The growing burden of health benefit costs for employers and increasing restrictions on consumers, doctors, and other care providers has everyone searching for answers. Consumer-directed health benefits, where the consumers of health care services participate in the selection of their care and share in its cost, have emerged as an important part of the solution.
Most people are not aware a functioning prototype of this idea has existed for dental benefits for more than 20 years. Direct Reimbursement (DR) is a self-funded employer-sponsored dental benefit allowing employees and dependents a choice of dentists and treatments while controlling cost.
What it Is and Why it Works
The key feature is that DR is a dollar-based benefit; reimbursement of submitted claims is based on the dollar amount of the claim, not the type of procedures performed for the patient. This feature aligns the interests of the employer, employee, and dentist in powerful ways that procedure-based dental benefits cannot.
Plan design is simple, robust, and allows customization to meet the employer’s unique needs. DR employees may see any licensed dentist of their choice, and the employee and dentist together determine treatment needs. The two basic parts of DR plan design are:
- an annual dollar plan maximum for each employee or enrollee
- a coinsurance formula that increases the employee’s contribution to the cost of his or her dental care as the total cost increases.
Together, these two elements work to accurately and predictably control dental plan costs for the employer. As an example, a DR plan could pay 100 percent of the first $150 of claims, and 50 percent of the next $1,700 to a $1,000 maximum benefit. The cost-control tools employed by conventional plans can be added to a DR plan. DR can be self-administered but is now commonly administered by a third-party administrator.
A dollar-based benefit provides value to employers and employees and encourages consumer-directed health care:
- Employees can choose their dentist and the dental treatment that best suits their needs. Over-utilization is discouraged, since the cost of more complex and expensive care will be increasingly borne by the employee.
- When employees know the full cost of their dental care in advance, they can then determine value. Conventional cost-control tools get in the way of consumer direction because they obscure the price of dental care services.
- Employees know in advance how much the employer will contribute to their dental care costs, thereby allowing them to plan for major restorative services.
The simplicity of the dollar-based dental benefit allows employees to fully understand the function of their dental benefit, since the design is based on dollars. DR allows claims and administrative issues to be easily monitored and encourages faster claims payments than conventional dental plans. DR also keeps administrative costs well below the administrative costs of insured indemnity, preferred provider, and capitated plans.
Conventional dental plans often rely on proprietary information to develop cost-control tools. Some of these tools include:
- Usual, customary, and reasonable allowances
- Coordination of benefits with other insurance plans
- Limits on the number of dental cleanings
- Missing tooth exclusions
- Least expensive alternative treatment allowance.
How much do these tools really save? One major insurer calculated these tools save the employer 6.9 percent of total claims submitted. Employers, employees, and dentists will tell you these cost-control tools provide much irritation and little savings.
Since conventional indemnity dental plans reimburse claims at an estimated average of 55 percent nationally, it is easy to design a DR dental plan that will reimburse claims at 55 percent or higher if desired and eliminate the need for inefficient and irritating cost controls.
For a dollar-based dental benefit, there is nothing to hide. This transparency of function allows employees to know the full cost of their dental care and the fees they are charged. It allows employers to possess all claims experience data for their employees and all administrative cost data, making it easier for them to know the reasons for any dental benefit cost increases.
The average dental claim submitted in the U.S. is about $240. The average dental claim check is about $130. Employees submit an average of two claims per year. What is there to manage?
Simply put, conventional dental plans over-manage the dental health care system. Dollar-based dental benefits allow consumers to direct their dental health care while controlling costs for the employer and themselves.
Can consumer-directed benefits work for health services other than dental care? Medical care has catastrophic costs, which dental care does not. Even so, the submitted claim patterns of non-catastrophic medical care and dental care are similar.
Success for medical care will depend on consumers having good price information and the freedom to choose their physician. A Direct Reimbursement dental benefit is an excellent way for employers to ease their employees away from our current health care system. DR allows employers and employees to ease into consumer-directed health care benefits.
Dr. Michael D. Fisher is the principal of Dental Ingenuity, a consulting firm that specializes in dental benefits, and author of Direct Reimbursement: Dollar-based Dental Benefits that Work for Employers, Employees and Dentists. His email address is [email protected], or call 303/617-1452.