Less painful dental plans - includes related article on third-party administrators - direct reimbursement dental plans

HR Magazine, Sept, 1999 by Nancy Hatch Woodward

Direct reimbursement plans may' cause fewer hassles for employers.

How can six months go by so quickly? It's already time for another visit to your dentist - not one of your favorite things to do. But some companies are making dental care a little less painful with a new type of low-hassle benefit plan.

Most companies offer their employees dental plans - 93 percent of employers responding to a 1997 survey by William M. Mercer Inc. Fifty-six percent offered dental coverage as a standard benefit, while 37 percent offered it as an optional benefit.

The most common type of plan (86 percent) was the traditional fee-for-service; 29 percent offered a managed care plan in addition to the traditional one.

But more companies are turning to direct reimbursement dental plans, which offer employers and employees alike advantages of speed and simplicity.

The New Plan in Town

At the time of the Mercer survey, direct reimbursement dental plans had not really caught on. Although they were devised in the 1970s, it wasn't until 1996 that the American Dental Association (ADA) and dental societies began promoting them, according to Thomas Killam manager of the ADA's Council of Dental Benefit Programs.

This new push has come at the request of the ADA's membership - dentists. "We had been promoting it through dentists and having them talk to their patients about it," Killam notes. "That was fine, except that dentists aren't the best salespeople in the world, and it seemed a bit self-serving. So, we decided to do a more business-to-business type promotion, reaching out to decision-makers at companies on a corporate level."

Administrative Cost of Dental Plans

HMO                             27% of total cost

PPO                             19

Traditional Plan                18

Direct Reimbursement Plan     5-10(*)

* Amount depends on the size of the company and whether the plan

is administered in-house or by a third-party administrator.

Source: The American Dental Association

Killam says the ADA knows of at least 2,100 U.S. companies offering direct reimbursement plans to their employees. "Actually, we know that there are a lot more than that, because the program is very conducive to self-administer, but there is no requirement to report the statistics."

The plans are simple. Basically, employers pay a percentage of employees' dental bills up to specified limits. The most common design is to pay 100 percent of the first $100 of dental expenses and 50 percent of the next $1,800, up to a maximum total of $1,000. "Fifty percent of the plans we administer are broken down that way," says Roger Schultz, president of Schultz Rowson Inc. in Alpharetta, Ga. His company is the parent company of Direct Reimbursement Benefit Plans, a third-party administrator (TPA) of dental and vision-care plans. "There are, of course, other variations," Schultz continues. "Some companies have plans that will have a maximum benefit of $2,000; some pay 100 percent of the first $150; and some pay 80 percent up to $1,000 maximum."

Employees are allowed to choose which dentist they want to see, and there is very little disagreement over what procedures are covered. "We are really very flexible," explains Jessica Hibbs, assistant controller for the McCallie School in Chattanooga, Tenn. "It makes it easier for us to administer the plan for our 156 employees if we don't have a lot of limitations and exclusions, so we cover pretty much everything. You have to be way out there before we look at you funny."

This type of freedom is what often scares employers when first looking at including a direct reimbursement plan. "The average employer's initial reaction is 'Wow, who is going to make sure the dentist doesn't overtreat the patient?'" says Schultz. "It's the belief that you can't trust people. But the average person in this country spends less than $200 a year at the dental office, which is about what they spend at a grocery store in a couple of weeks. So, my question is, if they can make decisions on buying groceries, why can't they be trusted to make the decision on buying dental care?"

Rise in Popularity

The two main reasons these plans are catching on are the simplicity of the programs and the low cost to companies. Dennis McHugh, dental program advisor of the American Association of Orthodontists in St. Louis, an organization that is actively promoting direct reimbursement and that has started its own TPA program, explains: "There are not too many administrative burdens. The average rule of thumb is that for every 100 employees you have, it takes about one hour a month to process claims if you self-administer. The plan is really cut-and-dried. If your program starts on June 1, and you get a claim for an eligible employee after June 1, all you do is plug that in and cut a check for that person for the appropriate amount."

McHugh says that other reasons for the plans' growing popularity is that "a lot of state dental chapters have taken the initiative and have either formed for-profit subsidiaries that have hired representatives to market direct reimbursement, or they have worked with TPA or insurance brokers in the state to promote it.