Part 5:
Dental Insurance Management
Beaver: “Gee, there’s something wrong with just about everything, isn’t there Dad?”
Ward: “Just about, Beav.”
Leave It to Beaver
A dental practice has several stakeholders, or parties, who have an interest in the care the practitioner provides in the dental office. The “first” party is the practitioner and the “second” is the patient. For many years, these were the only parties who had a vested interest in the practice of dentistry. However, when insurers began to reimburse for dental services, they became an interested “third” party. The employers who purchased the insurance contracts soon realized that they were the “fourth” party and also had a vital interest. Depending on their contract, the price they paid and the services they bought for their employees were entirely different. It is important to remember that there are four different perspectives on the issue of third‐party reimbursement for dental care (Box 27.11). The practitioner has one set of desires; the patient, the insurer, and the employer each have different wants and needs in these programs. Each group lobbies in the marketplace for provisions that are beneficial for their group. The “ideal” third‐party program balances all these perspectives.
Benefits for routine dental services are unlike traditional insurance in some crucial respects. Dental needs are almost universal, unlike house fires, automobile accidents, or major surgery. So, a dental plan, especially the component that pays for routine dental services, is more of a simple prepayment plan than a true insurance policy.
Employee benefits, such as dental plans, are typically bought by employers to increase employee compensation and, hopefully, morale and productivity. Plan administrators place bids with the employer for the dental plan contract. The employer (possibly in concert with a union or worker representation) then picks a contract that best meets everyone’s needs. The plan may be financed through an employer contribution, employee contributions, or a combination of the two. In traditional indemnity insurance contracts, the carrier does actuarial studies to determine how many people will probably use the services and at what level. The insurers use that information to establish utilization estimates and policy rates.
PAYMENT MECHANISMS
Dental practitioners customarily see four basic types or methods of payment for services.
FEE FOR SERVICE
Fee for service (FFS) is simply an out‐of‐pocket expenditure by patients for the care that they receive. This still accounts for a significant portion (approximately 45%) of the dental care payments in the United States today. The obvious advantage for the practitioner is the low interference in the practitioner–patient relationship. The downside for both patient and practitioner is that consumers will purchase less dentistry because the cost to the consumer (patient) is higher than if someone assists in paying.
TRADITIONAL (INDEMNITY) DENTAL INSURANCE
Indemnity insurance pays the patient for their financial loss from dental care. The plan estimates how much care a given population (e.g. the employees at XYZ Corp.) will need. The insurer then pays the patient for part of their financial loss (dental care). If the insurance company has estimated too low, the insurer loses money. If its estimates are correct, then the insurance company makes money. The insurer carries the risk of overutilization of services. Traditional dental insurance stimulates demand for dental services because the patient’s out‐of‐pocket expenditures are lower than FFS.
MANAGED DENTAL CARE
Managed care is a system where the third party (insurer) contracts with practitioners to provide a certain level of dental care. Instead of insurance, managed care is a form of prepayment for services. It is the practitioner’s responsibility to decide the amount and type of care that the patient requires. However, the contract may stipulate the amount the practitioner can charge the patient for the service. Because the practitioner contracts ahead of doing the services, they carry the risk that patients may overutilize by demanding more services (either in the type of services or the number of services per patient). If, on the other hand, patients underutilize services, the practitioner stands to profit.
GOVERNMENT PAYMENT PLANS
Government plans are a small part of the dental marketplace in the United States. Dental care is viewed as a consumer service (rather than a true health service) by many people, and so individuals are responsible for their own services. The government directly provides some care to special populations at the federal level (e.g. Indian Health Service, National Health Service Corp., Uniform Military Services) and state and local health departments. The government also pays for some care in private offices, primarily through Medicaid and, to a small degree, the Medicare programs. Many government plans adopt the characteristics of managed care plans. Many negotiate contracts with private managed care plans to administer the government plan.
