I’m a sucker for a good Top 3, 5 or 10 list. Recently, I clicked on an article titled “5 Workplace Benefits Today’s Employees Want but Don’t Have”.
Now, the majority of them are no-brainers, like medical insurance and paid time off. Also included in the list was company paid dental and vision insurance, which I found interesting.
We are in an age of disruption when it comes to health insurance and health care financing. Many are waking up to a new normal of self-insurance, price transparency, and direct contracting in health care, but it seems that dental and vision insurance and benefits are skating by under the radar when it comes to innovation.
Is it time we take out the magnifying glass and look at these two programs and ask why so many employers are insuring something that would typically NOT result in a catastrophic, life changing, financial loss like a dental or vision claim?
Let’s look into the statistics from a study performed by the Health Policy Institute in 2016:
- For the majority of adults, total copayments, premiums, coinsurance, and deductibles actually EXCEED market value for their dental care.
- On average, more than 1 out of 3 adults ages 19-64 with private dental plans do NOT have a single claim in a given year.
- Fees paid to dentists through private insurance are significantly lower than market fees.
- For 69% of adults, total spending, including premiums, exceeds the market value of dental care.
Brass tacks: a lot of money is being funneled to dental insurance companies to accomplish things that could be done on a direct pay arrangement between a patient and dentist. Sound familiar? (Hello, health insurance!)
What we see, more often than not, is that dental insurance is a dollar swap. A dollar paid to an insurance company in the form of premium, that is often then paid out in equal amounts in benefits.
Statistics show that 64% of dental insurance premiums are shared between employer and employee. Let’s sketch this out and compare it to an alternate approach.
- A $35 dollar single monthly dental premium
- Policy annual limit of $1500
- 50/50 premium cost sharing between employer and employee
Under those assumptions, $420 total is paid for insurance per employee per year. Based on the stats listed above, there is about a 70% chance that the insurance carrier will not pay out a dollar based on the premium collected. So, approximately $300/year per employee is just handed over to an insurance company.
It’s amazing, given that figure, that there is not a dental insurance equivalent of the Las Vegas strip.
There is a better way to establish an employer sponsored dental program. It comes in the form of a gift handed to every employer by the Internal Revenue Service. This gift is wrapped in wrapping paper with tax code provisions written on it, specifically sections 105 and 125.
Section 105 allows employers to pay for out of pocket health and welfare expenses for employees, like dental, only when a claim is incurred! Section 125 allows for a pretax deduction on behalf of employees for these same expenses that can then be used tax free.
When working in concert with each other, these plans can be used to fully fund ANY dental expense, without a 93 page policy document from a dental insurance carrier.
Unlike an insured approach, this is not a one-size-fits-all approach, as employees can budget based on their or their families’ needs. Unused funds in these accounts can be rolled over from one year to the next, and based on the statistics, that is most likely to happen.
Wouldn’t you rather your money stay with you and roll to the next year, than kept by an insurance company?
While innovating on your health plan, let’s also not forget about the other desired options by employees like dental and vision. Consider plans where employers keep their money and have total control on the plan design and benefit. Employees have a benefit that they can cater to their needs versus a one-size-fits-all solution offered by an insurance company. 100% of the funds used for out of pocket expenses are tax free as opposed to our example where they may have to pay up to the policy limit post tax.
Dental Insurance carriers make a profit by building in administrative fees to their products and managing loss ratios. Employers can use similar approaches using the tax code to save their organizations and their employees money that would have been lost to the third party system, while improving the benefits offered without the hassle in insurance lingo and limits.