Factors Affecting The Cost Of The Dental Plan

A number of factors, including design of the plan, characteristics of the covered group, the employer's approach to plan implementation, and plan administration affect the cost of the dental plan.

Plan Design

Many issues must be addressed before a particular design that is sound and reflects the needs of the plan sponsor can be established. Included in this list are the type of plan, deductibles, coinsurance, plan maximums, treatment of preexisting conditions, whether covered services should be limited, and orthodontic coverage.

An employer's choice between scheduled and nonscheduled benefits requires a look at the employer's objectives. The advantages and disadvantages of scheduled versus nonscheduled plans, combination plans, and others have been described earlier in this chapter.

Deductibles may or may not be included as an integral part of the design of the plan. Deductibles usually are written on a lifetime or calendar-year basis, with the calendar-year approach by far the more common.

Numerous dental procedures involve very little expense. Therefore, the deductible eliminates frequent payments for small claims that can be readily budgeted. For example, a $50 deductible can eliminate as much as 10 percent of the number of claims. A deductible can effectively control the cost of claim administration.

However, evidence exists that early detection and treatment of dental problems will produce a lower level of claims over the long term. Many insurers feel the best way to promote early detection is to pay virtually all the cost of preventive and diagnostic services. Therefore, these services often are not subject to a deductible.

A few insurance companies are advocates of a lifetime deductible, designed to lessen the impact of accumulated dental neglect. It is particularly effective when the employer is confronted with a choice of (1) not covering preexisting conditions at all, (2) covering these conditions but being forced otherwise to cut back on the design of the plan, or (3) offering a lifetime deductible, the theory being, "If you'll spend X dollars to get your mouth into shape once and for all, we'll take care of a large part of your future dental needs."

Opponents of the lifetime deductible concept claim the following disadvantages:

• A lifetime deductible promotes early overutilization by those anxious to take advantage of the benefits of the plan.
• Once satisfied, lifetime deductibles are of no further value for the presently covered group.
• The lifetime deductible introduces employee turnover as an important cost consideration of the plan.
• If established at a level that will have a significant impact on claim costs and premium rates, a lifetime deductible may result in adverse employee reaction to the plan.

Most dental plans are being designed, either through construction of the schedule or the use of coinsurance, so that the patient pays a portion of the costs for all but preventive and diagnostic services. The intent is to reduce spending on optional dental care and to provide cost-effective dental practice. In addition, many believe that employees that participate financially in the plan make better use of it. Preventive and diagnostic expenses generally are reimbursed at 80 percent to 100 percent of the usual and customary charges. Full reimbursement is quite common.

The reimbursement level for restorative and replacement procedures generally is lower than that for preventive and diagnostic procedures. Restorations, and in some cases replacements, may be reimbursed at 70 percent to 85 percent. In other cases, the reimbursement level for replacements is lower than for restorative treatment.

Orthodontics, implantology (where covered), and occasionally major replacements, have the lowest reimbursement levels of all. In most instances, the plans reimburse no more than 50 percent to 60 percent of the usual and customary charges for these procedures.

Most dental plans include a plan maximum, written on a calendar-year basis, which is applicable to nonorthodontic expenses. Orthodontic and implantology expenses generally are subject to separate lifetime maximums. Also, in some instances, a separate lifetime maximum may apply to nonorthodontic expenses.

Unless established at a fairly low level, a lifetime maximum will have little or no impact on claim liability and serves only to further complicate design of the plan. Calendar-year maximums, though, encourage participants to seek less costly care and may help to spread out the impact of accumulated dental neglect over the early years of the plan. The typical calendar-year maximum is somewhere between $1,000 and $1,500. To put things in perspective: In 2003, only about 33 percent of people visiting a dentist spent from $300 to $999 annually, including insurance company payments, and just 23 percent spent $1,000 or more, including insurance company payments. Most claims are small (34 percent spent $100 or less), and therefore the maximum's impact on plan costs is minor.

Another major consideration is the treatment of preexisting conditions. The major concern is the expense associated with the replacement of teeth extracted prior to the date of coverage. Preexisting conditions are treated in a number of ways:

• They may be excluded.
• They may be treated as any other condition.
• They may be covered on a limited basis (perhaps one-half of the normal reimbursement level) or subject to a lifetime maximum.

