DENTAL PLAN TYPES

Direct Reimbursement (DR) is a self-funded dental benefits plan that reimburses patients according to dollars spent on dental care, not type of treatment received.  It allows the patient complete freedom to choose any dentist.  Instead of paying monthly insurance premiums, even for employees who don't use the dentist, employers pay a percentage of actual treatments received.  Moreover, employers are removed from the potential responsibility of influencing treatment decisions due to plan selection or sponsorship.   DR is the ADA's preferred method of financing dental treatment.

The design of the DR plan is selected by the employer to fit the employer's budget, and can therefore vary widely among companies.  For example, one plan may reimburse 100% of the first $200 of dental expenses and 80% of the next $1,000, resulting in a total annual maximum benefit of $1,000 per covered individual.  Another company may reimburse 75% of the first $1,000 of dental expenses, resulting in a total annual maximum benefit of $750 per covered individual.  The totals can be individual or family maximums.

A DR plan may also permit employees to pay their share of their dental expenses on a before-tax basis by establishing dental "flex" accounts.  Flex accounts are funded by employees with pre-tax paycheck withholding, and can be used to pay dental expenses that are not covered by the DR plan design.  In addition to the employee's tax savings, the employer benefits because the amounts withheld from the employees' paychecks are not subject to FICA taxes.  Flex accounts must comply with IRS regulations to insure that the payments qualify for pre-tax treatment.

The ADA, as well as state dental societies, brokers and benefits consultants, can assist a company in estimating how different designs will affect costs.  To utilize this service, call the ADA at 800-232-1890.

If you are considering a Direct Reimbursement dental plan, the following questions may be addressed:

• What co-payments and annual maximum should be established?
• Will the plan be administered in-house or by a third party?
• What records will be useful to keep?
• What percentage of the cost will go toward administration?  (Experience shows that between 5% and 10% of the money spent on DR will go to administration.)
• What safeguards and educational programs are in place to ensure that employees use their dental dollars wisely?

Indemnity

An indemnity plan is a fully insured or self-insured plan where an assigned payment is provided for specific services, regardless of the actual charges made by the provider.  Payment may be made to enrollees or, by assignment, directly to dentists. 

Indemnity plans usually allow patients to go to the dentists of their choice.  Most indemnity plans reimburse patients based on a Usual, Customary and Reasonable (UCR) system.  In other words, UCR plans pay an established percentage of the dentist's fee or the plan administrator's "reasonable" or "customary" fee limit, whichever is less.  The limits are the result of a contract between the plan purchaser and the third-party payer.  Although these limits are called "customary," they may or may not accurately reflect the fees that area dentists charge.  There is wide fluctuation as to how plans determine the "customary" fee level.  A UCR element is not exclusive to indemnity plan types.

If the plan purchaser is reviewing an indemnity dental plan with a UCR schedule, the following are points to consider:

• What data has been used to establish the UCR fee levels?  How often are the fee levels updated?
• At what percentile is payment made?  For what percentage of claims in the last year has the plan denied patients coverage for a part of their dentist's charges because of the "customary" fee screen?
• What percentage of the premiums is used for administration and not for dental care?

Preferred Provider Organization
Preferred Provider Organization (PPO) programs are plans under which patients select a dentist from a network or list of providers who have agreed, by contract, to discount their fees.  In PPOs that allow patients to receive treatment from a non-participating dentist, patients who choose a non-participating dentist are usually required to pay higher deductibles and co-payments.  PPOs can be fully insured or self-insured.  PPOs are usually less expensive than comparable indemnity plans and are regulated under the appropriate insurance statutes in the company's state of domicile and operation.

When reviewing a PPO dental plan, the plan purchaser may consider the following:

• What percentage of the premium is used for administration?
• Will the amount of the discount limit a patient's freedom to choose a non-participating dentist?  Will the amount of the discount the dentist is required to offer affect the number of treatment options for the plan's covered individuals?
• What possible liability might the employer face if the plan influences provider selection or treatment?
• What are the criteria for selection of providers for the plan?  Does it have enough dentists under contract to adequately serve the group?  What is the geographic distribution of patients to dentists?  Does it provide for specialist referrals?  Are dentists limited to referring patients to contracted specialists?
• How does the program provide for emergency treatment?  What provisions are in the program for emergency care away from home?

Dental Health Maintenance Organization / Capitation Plan
Dental Health Maintenance Organization (DHMO) or capitation plans pay contracted dentists a fixed amount (usually on a monthly basis) per enrolled family or individual, regardless of utilization.  In return, the dentists agree to provide specific types of treatment to the patient.  The patient may be required to pay a co-payment. Theoretically, the DHMO rewards dentists who keep patients in good health, thereby keeping costs low.  DHMO models typically offer the least expensive dental plans.

If the plan purchaser is reviewing a DHMO or capitation plan, the following factors may be considered:

• What percentage of the premium is used for administration?
• Does the employer have access to sufficient information to determine the level and amount of treatment received by each member of the group?
• What is the utilization rate for patients in this program?  What is the average waiting period for an initial appointment?  What is the average period between appointments?
• What is the dentist/patient ratio for the program?  What are the criteria for selecting dentists to participate in the program?  What is the geographic distribution of patients to dentists?
• What is the ratio of dentists accepted to the program to those who applied to participate?  How many dentists voluntarily withdrew from the program over the past two years?
• What is the capitated rate of compensation for the dentists?  Is it sufficient compensation for the needs of the covered patient population?  What provisions are made for dentists with unforeseen utilization or difficult cases?
• What are the benefits for patients requiring a specialist's care?  How are specialists selected and compensated?  Does the plan have adequate specialist participation?
• How does the program provide for emergency treatment?  What provisions are in the program for emergency care away from home?

OTHER DENTAL PLAN FEATURES

Discount/Referral Options are arrangements in which employers direct employees to a limited number of providers who have agreed to discount their normal fees in exchange for the expectation of a larger patient pool.   There is no reimbursement to the patient or to the provider.  A third-party marketer will package and sell a discount program for a fee, in order to cover costs and profits.

Point of Service Options are arrangements in which patients with a managed care dental plan have the option of seeking treatment from an "out-of-network" provider.  The reimbursement to the patient is usually based on a low table of allowances, with significantly reduced benefits than if the patient had selected an "in network" provider.

Table of Allowance (sometimes called "schedule of allowance") indemnity programs determine a list of covered services with an assigned dollar amount.  That dollar amount represents just how much the plan will pay for those services that are covered.  Most often, it does not represent the dentist's full charge for those services.  The patient usually pays the difference.

If a plan calculates benefits according to a table of allowances, the purchaser may consider the following questions:

• What is the difference between the allowed coverage and a typical dentist's fee for the listed procedures?  What is the level of benefits?
• What provisions are in the plan for adjusting the table for inflation and changes in dental procedures? 
• What provisions are in place for determining coverage for necessary procedures that are not included in the table? 
• Is the terminology in the table consistent with the ADA's Current Dental Terminology guide?

 Published for your information with permission from the American Dental Association