Underwriting Dental Plans Is Not Rocket Science

“It’s Elementary My Dear Watson”

Employers who fully insure their dental plans should consider a self-funded approach instead. Savings in premium taxes, insurance company retention charges, agent commissions can be as high as 25% and more. The following will give the reader a good understanding of underwriting pricing.

By Floyd R. Martin –  Consultant with Tillinghast – Panelist Discussion Las Vegas 2020

On a national average we’re seeing that an individual adult’s annual cost will run about $420 on the average. This is an insured population. Similarly for a child, their cost would be about $345. This is where cost level would start, on an annual basis, if we were to cover dental services in full. This includes preventive, major and orthodontic coverage also.

If we were to split the costs out, the split is quite a bit different between an adult and a child. The child, ages up to around 19, has almost half the costs (49.4%) are going for orthodontic treatment. The next big chunk would be preventive services (23.5%), with basic care following at 19.3%, which are going to be basically the fillings. There are very little major services (7.8%) going on for children. The adults, on the other hand, the major services are the biggest piece at 39.5% with orthodontics right now running at 10.4%. So the major category is where most of the services for adults are going, with preventive still at 20%, and basic services at 30.1%. You can see the big difference in where the costs are. With orthodontic costs as high as they are in relation to other types of dental benefits, you can see why the children costs were still $345 on an annual basis. Half of that is going for orthodontics.

What happens if we apply the traditional co-insurance approach for dental insurance–100%, 80%, 50% plan? That brings the adult cost down from $420 to $290 or a 31% cost savings. There is a similar percentage savings on the child side because of the 50% coinsurance on orthodontic benefits. The child cost is coming down to $235 a year, which is a little bit over 30%, about 32% savings just by applying the co-insurance adjustments.

This changes the mix of benefits quite a bit because we’re paying preventive at 100%. For children 34.8% of the costs are going to preventive, 22.8% are going to basic services and orthodontic drops from 49.4% of the total to about 36.5%. For children, major services drops to 5.8%. On adult the orthodontics still has a little bit there at 7.6% but the costs are split evenly between preventive at 29.0%, basic at 34.9%, and major services at 28.6%

A $25 deductible would reduce costs about 4% and a $50 deductible is almost double that, about 7.9%. Even with a $100 deductible applied to dental services up front, we expect to save only 15.5% for an adult and about 13.9% for a child.

Finally, what is the impact of maximums? I’ve compared three common maximum levels in Chart 2. Once you get above $2,000 there are very few claims that are going to exceed that amount except the orthodontic claims. These adjustments are on top of the co-insurance adjustments that we had before, so you’re paying orthodontic at 50%. Thus, even a $1,000 maximum limit would only reduce adult costs about 5% and would barely affect the children cost in total, at 0.5%.

SOURCE: Panel discussion Las Vegas Spring Meeting May 22–24, 2000