If treated as any other condition, the cost of the plan in the early years (nonorthodontic only) will be increased by about 5 percent to 7 percent.

Another plan design consideration is the range of procedures to be covered. In addition to orthodontics and implantology, other procedures occasionally excluded are surgical periodontics and temporomandibular joint (TMJ) dysfunction therapy. It is difficult to diagnose TMJ disorders, and many consider them a medical and not a dental condition. Claims are large, and the potential for abuse is significant.

Although rare, some plans cover only preventive and maintenance expenses. These plans are becoming more common in flexible benefit plans where employees often may pick either a preventive plan or one that is more comprehensive.

Orthodontic expenses, as noted, may be excluded. However, where these are covered, the plan design may include a separate deductible to discourage "shoppers." The cost of orthodontic diagnosis and models is about $300, whether or not treatment is undertaken. The inclusion of a separate orthodontic deductible eliminates reimbursement for these expenses. Also, orthodontic plan design typically includes both heavy coinsurance and limited maximums to guarantee patient involvement.

An indication of the sensitivity of dental plan costs to some of the plan design features discussed can be seen in the following illustration. Assume a nonscheduled base model plan with a $50 calendar-year deductible applicable to all expenses other than orthodontics. The reimbursement, or employer coinsurance, levels are as follows:

• Diagnostic and preventive services (Type I): 100 percent.
• Basic services, including anesthesia and basic restoration (Type II): 75 percent.
• Major restoration, including oral surgery, endodontics, periodontics, and prosthodontics (Type III): 50 percent.
• Orthodontics (Type IV): 50 percent.

There also is an annual benefit maximum of $1,500 for Types I, II, and III services and a lifetime maximum of $1,500 for orthodontics. Based on this base model plan, Table 1 shows the approximate premium sensitivity to changes in plan design. If two or more of the design changes shown in this table are considered together, an approximation of the resulting value may be obtained by multiplying the relative values of the respective changes.

Table 1: Model Dental Plan

Relative Value (in percent)
Base model plan	100%
Design Changes
Deductible
Remove $50 deductible	116
Lower to $25	108
Raise to $100	90
Benefit maximum (annual)
Lower from $1,500 to $1,000	95
Raise to $2,000	101
Coinsurance
Liberalize percent to:100—80—60—60[*]	109
Tighten percent to:80—70—50—50[*]	90
Orthodontics
Exclude	89
[*] For Types I, II, III, and IV services, respectively.

The change in deductibles has a significant impact on cost, as much as a 10 percent reduction in cost to increase the deductible from $50 to $100. The change in benefit maximums has some impact, but it is minor. Coinsurance has a definite effect, especially changes in restoration, replacement, and orthodontic portions of the plan, all of which represent about 80 percent to 85 percent of the typical claim costs. Finally, the inclusion of orthodontics in the base plan is another item of fairly high cost.

Orthodontic Expenses | Dental Plan Design

With possibly a few exceptions, orthodontic benefits never are written without other dental coverage. Nonetheless, orthodontic benefits present a number of design peculiarities that suggest this subject should be treated separately.

Orthodontic services, unlike nonorthodontic procedures, generally are rendered only once in an individual's lifetime; orthodontic problems are unlikely to recur. Orthodontic maximums, therefore, typically are expressed on a lifetime basis. Deductibles, which are applicable only to orthodontic services, also are often expressed on a lifetime basis. However, it is quite common for orthodontic benefits to be provided without deductibles, since a major purpose of the deductible—to eliminate small, nuisance-type claims—is of little consequence.

Because adult orthodontics generally are cosmetic and also because the best time for orthodontic work is during adolescence, many plans limit orthodontic coverage to persons under age 19. However, an increasing number of plans are including adult orthodontics as well, and many participants are taking advantage of this feature.

The coinsurance level for orthodontic expenses typically is 50 percent, but it varies widely depending on the reimbursement levels under other parts of the plan. It is common for the orthodontic reimbursement level to be the same as that for major restorative procedures.

