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The Next Trend: Consumer-Driven Dental?

No doubt you’ve heard the buzz about consumer-driven health plans (CDHPs), which seek to control employers’ healthcare costs by giving consumers “skin in the game.” With the cost of providing dental benefits increasing, can consumer-driven dental plans be far behind? 

More than medical plans, dental plan enrollment tends to go up and down with economic conditions, probably because dental plans are more likely than medical plans to be partially or fully employee-paid. There is good news, however—in 2010, the number of people enrolled in dental plans increased 4.5 percent, after dropping in both 2008 and 2009, reported the National Association of Dental Plans (NADP). (2011 figures were not available at publication time.) 

Today, most employers that offer dental benefits offer standalone plans. The NADP’s 2011 survey found that 98 percent of dental benefits are provided under a separate policy, and PPO plans represent 74 percent of all group dental plans. Although PPO plans aim to control expenses by providing higher reimbursements for care given by network providers, costs are still increasing faster than the general rate of inflation. 

To control the costs of an insured dental plan, employers have a couple of options: 

  • Switch to a lower-cost plan. Options include decreasing the annual maximum; limiting benefits, such as covering preventive and basic care only; decreasing annual maximum benefits; and switching to a plan that pays benefits according to a schedule, rather than a percentage of “reasonable and customary” charges. Negatives: Employees will likely see this as a takeaway; some might not understand the changes in their dental benefit plan until they get a higher-than-expected bill for dental services; and lower (or no) reimbursements for costly services such as root canals and periodontal (gum) treatments might dissuade employees who need these treatments from getting them.  
  • Maintain your level of coverage but have employees shoulder a larger portion of costs. Options include increasing employees’ share of premiums, increasing copayment percentages and switching to an entirely employee-paid (voluntary) plan. Negatives: Cost increases could prompt some employees to drop coverage, bringing your group below the insurer’s participation requirements. Most employer-paid fully insured dental plans require a minimum of 75 percent of eligible employees to participate. Voluntary plans typically have much lower participation requirements, as low as 25 percent of eligible employees. 

Direct Reimbursement Plans 

A direct reimbursement (DR) plan gives employers greater control over their dental benefit program than an insured plan. With a direct reimbursement plan, the employer determines how much it will spend per employee per year. Employees can go to any dentist they choose and pay their bills. They then submit the expense for reimbursement, which they receive free of income taxes for dental expenses that meet the IRS definition of a qualified medical expense. (This generally excludes any treatments made for purely cosmetic reasons.) 

Unlike insured plans, whose rates depend on the claims experience of a group or pooled groups, the employer determines the cost of a DR plan. Employers set a maximum annual benefit for participating individuals at whatever level they choose, often $1,500 or $2,000. They can also tier reimbursement levels—for example, paying 100 percent of the first $100 in expenses and 80 percent of the next $1,750, until reimbursements reach the maximum annual benefit of $1,500. Employers can choose what types of treatments the plan will cover and whether to cover dependents. 

DR plans give employees greater control over their dental treatment choices, since DR plans allow them to see any dentist and use their funds for any eligible treatment.

DR plans also give employers greater control over cash flow—rather than paying premiums to an insurer, the employer can invest plan funds and withdraw them as needed for reimbursements. And about 90 percent or more of your costs will go directly to employees’ dental care, according to the American Dental Association. 

Negatives: Direct reimbursement dental plans require more administration than an insured plan. Someone must educate employees, verify the validity of claims, make reimbursements and track account balances. A benefits expert can help you evaluate whether this is something you can do in-house or whether your firm would benefit from outsourcing this function. 

For more information on selecting the best dental plan for your organization, please contact us. 

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