ODS Health Plan Loses $38 million on OEBB Contract
The health insurer recouped that loss after receiving $20 million from its re-insurer and an $18 million loan from OEA Choice Welfare Benefit Trust.
The insurer lost $38 million during the first of its four-year contract with the Oregon Educators Benefit Board, according to state documents obtained by The Lund Report.
ODS was able to recoup part of that loss -- $20 million – through a reinsurance arrangement, and was given an $18 million loan from OEA Choice Welfare Benefit Trust, which must be repaid by June 30, 2012 at a 6 percent interest rate.
At the same time, ODS secured another $5 million from OEA Choice Trust at the same interest rate. The dental plan run by ODS, which also insures Oregon teachers, did not suffer similar losses.
This matter came to light when the Oregon Insurance Division began reviewing the financial position of ODS. “We saw a footnote explaining the company’s $38 million loss at the end of the first year of its contract with a government benefit trust,” said Cheryl Martinis, public information officer. “In follow-up conversations, we learned this was the Oregon Educators Benefits Board. Those follow-up conversations involved a technical issue of how the company reported this loss.”
Despite the $38 million loss, Martinis said, “we’re confident that ODS can pay their claims.”
In conversations with Insurance Division officials, Joan Kapowich, administrator of OEBB, told the board on March 11, “Overall all of our carriers are in fine financial shape.”
Before ODS was awarded the major contract by OEBB, two other insurers were rejected -- Regence BlueCross BlueShield and PacificSource. Both Kaiser Permanente and Providence Health Plans have insurance contracts with the board, and have not reported any losses.
During the 2009-10 plan year, ODS is estimated to receive $461,679,403 for its medical/pharmacy premium. However, ODS officials estimated that the “deficit may increase in the second year of the contract,” adding that “rate increases will be assessed in the third and fourth year of the contract to restore the account to a positive balance,” according to documents filed with the Insurance Division.
“We are one of several carriers competing for OEBB membership,” Jonathan Nicholas, vice president of ODS, told The Lund Report. “As such, our costs must be competitive for us to retain our membership on this important account. OEBB and its consultants thoroughly review our rate requests to determine their appropriateness based on the risk we are incurring.”
“Unfortunately, the current environment is one of continued cost increases caused by higher utilization of healthcare services,” Nicholas continued. “When we are able, we try to make sure rates are adequate to cover these increasing costs. It is not always possible, however, to predict future levels of healthcare utilization, and we may or may not be able to recover past or potential future losses.”
Nicholas blamed “extraordinary levels of healthcare utilization across most of our lines of business” for the $38 million loss. “This caused underwriting results in the first year of the OEBB contract to be less favorable than either ODS or OEBB desired. It is not uncommon for a new group to have less favorable underwriting in its first year and, considering the economic uncertainties faced by Oregonians over the last year, OEBB has actually performed quite well.”
When asked if ODS underbid the OEBB contract, he said: “The costs of all large healthcare purchaser accounts, including OEBB, are driven primarily by the rate of healthcare utilization. No, ODS did not ‘underbid’ the OEBB contract.”
Nicholas would not comment on whether the company’s re-insurer had raised its rates after having to pay $20 million to help recoup the losses. “We do not disclose details of our relationships with our reinsurers,” he said.
ODS also will not charge other groups higher rates to compensate for those losses, he insisted, saying, "Of course not!"
For More Information
For more about the high-level summaries of all OEBB plan designs click here.
To review the recommendations by Watson Wyatt on April 24, 2008, which led to the contract being awarded to ODS, click here.
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From Scott Haas, VP Wells Fargo Insurance Services
If my memory is accurate, Aon projected that the creation of OEBB would save taxpayers in excess of $100,000,000. Those of us who knew of what was being orchestrated at that point in time knew this was a crock. Now look at what has happened. Not only is ODS in jeopardy, the taxpayers of this state will pick up the tab of the politics related to Kulongoski's promises to the OEA for which he had no skin in the game. I really hope everyone is happy with what they got. Let's just hope that the national landscape does not follow suit.
Diane, thanks for finally lifting up the covers on OEBB! Remember what they told school districts that this arrangement ( SB 426) would "put more money in the classroom?" I don't think many school districts are seeing more money in their classrooms--looks like the teachers' union trust is helping to cover the losses! Conflict of interest? I wonder what teachers think about this? Especially since they will see double digit insurance cost increases this coming year and their benefits will look very different in October 2010 than they do this year. Hopefully, OEBB members will take action and pay attention when rates and benefit changes are discussed at the April OEBB board meeting--