Reflecting the nature of orthodontic work, and unlike virtually any other benefit, orthodontic benefits often are paid in installments instead of at the conclusion of the course of treatment. Because the program of treatment frequently extends over several years, it would be unreasonable to reimburse for the entire course of treatment at the end of the extended time. It would be equally unreasonable to pay for the entire course of treatment at its beginning.

Types of Plans | Dental Plan Design

Combination Plans

This simply is a plan in which certain procedures are reimbursed on a scheduled basis, while others are reimbursed on a nonscheduled basis. In other words, it is a hybrid. While many variations exist, a common design in combination plans is to provide preventive and diagnostic coverage on a nonscheduled basis (i.e., a percentage of usual and customary, normally without a deductible). Procedures other than preventive and diagnostic are provided on a scheduled basis.

The principal advantage of a combination plan is that it provides a balance between (1) the need to emphasize preventive care, and (2) cost control. Procedures that traditionally are the most expensive are covered on a scheduled basis, and except where benefit levels are established by a collective bargaining agreement, the timing of schedule improvements is at the employer's discretion. Preventive and diagnostic expenses, however, adjust automatically, so the incentive for preventive care does not lose its effectiveness as dental care costs increase.

The combination approach shares many of the same disadvantages as the scheduled and unscheduled plans, at least for certain types of expenses. Benefit levels—for other than preventive and diagnostic expenses—must be evaluated periodically. Scheduled payments do not reimburse at uniform levels for geographically dispersed participants. And dentists may be influenced by the schedule allowances to adjust their charges. Also, actual plan payments for preventive and diagnostic expenses rarely are identified in advance. Finally, it can be said that the combination approach is more complex than either the scheduled or unscheduled alternatives.

Incentive Plans

This type, a second variation, promotes sound dental hygiene through increasing reimbursement levels. Incentive coinsurance provisions generally apply only to preventive and maintenance (i.e., minor restorative) procedures, with other procedures covered on either a scheduled or nonscheduled basis. Incentive plans are designed to encourage individuals to visit the dentist regularly, without the plan sponsor having to absorb the cost of any accumulated neglect. Such plans generally reimburse at one level during the first year, with coinsurance levels typically increasing from year to year only for those who obtained needed treatment in prior years. For example, the initial coinsurance level (i.e., the benefit paid by the plan) for preventive and maintenance expenses might be 60 percent, increasing to 70 percent, 80 percent and, finally, 90 percent on an annual basis as long as the individual visits the dentist regularly. If, in any one year, there is a failure to obtain the required level of care, the coinsurance percentage reverts back to its original level.

The incentive portion of an incentive plan may or may not be characterized by deductibles. When deductibles are included in these plans, it is not unusual for them to apply on a lifetime basis.

The incentive concept, on the one hand, has two major advantages. In theory, the design of the plan encourages regular dental care and reduces the incidence of more serious dental problems in the future. Also, these plans generally have lower first-year costs than most nonscheduled plans.

On the other hand, there are major disadvantages. First, an incentive plan can be complicated to explain and even more complicated to administer. Second, little evidence exists to suggest that the incentive approach is effective in promoting sound dental hygiene. Finally, this particular plan is vulnerable to misunderstanding. For example, what happens if the participant's dentist postpones the required treatment until the beginning of the next plan year?

Plans Providing Both Medical and Dental Coverage

The last of the variations is the plan that provides both medical and dental coverage. During the infancy of dental benefits, such plans were quite popular.

These plans generally are characterized by a common deductible amount that applies to the sum of both medical and dental expenses. Coinsurance levels may be identical, and sometimes the maximum applies to the combination of medical and dental expenses. However, recent design of these plans has made a distinction between dental and medical expenses so that each may have its own coinsurance provisions and maximums.

The advantages of this approach are the same as for the nonscheduled plan (i.e., uniform reimbursement levels, adjusts automatically to change, and relatively easy to understand). But this approach fails to recognize the difference between medicine and dentistry unless special provisions are made for dental benefits. It must be written with a medical carrier, whether or not this carrier is competent to handle both medical and dental protection; it makes it extremely difficult to separate and evaluate dental experience; and it shares the same disadvantages as the nonscheduled approach.

