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It's time to rethink how to structure and share the costs of dental programs
Dental benefits have always played second fiddle to medical benefits. Yet, as employers look for ways to manage their overall benefit costs, they would do well to remember the importance employees place on insuring their dental health.
Two-thirds of respondents to a 2014 survey by the Employee Benefit Research Institute (EBRI) considered dental benefits to be very or extremely important. The survey (of 1,517 workers) also found a high take-up rate of 80 percent among employees who have a dental plan available through their employer.
Employers are listening: EBRI found that the percentage of U.S. employers offering dental coverage increased from 67 percent to 72 percent from 2013 to 2014.
The share of members of the Society for Human Resource Management (SHRM) who say their company offers dental insurance is even higher. SHRM’s 2015 Employee Benefits survey report showed that 96 percent of members’ organizations currently offer dental coverage either as part of or in addition to other health insurance plans, up from 94 percent in 2011.
Despite their popularity, dental plans tend not to be discussed much. “Because of the Affordable Care Act and the importance of staying compliant, many employers are just trying to maintain benefits so they can recruit and retain valuable employees,” said Scott Bachhuber, strategic account executive with Businessolver, a Des Moines, Iowa-based benefits administration firm. “Employers may be looking at different funding arrangements for dental in the future, but other than that, there will not be a lot of movement.”
Too much benign neglect of dental plans could be a mistake. With the cost of dental care increasing, employers need to make careful choices in how they structure and share the costs of these programs. Fortunately, they have a few options available to them. For example, if an employer contributes a portion of dental premiums on employees’ behalf, it can increase employee cost-sharing and/or seek out preferred provider organization (PPO) dental coverage that offers lower costs in exchange for coverage limited to dentists in the plan’s network.
Voluntary Benefit Options
If the cost of offering subsidized dental plans is too much for the employer’s budget, an employee-paid voluntary plan is an alternative, in which group coverage is provided through the employer but premiums are paid mostly or entirely by employees who select to receive coverage, typically through a section 125 cafeteria plan.
If employers opt for this approach, they have some flexibility to ease the transition for employees. For example, in the past, insurers “may have considered a plan to be voluntary if the employer contributed as little as 20 percent [of the premium],” said Jeff Kolesar, vice president of group sales and market development for Renaissance Dental, an Indianapolis-based dental insurance provider. Now, “we consider voluntary coverage to be plans with as much as a 30 percent contribution from employers.”
The decision whether to shift to or begin offering voluntary, primarily employee-paid dental benefits will depend on the employer’s specific circumstances, labor market competitiveness and other variables. For example, Bill Gimbel, managing director of employee and corporate benefits for insurance broker The Bensman Group, based in Bannockburn, Ill., has noticed that employers with large blue-collar workforces are more likely to gravitate toward voluntary dental benefits, rather than any level of employer-paid programs. “While there is slight movement [toward voluntary dental] in white-collar roles, it's not at the same rate,” he said. “For companies with highly compensated employees, there is no big movement towards voluntary benefits in dental.”
Excise Tax Concerns
There also is a countervailing factor that might push employees away from the voluntary benefit option and toward more generous employer-paid coverage. The "Cadillac tax"—a 40 percent excise tax on high-value health plans set to take effect in 2018—excludes standalone, fully insured dental and vision plans from the value threshold that triggers the tax. Federal agencies have also indicated that they will consider exercising their regulatory authority to exclude self-insured dental and vision plans that qualify as excepted benefits from the excise tax.
As a result, "Employers that find they must pare back their health benefits—by increasing out-of-pocket deductibles, for instance—may want to consider enriching their dental coverage to ease the financial pain for their employees," said Mike Sinkeldam, a principal for Mercer's health and benefits practice in Irvine, Calif.
Plan Design Factors
No matter which option they choose, employers need to make sure the plans they offer meet employee needs. The first consideration when evaluating a dental plan is the level of benefits provided. Most dental plans come with an annual cap on benefits. If that cap is too low, the plan will have limited value to employees.
“As dental care has gotten more expensive, it is harder to be able to afford even standard dental procedures without some assistance,” said Steven L. Beumer, executive vice president at the National Benefit Service Center in Maitland, Fla.
Where a $1,000 per year maximum benefit used to be adequate for most employees, he explained, employers should compare that maximum to the cost of major dental procedures. In many cases, employers are finding that maximum benefits of $1,200 to $1,500 are more appropriate.
“These days just a root canal and crown can wipe out that $1,000 maximum for the year,” said Beumer. “Fortunately, moving from, say, a $1,000 annual benefit to a $1,200 benefit represents a fairly small increase in costs. Most employees have even been willing to absorb that small change to have the extra coverage.”
As with medical benefits, shifting to a smaller network of high-quality, cost-competitive providers is another way to offer better benefits while managing costs. “One of the trends is to use a PPO-based dental plan and make the network benefits more robust and the out-of-network benefits very minimal,” said Beumer. “If the carrier has a good choice of dentists in its network, this can be a very cost effective plan while offering better-than-average benefits in the network.”
The key to a high-performance network plan is maintaining sufficient choice of dentists in the geographic area in which most employees live, as well as adequate coverage for preventive care. “The plan should offer a 100 percent benefit for at least two office visits with cleanings and X-rays per year, or it is worthless,” said Beumer. “Part of dental insurance is to encourage good dental hygiene. Nobody wants to have a root canal and certainly nobody wants to pay for it today.”
As some employers shift their health benefits to private health insurance exchanges that allow a broad array of plan choices, they often have the option to use the exchange for dental and other ancillary benefits as well. However, this movement is not necessarily widespread at the moment.
“We have not seen a lot of dental carrier or vendor changes,” said Bachhuber. He also noted that dental offerings on private exchanges may not always be stable. “We have seen some of the smaller exchange players that do not specialize in dental shed their dental blocks to focus on their core benefits,” he said.
Employers that do include dental plan options on a private exchange can develop minimum criteria for these plans and use it to evaluate each plan offered. “The challenge with any exchange is always the coverage area networks within the exchange,” said Bachhuber. “If you have an exchange that only has a Northeast or Southeast footprint it becomes very difficult for employers with multiple locations across the country.”
Whatever option they choose, employers need to make sure the chosen plans meet everyone’s needs. “The key is for companies to consider what the overall goal of the plan is and what incentives their staff care about most,” said Gimbel.
Joanne Sammer is a New Jersey-based freelance writer.
Related SHRM Articles:
Employees Forgo Covered Dental Checkups, SHRM Online Benefits, October 2014
Dental Benefits Evolve in an Exchange-Driven World, SHRM Online Benefits, October 2013
Costs of Routine Dental Services Vary Widely, Analysis Finds, SHRM Online Benefits, October 2011
Tips for Evaluating Dental Provider Networks, SHRM Online Benefits, March 2011
Dental Benefits Undervalued Without Effective Communication, SHRM Online Benefits, August 2009
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