POLICY LIMITATIONS
Each third‐party plan has specific incentives (and disincentives) for patients to use dental services. The provider (practitioner) looks for maximum reimbursement, maximum coverage, minimum administrative expense, and no interference in the practitioner–patient relationship (including closed panels). The patient wants maximum reimbursement and coverage, giving the lowest out‐of‐pocket expense. Patients want “freedom of choice,” but are willing to forgo this if the savings are substantial enough. The purchaser (employer) wants an adequate plan at a low cost. Employers are concerned with providing a satisfactory benefit for employees with minimal administrative costs and problems. They do not care about freedom of choice unless employees complain that they cannot find adequate dental providers. The third‐party carrier is looking to reduce its own risk and maximize profit for its owners and shareholders. Carriers are looking for a small payout (low medical loss ratio) and minimum administrative expenses. Balancing all these different perspectives and needs is an impossible task. To attempt it, insurance plans use many mechanisms to encourage or discourage patient treatment:
- Exclusions are procedures that the plan does not cover. Most insurers exclude experimental procedures. As those procedures become more commonplace, insurers begin to include them as covered procedures. Some plans may exclude orthodontics, temporomandibular disorder (TMD), or other treatments as cost‐limiting measures.
- Limitations are limits to payment of benefits for procedures or the number of times a plan will pay for a procedure. Most plans limit prosthetic replacement to once every five years, regardless of who does the procedure. Many will limit payment for orthodontic treatment to once in a lifetime. Others limit recall exams to every six months (to the day). Patients often do not understand limitations, so it is in the practitioner’s interest to have a staff member (receptionist) who understands each plan.
- Annual maximums are the maximum amounts in a given calendar year that an insurer will pay in total benefits for a person. Most plans set an annual maximum (or payment cap) near $1000, which has not changed (even with inflation) in many years. Practitioners frequently plan treatment to occur at the end of one year and the beginning of the next. This way, they can help the patient maximize insurance coverage for two years. Some plans also have a lifetime maximum for certain procedures (such as orthodontics).
- Deductibles and copays limit the third party’s benefit payments. The patient is responsible for part of the costs, either the first dollar amount (deductible) or a percentage of the cost (copay).
- Open‐panelplans allow covered patients to receive care from any practitioner and allow any practitioner to participate. These are often called “freedom‐of‐choice” plans.
- Closed‐panelplans allow covered individuals to receive care only from a specific group (panel) of practitioners who have signed contracts and agree to terms of participation with the third‐party carrier. Closed panels allow managed care organizations (MCOs) to limit the number of providers in the plan. In that way, they can guarantee a group of patients for each of those who do participate.
Insurance is generally regulated by state not national government. Therefore, there is not uniformity about the rules and laws concerning dental insurance benefits. For example, in some states if a specific service is not covered by a contracted (managed care) plan, the dentist may charge any fee for this “non‐covered service.” Other states require the dentist to follow the plan’s fee schedule for the service, even though the service is not reimbursed by the plan. Or if a tooth is restored and the patient’s noncompliant behavior results in a broken tooth within a time limit, some managed care contracts require the dentist to replace the restoration at their own expense. Each state’s department of insurance sets the rules for these contracts.
METHOD OF REIMBURSEMENT
Third‐party plans have developed many ways of determining reimbursement for services. If a dental practitioner understands these methods, it will allow them to help patients to maximize their benefits and enable the practitioner to evaluate the financial impact of third‐party plans.
USUAL, CUSTOMARY, AND REASONABLE
Usual, customary, and reasonable (UCR) represents the fee a practitioner usually charges for a particular procedure. The insurance company determines the customary fee based on what practitioners in the same area are charging for similar procedures (Box 27.12). A reasonable fee justifies particular circumstances that may affect the fee usually charged for the procedure. Wide differences between communities have made this system controversial. Third‐party carriers generally reimburse based on a percentage of the lesser of the practitioner’s usual fee or the fee that the third party has determined is customary for the area. The fee that the carriers use as their “customary” fee is a closely held corporate secret. This often causes problems between practitioners and patients who feel they are being overcharged based on insurance carrier information.
TABLE (SCHEDULE) OF ALLOWANCES
In this method, the insurer sets a maximum dollar limit for each covered procedure, regardless of the fee the practitioner charges. It pays the fee charged (or a percentage of it) up to a specified amount from a table that lists the allowable (maximum) charge. Above that, the practitioner may (or may not) charge the patient the difference, depending on the rules of the insurance contract.
LEAST EXPENSIVE ALTERNATIVE TREATMENT
The least expensive alternative treatment (LEAT) method states that the third party will reimburse for what it decides is the least expensive method of correcting the patient’s problem. For example, a practitioner might replace a patient’s missing tooth with an implant, a fixed bridge, or a removable partial denture. The practitioner can recommend to the patient and do any service the practitioner wants. However, the third‐party payer will only reimburse for the LEAT (i.e. the removable). Others may “downcode” a posterior composite restoration to a less expensive amalgam restoration. This keeps the insurer’s payout lower and places the burden of justifying treatment choices on the practitioner.
