In 2014, 155 million Americans relied on private insurance for dental coverage. Of them, 92% relied on an employer or a group like the AARP to provide their insurance plan. Around 50 million people relied on public options like Medicaid or had individual plans.
Not every employer offers dental coverage as part of their benefits package. Adding dental coverage can be expensive—but so are the consequences of not offering these benefits. Studies show that Americans without dental coverage have increased risks of chronic medical conditions such as osteoporosis, diabetes, and heart disease. A dental plan makes good sense for your business because it will help keep your employees healthy—and keep your health plan costs low.
But how should you set up your dental plan? Some employers will opt for a fully insured program, while others will tell you that self-funded is the way to go. A quick comparison of the two will help you get a better grasp of what makes sense for your business.
Fully Insured Plans
Fully insured dental plans are very similar to the traditional model of health benefits. The employer typically pays the premiums to an insurance company monthly, based on the number of employees in the plan. The plan gives the enrolled employees access to a provider network. The insurance company handles benefits administration, claims, compliance, and plan design.
Dental plans usually have a deductible paid by the employee, and then the insurance company pays any claims up to an annual cap—usually $1,000 or $2,000. Any dental claims incurred above that annual cap are paid by the employee. While health insurance companies run the risk of unlimited health claims (at least theoretically), dental insurance companies have low, hard dollar caps to their liability. This is a why it is such a great business.
Under a self-funded or self-insured dental plan, you typically copy or mirror the current fully insured plan design. The liability is capped the same way it is with a fully insured dental plan, at $1,000 or $2,000 per year per employee. Your employees have dental insurance cards that they can use with any dentist (most self-funded dental plans do not have dentist networks so that employees have the freedom to go anywhere). Everything is the basically same for the employee.
As the employer, you hire a third party administrator to handle benefits administration, compliance, and plan design—the role usually paid by the dental insurance company. The big difference with a self-insured dental plan is that the employer pays only for eligible claims that are incurred. With a self-funded dental plan, the company is betting that the usual 10% of employees have a major dental procedure like a crown or root canal. If the employer is right, the plan’s total expense come in about 25% below fully insured dental rates every year. It is not uncommon for a 50 person dental self-funded plan to save $8,000 to $10,000 per year. If they are wrong and many employees have a major procedure in a given year, they may hit or slightly exceed the cost of a fully insured dental plan. The good news is that the chances of having high dental claims a second year in a row are close to zero. In fact, you are more likely to have extraordinarily high savings the following.
Which Is Better?
Obviously, both options have their advantages and disadvantages. The fully insured plan offers employers peace of mind; employers know exactly what they will pay in premiums every year, and they can offer employees a dental program with the name of a large insurance company on the card. But for these advantages, they will almost certainly pay more and will also likely experience a rate increase every year.
Self-funded plans on the other hand offer employers more control, claims transparency (the administrators bill will list all of the claims paid out in a de-identified format), and significant annual savings nearly every year. There is a small risk that they will pay more than fully insured rates if claims are abnormally high in a specific year, but this liability is firmly capped, usually at the $1,000 to $2,000 per employee level.
Of course, there are risks with both types of plans, so careful consideration is important when considering what’s right for your business.