Differences Between Medicine and Dentistry Drive Plan Design

Medicine and dentistry have many differences, and sound dental plan design recognizes these. These differences include practice location, the nature of care, cost, and emphasis on prevention.

Location

The practice of the typical physician is hospital-based, while many dentists practice almost exclusively in individual offices. Partly because of these practice differences, physicians tend to associate with other physicians with greater frequency than dentists associate with other dentists. This isolation, along with the inherent differences in the nature of medical and dental care, tends to produce a greater variety of dental practice patterns than is the case in medicine. In addition, practicing in isolation does not afford the same opportunities for peer review and general quality control.

Nature of Care, Cost, and Prevention

Perhaps contributing more significantly to the differences in medicine and dentistry are the important differences between the nature of medical and dental care.

First and perhaps foremost, because of the importance of preventive dentistry, the need for dental care is almost universal to ensure sound oral hygiene. Many individuals sometimes require only preventive or no medical care for years. Individuals routinely visit their dentists for preventive dental care, but in medicine the patient typically visits a physician with certain symptoms—often pain or discomfort—and seeks relief.

Dental treatment, because of its emphasis on prevention, often is considered elective. Unless there is pain or trauma, dental care is sometimes postponed. The patient recognizes that life is not at risk and as a result has few reservations about postponing treatment. In fact, postponement may be preferable to some patients—perhaps because of an aversion to visiting the dentist, rooted many years in the past when dental technology was less developed.

Because major dental care is not life-threatening and time-critical, dentists' charges for major courses of treatment often are discussed in advance of the treatment when there is no pain or trauma. As with any number of other consumer decisions, the patient may opt to defer the treatment to a later time or spend the money elsewhere.

A second difference in the nature of care is that, while medical care is rarely cosmetic, dental care often is. A crown, for example, may be necessary to save a tooth, but it also may be used to improve the patient's appearance. Many people place orthodontics into the same category, although evidence exists that failure to obtain needed orthodontic care may result in problems ranging from major gum disease to temporomandibular joint (TMJ) disorders in later life.

A third major difference between the nature of medical and dental care is that dentistry often offers alternative procedures for treating disease and restoring teeth, many of which are equally effective. For example, a molar cavity might be treated by a two-surface gold onlay, which may cost 10 times as much as a simple amalgam filling. In these instances, the choice of the appropriate procedure is influenced by a number of factors, including the cost of the alternatives, the condition of the affected tooth and the teeth surrounding it, and the likelihood that a particular approach will be successful.

There are other significant differences in medical care and dentistry that will have an effect on plan design. These include the cost of the typical treatment and the emphasis on prevention.

Dental expenses generally are lower, more predictable, and budgetable. The average dental claim check is only about $139. Medical claims, on average, are much higher.

The last significant difference is the emphasis on prevention. The advantages of preventive dentistry are clearly documented. While certain medical diseases and injuries are self-healing, dental disease, once started, almost always gets progressively worse. Therefore, preventive care may be more productive in dentistry than in medicine. Certainly the value of preventive dentistry relative to its cost is acknowledged.

Development of Defined Contribution: Consumer Driven Health Plans

An increasing number of plan sponsors are considering a new strategy for their health benefits, to maintain control of employer costs while giving plan members an increasing degree of choice and decision-making. While managed care continues to be the main component of most employers' health benefits, employees are demanding a greater ability to select those plans which best suit their individual needs—another aspect of increased consumerism.

Some analysts see the defined contribution concept as being driven by the convergence of several factors, including:

• General backlash against the restrictive nature of managed care plans;
• Broad popularity and acceptance of 401(k)-style retirement plans where the member acts much more as a "informed consumer" of their benefits package;
• Rapid rise of Internet access to help members gain information about medical care choices; and
• A sense that accountability demanded by end-consumers will have more real impact on health plans and providers than can be demanded by the plan sponsor (e.g. members ultimately vote by their enrollment).

Historically, healthcare plans have been "defined benefit" in nature. The plan sponsor defined the benefit by picking the plan fetaures (e.g., copay levels, deductibles, coinsurance, etc.) which then applied to all covered participations—much in the way pension plans were historically "defined benefit" with a rigid formula for determining benefits at retirement age.

The new defined contribution form of healthcare plans is conceptually akin to today's popular 401(k) retirement plans in that the plan sponsor would contribute a fixed amount for each employee's health benefits, often tied to either the lowest-cost plan available or some composite index of available plans. Then, plan participants typically would be able to select from several types of health plans often including several managed care plans and perhaps traditional fee-for-service.