CAPITATION (PER CAPITA)
Capitated plans reimburse a practitioner a given amount for each participating patient who has signed up to be a practice patient. The practitioner is then responsible for providing a certain level of care in return for receiving the capitation payment. Patients are responsible for paying for (or a portion of) procedures not covered by the plan. The theory is that the practitioner makes enough money on capitation payments, based on the panel of patients, to cover the preventive services of those patients who come for dental care. Capitation plans have implied financial incentives for the practitioner not to see patients or do extensive dental work on them.
OTHER INSURANCE TERMS
A few additional insurance terms are essential to understand:
- Adverse selection occurs when only high‐risk individuals sign up for a particular insurance. The insurer cannot spread the risk over a sufficient number of people. The insurer then either must increase rates dramatically or suffer a loss. This often happens with voluntary participation plans such as flexible (cafeteria‐style) employee benefit plans. Only the employees who plan to use the plan sign up and pay to participate in the plan.
- Insurers speak of amedical loss ratio. This is the percentage of premiums that the third party pays out (to the medical provider) for covered services. It is a loss for the insurer. It is income for the provider. The ratio typically runs from 50% to 90% paid out as medical (or dental) benefits to providers. The providers prefer a higher percentage payout. The insurers prefer a lower ratio, retaining as much as possible to convert to profits.
- Coordination of benefits applies to people with coverage by more than one insurance plan. (For example, both husband and wife receive different dental insurance through their workplaces.) Practitioners must be careful about plan rules to help patients maximize their entitled benefits. As an industry rule (called the “birthday rule”), a person’s primary carrier is through their work, and the secondary carrier is through their spouse. A child’s primary insurer depends on which parent’s birthday occurs first in the calendar year. Practitioners submit reimbursement for the dental procedure to the primary carrier first. Once the practitioner has received payment, they submit the remainder to the secondary carrier. Some carriers have special rules concerning dual coverage. The practitioner must not assume anything and must call the insurer or ask for a pretreatment estimate of benefits for the patient.
- Predetermination is a system under which a practitioner submits the proposed treatment plan to the insurer before beginning work. After review, the plan administrator will determine the patient’s eligibility, covered services, copay, and maximum benefit. This is intended as an aid for the practitioner, so the patient knows how much the insurer will pay and what their portion will be. Some insurers require predetermination before treatment that exceeds a given dollar amount. Many practitioners set in‐office limits at which they send claims for predetermination. Practitioners also call this pretreatment estimate, prior authorization, or preauthorization. The insurers claim that they are not authorizing treatment, only payment for the treatment.
- Bundling happens when the insurer combines several procedures into one procedure, generally to lower the total payout. For example, a typical recall visit may consist of a periodic oral exam, bitewing radiographs, and dental prophylaxis. If the insurer combines these procedures into a new code, lowering the cost over separate billing of the procedures, then bundling has occurred. Similarly, unbundling happens when the dental practitioner breaks a standard procedure into parts, increasing the total fee. For example, a composite restoration generally includes acid etching, bonding, and placing common liners. If the practitioner charges separately for these procedures, by raising the total fee, then unbundling can been said to have occurred. The profession does not like bundling because it lowers reimbursement. Third‐party payers do not like unbundling because it raises reimbursement. Both sides charge fraud against the other when it occurs.
CHARACTERISTICS OF THIRD‐PARTY PLANS
Each of the various plans has its own characteristics that are more or less valuable to each interested group. Box 27.13 shows the major types of plans and their characteristics.
FEE FOR SERVICE
FFS is not a third‐party plan (Box 27.14). It only involves the first two parties to the transaction (practitioner and patient). It is the baseline or reference point for comparing all other reimbursement plans.
FFS is the oldest form of payment for dental services and still accounts for nearly half of all dental payments. Patients pay the practitioner directly for their dental care. Reimbursement is based on an agreed price between the practitioner and the patient. Patients are not reimbursed by any third party for their financial loss. If they have a lot of work done, they (the patient) pay individually for the above‐average dental service use. In theory, those who most value dental services will pay for them. FFS is an open panel system; patients can go to any practitioner who agrees to see them.
