When health & dental plans are designed, some benefits are
considered "pure insurance benefits" - Many others are
considered "dollar-trading benefits". What's the distinction
and why is it important? In the case of dental coverage, it's extremely
important, and understanding the difference will make you a smarter
consumer.
Pure insurance is about providing money to cover the possibility of
something happening. The claim is unforeseeable and the amount of money
is unknown before the event happens. However, with dental plans, making
a claim is not a just a possibility - it's an absolute certainty. The
question insurers ask themselves is not, "Will a claim
happen?", but "When the claim happens, how much will it cost
us?" This is what people in the insurance industry call trading
dollars.
To stay in business they have to "design certain plan elements
based on a 100% utilization factor". Cutting through the jargon,
this simply means that, since they know that we are going to use certain
benefits, they have to collect more money from us than they will
eventually send to us.
One such benefit is cleaning. The semi annual cleaning that dentists
recommend costs the insurer $222 annually (Office visit plus cleaning at
$111 X 2). Over and above the dental associations basic fee schedule,
the insurance company has to tack on claims administration, sales
administration and profit. The total cost of about $20-$30 per month is
then added directly to the premium we pay.
Does this mean dental insurance is a bad investment? Absolutely not.
Insuring against uncertainties like an accidental blow to the mouth
always makes sense. But insuring against an absolute certainty is not
"insurance" - It's trading dollars with the insurance company.
Interestingly, insurers themselves don’t like doing this. It is
unprofitable and they would be the first to admit that it’s not the
business they want to be in. It’s only offered as part of packages
because of consumer demand.
Paying a monthly amount creates a sort of lay-away plan which helps
to budget dental costs. Also, in cases such as group plans with matched
contributions by an employer; plans being purchased with pre-tax dollars
or plans where the premium is tax deductible, the net cost of premium is
lower and therefore, dollar trading makes sense.
This is still not satisfactory for most consumers. All but the very
best plans still leave individuals responsible for co-payments,
deductibles or out of pocket expenses and none will provide coverage for
pre-existing conditions. Like it or not, most of us will face covering
some dental expenses and "self-insuring" ourselves.
As a former insurance industry executive, I recognize the value of
coverage and am very cautious about recommending self-insurance.
However, since dental plans place us in that position anyway, the
question becomes what is the most intelligent way to approach it?
One strategy is to use a hybrid approach to get the best of both
worlds.
Firstly, get the best insurance coverage you can find that
comprehensively covers the unexpected and high cost items. (Fillings,
major restorative, endodontics, periodontics etc.) but that has limited
coverage for routine or preventative maintenance (dollar-trading
benefits).
Secondly, develop a relationship with your dentist. They are caring
professionals, but they are also business people. The rates they charge
to insurers are based on the aggravation associated with doing business
with them. Regular clients who pay their bills on time should (and
frequently do) receive discounts.
Finally, if you are a frequent visitor to the U.S., a snowbird or
live in a border community, consider joining a "PPO"
(Preferred Provider Organization). For a small membership fee, these
groups use buying power to pre-negotiate substantial discounts on behalf
of their members.
These techniques won’t eliminate the cost of dental coverage, but
they will take a bite out of it – And that’s something to smile
about.