Nonscheduled Plans | Dental Plan Design

Sometimes referred to as comprehensive plans, nonscheduled plans are written to cover some percentage of the "reasonable and customary" charges, or the charges most commonly made by dentists in the community. For any single procedure, the usual and customary charge typically is set at between the 75th and 90th percentiles depending on the administrator. (The trend is toward the lower number.) This means that the usual and customary charge level will cover the full cost of the procedure for 75 percent to 90 percent of the claims submitted in that geographical area.

Nonscheduled plans generally include a deductible, typically a calendar-year deductible of $50 or $75, and they reimburse at different levels for different classes of procedures. Preventive and diagnostic expenses typically are covered in full or at very high reimbursement levels. Reimbursement levels for other procedures usually are then scaled down from the preventive and diagnostic level, based on the design objectives of the employer.

There are two major advantages to nonscheduled plans:

1. Uniform reimbursement level. While the dollar payment may vary by area and dentist, the percent of the total cost reimbursed by the plan is uniform.
2. Adjusts automatically for change. The nonscheduled plan adjusts automatically, not only for inflation, but also for variations in the relative value of specific procedures.

This approach also has disadvantages. First, because benefit levels adjust automatically for increases in the cost of care, in periods of rapidly escalating prices cost control can be a problem. Second, once a plan is installed on this basis, the opportunities for modest benefit improvements, made primarily for employee-relations purposes are limited, at least relative to the scheduled approach. Third, except for claims for which predetermination of benefits is appropriate, it rarely is clear in advance what the specific payment for a particular service will be, either to the patient or the dentist.

Preferred provider benefits are usually provided on an unscheduled basis. Reimbursement for services provided, however, is based on an agreed-upon discounted charge level, rather than the reasonable and customary charge. Deductible, coinsurance, percentage copayment, and other benefit provisions are generally applied to the discounted charge level, not the reasonable and customary amount.

Other approaches are, for the most part, merely variations of the two basic plans. Included in this list are combination plans, incentive plans, and dental combined with major medical plans.

Scheduled Plans | Dental Plan Design

Scheduled plans are categorized by a listing of fixed allowances by procedure. For example, the plan might pay $50 for a cleaning and $400 for root canal therapy. In addition, the scheduled plan may include deductibles and coinsurance (i.e., percentage cost-sharing provisions). Where deductibles are included in scheduled plans, amounts usually are small or, in some cases, required on a lifetime basis only.

Coinsurance provisions are extremely rare in scheduled plans since the benefits of coinsurance can be achieved through the construction of the schedule (i.e., the level of reimbursement for each procedure in the schedule can be set for specific reimbursement objectives). For example, if it is preferable to reimburse a higher percentage of the cost of preventive procedures than of other procedures, the schedule can be constructed to accomplish this goal.

There are three major advantages to scheduled plans:

1. Cost control. Benefit levels are fixed and therefore less susceptible to inflationary increases.
2. Uniform payments. In certain instances, it may be important to provide the same benefit regardless of regional cost differences. Collectively bargained plans occasionally may take this approach to ensure the "equal treatment" of all members.
3. Ease of understanding. It is clear to both the plan participant and the dentist how much is to be paid for each procedure.

In addition, scheduled plans sometimes are favored for employee-relations reasons. As the schedule is updated, improvements can be communicated to employees. If the updating occurs on a regular basis, this will be a periodic reminder to employees of the plan and its merits.

There also are disadvantages to scheduled plans. First, benefit levels, as well as internal relationships, must be examined periodically and changed when necessary to maintain reimbursement objectives. Second, where participants are dispersed geographically, plan reimbursement levels will vary according to the cost of dental care in a particular area unless multiple schedules are utilized. Third, if scheduled benefits are established at levels that are near the maximum of the reasonable and customary range, dentists who normally charge at below prevailing levels may be influenced to adjust their charges.

Services under the typical dental HMO are also provided on a scheduled basis—in a fashion. Since the contract between the participating dentist and the HMO generally specifies the basis on which the provider will be paid by the HMO and also fixes the amount that can be charged to the participant, the schedule furnished to participants typically identifies the amount the participant is required to pay rather than the amount the plan pays.

