The Truth About Dental Insurance – How to Pick a Plan
By Dr. George McKee
A good friend asked my advice the other day about dental insurance. His parents are getting on in years and are on a fixed income. He wanted to help them out financially by giving them dental insurance. The advice he was looking for was if I knew a good plan that would cover them for any future dental needs.
I get variations of this question all the time. Where can an individual go to get good dental insurance coverage these days? Before you read any further you need to know that I am NOT going to plug or promote any one plan. I have nothing to sell (except my consulting services to dentists) and this article is intended to educate the public on the truths of dental insurance.
Here is the letter I wrote to my friend, John.
Dental Insurance is NOT Insurance
John, what most individuals seem to misunderstand is that dental insurance is NOT insurance. When most people buy an insurance contract, they are assuming that they are being protected for an event or situation that normally would cost them a lot of money. For most types of insurances, this is true. An insurance company will collect a small premium from thousands and thousands of individuals thereby contractually protecting them. The insurance company only has to pay claims on a very small percentage of these individuals as the events and situations that they are being protected from are quite rare. This is the definition of true insurance. You pay a small premium to be protected from something that is statistically quite rare and that you hope never happens. Fire insurance, disability insurance, homeowner’s insurance and even medical insurance all come under this definition. If you are one of the unfortunate people that fall into that small percentage of policy holders that needs to make a claim, you are covered for most, if not all, of your losses.
It’s a Benefit
The necessity for general dental care in the general population is quite common and not a rare event. Most everyone needs regular dental care and spends money, predictably, over their lifetime on that care. The costs of this care, although not inexpensive, never accumulate to a significant amount compared to the costs of replacing your home or a major surgical operation and hospital stay. There are many things in life that we have to pay intermittently for on a semi regular basis that can be a significant amount of money. What about clothing? Can we purchase clothing insurance to help pay for our wardrobe? Sounds silly doesn’t it?
Therefore, the classic model of many individuals paying a small premium for a large but statistically rare payout doesn’t work in dentistry. You can not say that dental insurance is insurance using this definition.
When dental insurance was invented in the 1960’s, it was added as an extra benefit to medical insurance plans. Instead of giving salary increases which would increase the payroll tax, business owners have, over the years, given their employees additional “benefits” such as a uniform allowance, travel expenses, paid time off and the dental plan. Notice how the terminology used these days “dental plan” and “dental benefit”. It’s not insurance.
How Dental Plans Make Money
All insurance companies are in the business to make money. All businesses are. They make a lot of money. That’s why the owners of many high rise buildings in big cities are insurance companies, and they put their name on the building. Think: Transamerica building in San Francisco.
So how does a dental “insurance” plan make money if everyone needs dental care? Dental plans are designed to take in more money in premiums (income) than they pay out in benefits (expenses). This is why dental benefit plan contracts come with that thick booklet that explains how the plan works. The booklet is complicated because it is a list of situations conditions and dental procedures that they don’t pay for. Some dental procedures, although medically necessary in a patient’s situation, are not covered. Dental plans are a contract, with every situation and condition that doesn’t get paid for spelled out in black and white.
How Dental Plans Don’t Pay
In addition to not paying for all needed dental work, dental insurance companies know their market very well. Another way they can control the payout for claims by setting a maximum benefit per year ($1,000 for example). This prevents someone who needs a significant amount of dental work from getting it all done in one year. I should qualify that statement. They could get it all done in one year but the insurance would only cover the maximum per year benefit. The rest would be out of pocket.
These yearly maximum allowances have not kept up with inflation. In the late 1960’s, a typical dental plan paid up to $1,000 a year. In those days, $1,000 would pay for about 5 porcelain crowns. In 2009, the typical dental plan still has a yearly maximum of $1,000, which in today’s dollars doesn’t even pay for one porcelain crown. However, the costs of these plans have kept up with inflation and are much more expensive to purchase.
The dental insurance companies also know that only about 50% of the population goes to the dentist at all, unless it is an emergency. This fact is what you have to keep in mind when I tell you how to shop for insurance companies.
Group or Individual
John, your dental plan is written for a LARGE group. I assume it is under the school district where you work. Thousands of individuals who are a part of your group are covered under the same identical plan. Your plan collects premiums for each and every individual knowing full well that half of the covered individuals will never use the benefit. Those premiums are pure profit for them. However, they are smart enough to use a good portion of these unused premium dollars to give benefits to those in the group who do go to the dentist.
This is why it is possible for you as an individual in the group plan to get more money in dental benefits than it costs you in premiums. The company is subsidizing your benefits with the unused premiums of those who never use the plan.
