by Jason Szczuka
As the cost of providing employee medical and dental benefits continues to rise, employers of all sizes are looking for choices. And for a growing number of California employers, self-insuring dental benefits is a cost-effective option. In fact, a significant number of Californians are already covered under self-insurance arrangements. The California Healthcare Foundation reports that 36% of Californians were enrolled in a self-funded or partially self-funded plan in 2013.
Dental benefits have long been valued as a natural accompaniment to medical coverage, and they remain a core component of employer-sponsored benefit programs. A Group Purchaser Behavior Study by the National Association of Dental Plans (NADP) found that employees rated dental benefits as the third most important kind of benefit, behind health/medical insurance and retirement savings plans such as 401(k)s. The NADP also found that 49% of employees ranked dental benefits as “essential” while 47% saw it as a “differentiator” for employers.
Benefit advisors nationwide are getting asked a multitude of questions about federal health care reform and its effect on costs. Uncertainty over the Affordable Care Act and the growth of state-run health care exchanges is driving employer interest in plan choices that help them contain costs. In 2014, many answers remain elusive mainly because the demographics of the enrollees in the exchanges are not yet clear and the mandates on employers to offer coverage have been delayed to 2015 at the earliest.
From a dental perspective, the ACA has defined pediatric dental care, up to age 19, as “an essential health benefit.” Unlike medical coverage, however, there is no specific mandate under the reform law to purchase dental insurance. Adult dental coverage is largely not addressed in the ACA. For employers that want to control costs but continue to sponsor dental benefits, self-funding can be an attractive option. It may not be appropriate for every employer but can be worth considering.
How Self-Funding Works
Employers that self-fund benefits opt to retain the risk of claims incurred during the plan year. Those plan members’ claims are paid by setting aside funds or paying the claims as they occur. Administering employee benefit programs is time-intensive, so most employers taking the self-funded route contract with a third-party administrator (TPA) to provide services ranging from enrollment to claims processing. Some insurance carriers offer administrative services only, or ASO, contracts to employers wishing to self-fund.
Self-funded plans may buy stop-loss insurance to avoid large and unexpected claims. It can be purchased for combined medical and dental claims or as stand-alone policies. Stop-loss coverage is available in two forms: specific stop-loss, which is triggered by a specified dollar amount per claim; and aggregate stop-loss, which is triggered by claims exceeding a predetermined total for the entire benefit plan. Stop-loss coverage, therefore, provides financial security and helps benefit plan sponsors budget for the working-layer claims that the sponsors are funding themselves.
In 2013, California enacted a law, SB 161, which raises the minimum required attachment points of specific and aggregate stop-loss insurance. As a result, smaller employers with plans covering fewer than 50 lives may find fully insured plans more affordable. The law is not expected to discourage larger employers from self-funding.
Advantages For Dental Benefits
Self-funding employee benefits has been a strategy of employers with large group plans for many years, but recently midsize and smaller employers have also begun exploring the advantages of self-insuring. One reason for the interest is that self-insuring exempts employers from many of the requirements of the Affordable Care Act.
Health care reform aside, self-funding benefits can offer several potential advantages over purchasing fully insured plans:
• Flexibility in plan designs, which can be tailored to an employer’s needs and offered wherever the employers’ plan members live — Insured dental plans are regulated by the states and therefore their plan designs can differ from state to state.
• Innovative plan features — Fully insured dental plans have largely remained unchanged for decades, covering nearly the same services at almost the same levels, even as the financial needs of employers and their workforces have changed.
• Lower administrative costs than an insured plan may charge — Dental plan premiums include an administrative component, which is passed along to the purchaser.
• Reduced volatility in premium costs, which can rise due to subsidization of other risks assumed by the insurance carrier — Conversely, if a self-funded plan has lower-than-expected claims, the plan’s costs are less. Under most insured plans, the carrier derives the financial benefits of lower claims.
• Improved cash flow, enabling the benefit plan sponsor to retain funds until claims arise.
• Regulated at the federal level under the Employee Retirement Income Security Act and therefore not subject to state insurance mandates, as fully insured plans are.
• Avoidance of most state insurance premium taxes.
Plan Considerations
Employers and their benefit -advisors don’t have to reinvent the wheel to establish a self-funded dental benefit plan. A good starting point for most self-funded plans is to mirror the features of the employer’s existing insured dental plan.
Remember, a key advantage in self-funding is that dental plan features can be customized for specific financial needs; in insured plans, the choices are often limited.
Benefit advisors should discuss goals with each employer client, to understand both the client’s needs and the opportunity to deliver optimal value through a self-funded dental plan.
Opportunity For Innovation
While many employers may want to self-fund to realize immediate cost savings, which are possible, other significant advantages are available through self-funding dental benefits. One is that employers can gain direct access to technology that has brought innovation to the entire dental benefit process, from enrollment to selecting providers to processing and paying claims. Simplifying these steps through cutting-edge technology platforms saves both time and money, helps identify quality dental care providers and improves the overall experience of benefit plan members. Ease of use encourages plan members to use their dental benefits.
Technology also provides an opportunity for greater insight through analyzing claims. This can be especially helpful to employers that self-fund, as frequent claims analysis can show where utilization and expenses are heading. Benefit advisors can use claim trend data to bring ideas that help employer clients achieve the most effective plan designs for their specific populations.
Think Holistically
Dental benefits make up an important component of an employer-sponsored benefit program. As a result, benefit advisors should discuss with their clients how to view the benefit program holistically, to maximize employee health and productivity. According to the National Association of Dental Plans, a variety of chronic diseases are linked to a lack of dental care including heart disease and diabetes. Underutilization of dental benefits can therefore raise costs in medical benefit plans.
A lack of access to preventive dental care often results in costly emergency treatments in hospital settings, -according to an analysis in the April 2014 Journal of the American Dental Association. The report states that, between 2008 and 2010, more than 4 million patients were treated in U.S. hospital emergency departments for dental conditions — accounting for about 1% of all emergency department visits, and costing a total of $2.7 billion. The ADA report suggests that more frequent preventive care could avoid the emergency hospital treatments and the associated higher cost.
Effects on productivity from poor oral health are significant as well. A study by the U.S. Surgeon General estimated that adults in the United States lose 164 million hours of work each year due to dental disease or dental visits. The same factors result in children losing 51 million school hours each year. Benefit advisors can help employers understand and promote utilization of offered benefits, especially dental.
A Winning Option
Self-funding dental benefits offers employers several significant advantages: flexibility in plan design, cost savings and access to innovation in administering benefits. Employers should consider the following points:
• Technological innovation is bringing greater efficiency to dental benefit plans.
• Improved efficiency through technology is saving time for employers and plan members.
• Insight into claim trends helps employers make the best return on their investment in offering dental benefits.
Benefit advisors whose clients have an appetite to retain risks may view self-funding dental as a winning option for them and their benefit plan members.
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Jason Szczuka is the general manager and co-founder of Brighter, a new kind of dental benefit that delivers greater transparency, affordability, convenience, and access to quality dental for groups and individuals. For benefit brokers, Brighter provides an innovative solution to add to their suite of dental benefits, adding a new revenue stream while meaningfully reducing dental benefit costs for their clients.