Covered Dental Expenses

Virtually all dental problems fall into 10 professional treatment categories:

1. Diagnostic. Examination to determine the existence of oral disease or to evaluate the condition of the mouth. Included in this category would be such procedures as X-rays and routine oral examinations.
2. Preventive. Procedures to preserve and maintain dental health. Included in this category are topical fluoride applications, cleaning, space maintainers, and the like.
3. Restorative. Procedures for the repair and reconstruction of natural teeth, including the removal of dental decay and installation of fillings.
4. Endodontics. Treatment of dental-pulp disease and therapy within existing teeth. Root canal therapy is an example of this type of procedure.
5. Periodontics. Treatment of the gums and other supporting structures of the teeth, primarily for maintenance or improvement of the gums. Periodontal curettage and root planing are examples of periodontic procedures.
6. Oral Surgery. Tooth extraction and other surgery of the mouth and jaw.
7. Prosthodontics. Construction, replacement, and repair of missing teeth. Examples include onlays, crowns and bridges, which are fixed prostheses, and dentures and partials, which are removable prostheses.
8. Orthodontics. Correction of malocclusion and abnormal tooth position through repositioning of natural teeth.
9. Pedodontics. Treatment for children who do not have all their permanent teeth.
10. Implantology. Use of implants and related services (e.g., over-dentures, fixed prostheses attached to implants, etc.), to replace one or all missing teeth on an arch.

In addition to the recognition of treatment or services in most of these 10 areas, the typical dental plan also includes provision for palliative treatment (i.e., procedures to minimize pain, including anesthesia), emergency care, and consultation.

These 10 types of procedures usually are categorized into three, four, and sometime five general groupings for purposes of plan design. The first classification often includes both preventive and diagnostic expenses. The second general grouping includes all minor restorative procedures. The third broad grouping, often combined with the second, includes major restorative work (e.g., prosthodontics), endodontic and periodontic services, and oral surgery. A fourth separate classification covers orthodontic expenses. Although excluded under most plans, implantology services are usually covered under a separate fifth classification.

Pedodontic care generally falls into the first two groupings.

Providers of Dental Benefits | Dental Plan Design

Providers of dental benefits generally can be separated into three categories: insurance companies, Blue Cross and Blue Shield organizations, and others, including state dental association plans (e.g., Delta plans); self-insured, self-administered plans; and group practice or HMO-type plans. Insurance companies and Blue Cross/Blue Shield plans cover the largest share of the population. However, enrollment in self-administered, self-insured plans; plans employing third-party administrators; dental association plans; and HMOs is in an upsurge.

The types of dental benefit plans resemble today's medical plans. There are three basic design structures: the fee-for-service indemnity or reimbursement approach, the preferred provider (PPO) approach, and the dental health maintenance organization.

Insurance company-administered dental benefits and most self-insured, self-administered plan benefits are provided on either an indemnity or preferred provider basis. Under the indemnity approach, expenses incurred by eligible individuals are submitted to the administrator, typically an insurer, for payment. If the expense is covered, the appropriate payment is calculated according to the provisions of the plan. The indemnity plan payment generally is made directly to the covered employee, unless assigned by the employee to the treating dentist.

Preferred provider benefits are payable directly to the treating dentist, generally according to a contract, which fixes the reimbursement level between the dentist and the plan. In most instances, this payment actually may be lower than what would be charged to a direct-pay or indemnity patient.

The dental benefits of both dental service corporations and Blue Cross/Blue Shield plans are generally provided on a preferred provider basis. The major differences between indemnity and preferred provider benefits relate to the roles of the provider and the covered individual. Under either approach, the plan sponsor normally has substantial latitude in determining who and what is to be covered and at what level.

Under the group practice or HMO-type arrangement, a prescribed range of dental services is provided to eligible participants, often in return for a prepaid, fixed, and uniform payment. Services are provided by dentists practicing in group practice clinics or by those in individual practice but affiliated for purposes of providing plan benefits to eligible participants. Some individuals eligible under these arrangements are covered through collectively bargained self-insurance benefit trusts. In these instances, trust fund payments are used either to reimburse dentists operating in group practice clinics or to pay the prescribed fixed per capita fee. Group practice HMO-type arrangements, which often have cost, quality assurance, and administrative advantages but more limited provider selection, generally offer little latitude in plan design. As a result, the balance of this chapter, since it is largely devoted to the issue of plan design, may have limited application to these types of arrangements.