The difficult thing to do is find a good dental plan for an individual who is not part of a large group. There are many dental plans out there for individuals or couples or single family units, and you see advertisements for them all the time. This article probably is decorated with Google Ads promoting such plans. But the possibility for a company to make a profit on individual plans is very slim. These plans tend to cost more in premiums than they pay out in benefits. However, the way they market these plans and sell them to the public is quite slick, and only by reading the booklet and seeing how they pay do you discover how they manage to make money.
How Individual Plans Profit
These individual plans tend to have the following restriction built into them to keep the plan profitable to the insurance company:
1. Paying your monthly premium into the plan for three, six or even twelve months before any benefits are paid out. You essentially pay up front for many months before they pay out.
2. Paying a very low benefit for the specific dental procedures, essentially increasing the out of pocket expenses for the individual on top of the premium. For example: Policy holders of large group dental plans will typically have a $100 dental cleaning covered at 100%. Individual dental plans tend to pay, say, $30 for a cleaning that the dentist charges $100 for and you have to pay the additional $70.
3. Individual plans tend not to cover, at all, more expensive dental procedures such as crowns, root canals, dentures etc. I have seen individual plans that cover only cleanings and fillings at a low benefit price, leaving any other needed large dental expense for the individual to pay out of pocket.
Private or Contract Dentist
Another way individual plans can seem to be more than they are is to require that the dentist sign a contract with the insurance company to accept the insurance company’s lower benefit fee as payment in full for the patient. The patient may get free cleanings and fillings and a small out of pocket cost for the more expensive procedures, but the dentist is only getting paid a fraction of the payment from the dental plan he would normally get from a private patient or a patient who has a better dental plan. These are the plans where you are required to see a specific dentist who is on the approved list of providers.
These dentists tend to be right out of school looking for experience, and have no patients in their new practice, or have an inability to attract or keep patients who have a choice in choosing their dentist. Many times the payments the dentist receives from these plans barely covers the overhead of doing business, forcing the dentist to purchase cheap materials, never upgrading their equipment or skills, hire low end and unqualified staff etc.
Estimate Your Future Dental Needs
So John, after all that here’s what you do to find a good plan for your parents:
See if your parents are part of any group (AARP, church, or community service organization) and see if those organizations have a group dental plan. These would tend to be the better plans.
In addition, see if you can assess your parent’s future dental needs. For example, if one parent has full upper and lower dentures, their dental expenses in the future are practically nil, save for possibly a new set of dentures every 5 years or so or an occasional reline. The other parent could have a full set of natural teeth and has never had a cavity in their life. The future dental needs here are again practically nil with the exception of the semi annual cleaning.
A person who probably just needs cleanings would probably be financially ahead purchasing an individual plans that only covers cleanings and fillings. The cost of the premium would probably be less than the out of pocket expense of the dental services.
A person with high dental needs is going to find it practically impossible to get an individual dental insurance plan that will cost them less in premiums and out of pocket expenses than it would be to just pay a private dentist out of pocket. I tell these people to put away every month into their “dental fund” a typical dental premium cost and when a dental need arises, most likely the fund will cover it. That’s easy to say, but difficult to put into practice.
Unfortunately, these are typically the people desperately looking for an individual plan. They have been neglecting their teeth for years and are now facing a very expensive dental treatment. There are no dental plans they can purchase that will pay to fully restore their mouth with just the payment of the first month’s premium.
How to Pick the Right Plan
Do an assessment of your parents’ future dental needs. Ask them what dental work they have had to have done on the last 5 years, more or less. No need to get really detailed here. “Just cleanings a few fillings and a crown”, that kind of thing. They are getting older and their ability to keep their mouths clean is a big issue here. Are they on any kinds of medication that tends to make them feel like their mouths are dry? Dry mouth is an excellent decay incubator and can instantly create a very expensive need for dental treatment. Are there any arthritis issues that make it difficult for them to hold a toothbrush?
From this information we can guesstimate their future dental costs. Armed with that information we can intelligently look at the various individual plans out there and evaluate them. This will involve interviewing the various dental plans in your area and doing your homework. Then compare the estimated amount and type of treatment each parent probably will need with the benefits of each plan.
In most cases, I find that individuals not belonging to any group and who are good about keeping their mouth’s and teeth clean and who get regular check-up’s and professional cleanings are far better off financially if they take the money that would normally pay into a dental plan and put it regularly into a savings account. Then as dental needs arise, pay for them out of this account. Remember, the insurance companies that write dental plans ALWAYS take more in than they pay out.
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