When developing an employee benefits strategy, the idealistic goal of employers is often to reduce cost without negatively impacting quality. It’s known all too well that health insurance is the number one cost-driver within employee benefits insurance portfolios, so it understandably gets the most attention during the strategic planning process.
For employers looking for creative solutions to drive down costs, but not quite ready to make changes to their health plan funding strategy, an alternate funded dental plan may be a good place to start.
Why dental, you might ask. Insurance typically covers a scenario that has a high risk and low occurrence. Think of a house fire; it doesn’t happen often, but it costs a lot when it does. However, something like dental care has low risk and high occurrence. This could be budgeted rather than insured, which would eliminate administrative expenses and the expense associated with risk.
You might be wondering, why insure for dental expenses? For starters, it’s convenient to make small regular payments; it’s a cash management tool. Additionally, insurance carriers offer dental networks, so claims are processed at a discounted rate. Network savings are typically greater than the administrative costs associated with them. And from the employee perspective, in addition to lower out-of-pocket costs, dental networks offer the convenience of not having to manually submit claims.
Below are some options when it comes to employer dental plans.
Fully Insured Dental Plans
Most dental plans are fully insured. Fully insured is less risk and easier to manage. You pay a fixed monthly premium that is prospectively rated. The insurance company holds all the risk and gets all the rewards. If the plan runs poorly, the insurance company absorbs the extra costs. If it runs smoothly, the insurance company keeps the surplus. Because dental is low in risk and predictable, the insurance company reaps the benefits often, especially during the COVID-19 pandemic when dental visits were less frequent.
Self-Funded Dental Plans
In a self-funded plan, employers have more plan design flexibility and eliminate premium tax. The employer selects a Third-Party Administrator (TPA) or an insurance carrier on an Administrative Services Only (ASO) basis to give access to a provider network and process claims. This allows the plan to look and feel like a fully insured plan to the covered members. Each month the employer pays a small fixed administrative fee plus the cost associated with claims processed. Cash flow is less consistent than fully insured plans and the employer now holds the risk and reward.
Level-Funded Dental Plans
A level-funded premium plan offers the best of both worlds. It has the potential savings associated with traditional self-funding, while still providing the guaranteed security that many employers seek through fully insured coverage. Level-funded plans may be a great option for employers who want to offer low-cost comprehensive dental benefits. Level-funded dental plans are offered by ASO/dental insurance carriers. However, not all dental carriers offer a level-funded product.
How Level-Funded Plans Work
Once the ASO and plan design are determined, dental premium and claim experience will be evaluated to determine the appropriate level of aggregate stop loss insurance. This is the reinsurance protection needed, should claims be higher than anticipated. Typically, the aggregate protection will be 110% of expected claims. The plan is then funded at the maximum employer liability and paid by the employer each month. If claims are higher than the maximum, there is no additional liability for the employer. If claims are lower than the maximum (which is usually the case), the ASO will refund the surplus back to the employer. Excess premium can be returned as a renewal credit, making it a great option for employers that provide 100% employee paid (voluntary) dental coverage.
Because most dental carriers do not share claim experience with employers having fewer than 100 employees enrolled, it can be a bit more challenging for small employers to get a level-funded quote. However, in this situation some ASOs may be willing to increase the aggregate stop loss corridor to 125% (instead of 110%) to account for the additional risk. An additional consideration for small employers with a fully insured carrier that offers level funding is the possibility that their current carrier will issue a level-funded quote with a 110% ASL since they have the premium vs. claim experience.
So how much savings can an employer expect when transitioning their dental plan to a level-funded plan? While each employer’s situation is different based on industry, demographics and claim experience, it is reasonable to expect a level-funded quote to show 10% to 30% savings when compared to the fully insured renewal. While the dollars may be small compared to an employer’s health plan, that savings is still significant enough to make it worth evaluating.
If you’re interested in taking a look at how this can impact your business, contact us today at info@bondbenefits.com or give us a call at 585-248-5870.