FFS dentistry is not without its problems. Dental care is expensive. Only those who can afford dental care receive its benefits, leading to significant disparities in oral health between those who have adequate finances and those who do not. Practitioners must be especially diligent with their credit and collection policies to ensure that they collect the amounts owed from patients. The amounts that patients pay for services are generally not tax deductible. (Medical‐dental expenses greater than a specified percentage of adjusted gross income are deductible for those who meet the limit and itemize deductions.) In contrast, most third‐party plans offered through an employer are tax deductible. This means that the government covers some of the plan’s cost, giving more “bang for the buck” than with non‐tax‐deductible plans.
TRADITIONAL DENTAL INSURANCE PLANS
Dental insurance plans provide reimbursement to patients for the cost of dental care they incur. This reimbursement is usually from the employer as a form of employee benefit. The money may flow directly from the employer to the employee (patient) in direct reimbursement (DR) or through a traditional insurance company.
TRADITIONAL INDEMNITY CARE PLANS
Traditional indemnity insurance is also known as “regular” or traditional dental insurance (Box 27.15). As with any insurance product, it “indemnifies” or pays for a loss. (Here, the loss is the patient’s cost for the dental procedure.) The contract is between the patient and the insurer. No contractual relationship exists between the insurer and the practitioner. Practitioners often agree to process forms, accept the assignment of benefits, and send pretreatment estimates as a convenience for the patient. The patient owes the practitioner for the service, no matter their reimbursement from the insurer. These plans typically try (and succeed) to place the practitioner between the patient and the insurer by requiring documentation and mediation of disputes for services or fees.
Indemnity insurance is an open‐panel product. The agreement, again, is between the insurer and the patient. The insurer does not care where the patient receives treatment because the insurance reimburses the patient. Employers purchase these insurance contracts from major insurance companies. They generally provide them as a benefit to all employees, because allowing freedom of participation would lead to adverse selection.
Indemnity insurance reimburses the patient, not the practitioner. The practitioner charges the patient for the procedure. The employee (patient) sends a receipt to the insurer for reimbursement of their financial loss. The insurer pays the patient an agreed amount. The practitioner (the provider) may accept “assignment of benefits” in which the patient agrees that the reimbursement (benefit) is sent (or “assigned”) directly to the practitioner instead of to the patient first. The insurer agrees (through the contract) to reimburse the entire cost of the service, part of the cost through patient copays, or a portion through a table of allowances, in which it will reimburse a certain amount for a given procedure, regardless of the fee charged. (The patient is then responsible for the remainder of the charge.) The insurance company may have internal limits for employees (either family or individual) or exclusions for certain services.
From the patient’s perspective, traditional indemnity insurance is simple, there is freedom of choice of a practitioner, and it lowers out‐of‐pocket expenses significantly. Most researchers believe that traditional insurance leads to overtreatment compared to uninsured patients.
Practitioners like indemnity insurance because it is an open panel with freedom of choice. Therefore, practitioners see minor interference in the practitioner–patient relationship. Traditional insurance stimulates demand for services and, once systems are in place, is relatively simple because there are standard forms to complete. However, practitioners may experience cash‐flow problems waiting for the carrier to reimburse and may have traditional patient collection problems for the copayments and uncovered procedures.
From the employer’s perspective, indemnity insurance is an expensive benefit to provide. Employers generally do not care about freedom of choice, only about providing a cost‐effective benefit for their employees. They often believe they can get more value from a capitation plan or preferred provider organization (PPO).
DIRECT REIMBURSEMENT
DR is also known as “paid dental.” It is a plan that the dental associations are supporting as an alternative to managed dental care. It is promoted through the professional press, by advising employers and practitioners, and by assisting with computer software for employers to monitor and administer the DR program. It is promoted especially to smaller employers who do not have traditional insurance plans. Several third‐party administrators will set up and administer a plan for a business.
DR is an open panel with complete freedom of choice (Box 27.16). It is a contract between the employer and the employee (patient). The employee goes to any practitioner and has dental work done. The patient pays for the work. The patient then takes the paid receipt to their employer’s benefits office. The employer reimburses the employee for the cost of care. This reimbursement may be total, involve copayments, or be based on a table of allowances. The employer may set individual maximums, or overall company maximums, use a “first come, first served” basis, exclusions, or other methods to limit its potential cost. A typical DR plan might pay for 100% of the first $100 spent on dental care, 80% of the next $500, and 50% of the next $1000 for a total annual amount of $1500.
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