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.