Any difference between actual plan premiums and the plan sponsor's contribution would be paid by those participants who select that particular health plan. In this manner, the fixed contribution serves to cap current and future plan sponsor costs, with any future premium cost increases being borne in whole or in part by plan participants.

Several impediments still remain before defined contribution health plans gain broader acceptance, including:

• Lack of consistent performance data among competing managed care health plans, or no data in the case of traditional fee-for-service plans;
• Plan sponsor concerns about employees making poor selections relative to their health needs or high-risk employees being able to qualify for affordable coverage;
• Rising health care costs, and employee contributions, forcing some participants to drop coverage altogether further increasing the number of working uninsured.

Nonetheless, there is significant plan sponsor interest in the development of the defined contribution health plan strategy. Key changes to the federal tax code included in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 may help foster greater plan sponsor move towards defined contribution health plans. The law extended and expanded the concept of health savings accounts (HSAs) which allow members to set aside dollars for medical expenses on a tax-favored basis and to roll over unused funds year to year, from job to job or into retirement.

HSAs must be set up in conjunction with a high-deductible health plan (HDHP), which for 2005, requires a minimum $1,000 deductible for an individual and $2,000 for a family. A "safe harbor" list of preventive services may be covered at 100 percent, before the deductible, such as annual physicals, immunization and certain screening services. Otherwise, the HSA, which can be funded either by employee contributions on a tax-free basis or by employee contibutions on a pre-tax basis through a cafeteria-style plan, serves to cover most or all of the high-deductible, after which the plan starts covering expenses at a coinsurance level.

The plan can be integrated with a PPO network, such that different coinsurance rates apply, after the deductible, for network versus non-network physicians. UM controls can also apply for selected services (e.g., precertification for hospital admission).

The whole concept is centered around putting the member more in charge of the utilization of services, by making tax-preferred funding available to handle the more common but less-costly healthcare decisions that typically face an individual or family. The concept has been dubbed consumer-driven health care (CDHC)

Experience Rating | Health Plan Designs

An organization that is willing to proactively manage its health care costs through benefit plan redesign and innovative delivery of care will seek to capture the cost savings generated by these actions. An experience-rated plan uses recent claims and utilization data of a particular organization to establish the appropriate insurance rates for a future time period. If an organization has had a history of favorable claims experience, the experience-rated insurance product may offer substantial cost advantages over an underwriting approach that uses aggregate community claims experience to establish insurance rates.

Cost-Plus and Self-Insured Approaches

An organization of sufficient size may finance its health care benefits using a cost-plus or self-insured approach. Under such a scenario, the organization will pay for the actual claims of its group, along with an administrative charge to an insurer or third-party administrator who handles claims processing. Such an agreement is often called an administrative services only (ASO) agreement. Under this type of arrangement, it is important to understand provider reimbursement methods. For instance, are hospital daily room costs based on actual charges or a discounted amount below charges? Will the hospital be paid for each day a patient is hospitalized, or will the hospital be paid for a fixed number of days commensurate with the expected length of stay usually associated with the medical condition and its course of treatment? This latter approach would give the hospital an incentive to ensure that patient lengths of stay are in line with practice norms.

Stop-Loss Insurance

If an organization utilizes a cost-plus or self-insured method of financing, it may choose to limit its potential aggregate medical claims exposure by purchasing insurance that would make payment if claims exceeded a certain predetermined amount for the entire group. This insurance coverage for capping the total claims experience of the group is known as aggregate stop loss. A firm also might limit its liability using specific stop loss. Specific stop loss sets a limit on the amount that a plan sponsor will pay for an individual case. If a catastrophic medical case occurs, the employer will only be responsible for paying covered medical costs on that individual case up to the stop-loss amount.

Because the insurer is assuming risk for excess claims, the contractual document will clearly define when the insurer assumes the risk. It is extremely important when contracting for stop-loss protection to carefully analyze terms and conditions to ensure that the intentions for protecting against loss are matched by the insurer's policy. For instance, the period for claims coverage could be specified either on the basis of when a claim is incurred or when a claim is paid. It is also important to ensure that definitions for coverable expenses in the employer's health plan match coverages in the stop-loss agreement. Medical plans and stop-loss coverage typically exclude medical care that is deemed experimental in nature. Do both documents have the same definition of experimental medical care? Other issues to examine would be whether specific subscribers undergoing treatment are excluded from the stop-loss coverage and how the run-out of claims payments going beyond the stop-loss coverage period are handled.