also significantly boosted ODS’ pharmacy membership by 100,000 in the past year, to 626,090.
Rod Cruickshank, president of The Partners Group, a Portland benefits consultant, applauded ODS for its continued efforts to grow and diversify.
“They are not a one-trick pony,” Cruickshank said. “When they go and expand a business, they’ve thought it through.”
Yet the insurer’s successful bid to insure Oregon school district employees has generated some criticism.
The school employees’ contract, awarded by the Oregon Employers Benefit Board in 2008, placed ODS alongside Providence Health Plan and Kaiser Permanente as the insurance choices available to roughly 160,000 employees and retirees in Oregon’s 217 school districts.
The program brought 96,000 people to ODS’ rolls in late 2008, and about 35,000 more in 2009, spurring a number of one-time administrative expenses. Those costs will be recouped over the life of the four-year contract, Gootee said.
More importantly, ODS underestimated the number of medical claims that school employees would make, contributing to a $20 million underwriting loss across the teachers contract and similar insurance plans in the same business segment.
Under terms of the Oregon Employers Benefit Board contract, ODS will have to absorb that miscalculation for 2009, but will be able to adjust 2010 rates upwards to cover higher anticipated costs.
Higher-than-average expenses and underwriting losses are both common in the first year of new contracts, Cruickshank said.
Rates are adjusted by groups under state law, so an underwriting loss in one group will not affect what ODS charges other clients.
Gootee said that the Oregon Employers Benefit Board contract was “tremendous and wonderful” for ODS, despite the scrutiny it has brought to the insurer.
Roughly 80 percent of the health plans that ODS administers are for large self-insured employers. It collects a fee for running these programs, but the employers pay the actual costs of care.
“If you’re in the self-insured business, you’re not in the risk business at all,” Cruickshank said.
But underwriting traditional policies, such as the Oregon Employers Benefit Board, brings risk into the equation. Insurers must estimate how much care their members will demand, and if the estimates are off they risk a loss.
As ODS continues to grow, it will increasingly have to grapple with those risks — but that’s the business, Cruickshank said.
“Just because you have a loss on one book of business doesn’t mean you won’t recover from it.”
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