When we see magic tricks in real life or on television, we wrack our brains trying to figure out how the magician sawed the willing victim in two or pulled a rabbit out of a hat. We know it’s not “magic” but we don’t exactly know how they do it. Similarly, some brokers wonder how dental insurance carriers come up the various rates they offer groups. You know it’s not magic but you just don’t know how they do it. Well, it’s time to de-mystify this mystery. Here are some of the top factors that affect dental insurance rates.
City life has a lot of benefits but it can also be expensive. Insurance carriers take into consideration where employees are located when they are coming up with rates. This is because the cost of dental procedures may be expensive or inexpensive depending on where employees live. For example, the average cost of a routine cleaning in New York City may be $140, while in rural North Florida, the cost is $40. So, in New York City, the insurance company has to compensate providers at a higher level, which often results in higher rates in those areas.
Plan Design Richness
Being able to offer dental plans with great benefits has many advantages for employers, including attracting great talent; however, it does come at a price. The richer the plan design selected by the group, the higher the rates will be. Richer plans include desirable benefits like:
- Higher payments from the insurance company (sometimes called coinsurance)
- Higher calendar year maximums
- Lower employee deductibles
- Additional benefits like implant coverage
The fact of the matter is that enhanced benefits are great but ultimately, the insurance company’s ability to provide them will come from higher rates.
Group size is an important factor in determining rates and here’s why – insurers can spread the risk! The bigger a group and the more premium an insurance company is collecting, the less impactful any single claim becomes. Let’s say the insurance carrier has a group of 30 people and collects $30,000 a year in premium; let’s also say they have a group of five people where they collect $1,500 a year in premium. If a single member gets a crown costing $500, that claim is worth approximately 1.6 percent of premium in the larger group but a whopping 33 percent of premium in the smaller group.
500 x 100 = 33% 500 x 100 = 1.6%
This factor (known as a morbidity rate) is considered when pricing groups. As a result, smaller groups will receive proportionally higher rates than larger groups.
As people get older, the dental care they need typically becomes more costly. For example, an older person may need major dental work such as:
- Root Canals
A younger member on the other hand usually gets less expensive preventive services such as routine cleanings and x-rays. So, the rates for older members tend to be higher.
Some insurance companies look at gender when determining rates. This is because there are gender differences with regard to the utilization of health services. Studies have shown that women, as well as women with children utilize dental plans more so than men and men with children. As a result, the rates reflect this difference in the level of use.
Group Funding Type
Plans can be either employer-sponsored or employee-paid (known as voluntary benefits). Employer-sponsored plans are offered to employees at no cost or at a low cost. Employee-paid means employees must pay for their benefits. It has been observed that employees who have to pay for their benefits, yet still elect to get them, are more likely to take full advantage of their plan. This means high utilization, which results in higher rates.
The previous factors generally apply to small groups (i.e. under 100 lives) and are called manual or pooled rates. For larger groups (i.e. over 100 and always over 200) many insurance companies require and base their rating on the groups’ actual claims experience. Claims experience is usually provided for a large group’s most recent 12 months in the form of a loss ratio report and/or benefit utilization report. Using this information, the insurance company is then able to forecast what the plan utilization will be and determine the insurance rates.
Knowing these variables early in the game is going to save you time, money and your reputation. It will save you time because when you approach an insurance carrier for a quote, you will have the information they need from the get-go; this will prevent days of going back and forth between the group and the insurance company. Additionally, when you have the information insurance carriers need, you are able to quickly acquire quotes from multiple carriers and, therefore, provide your groups with multiple options for their employees. And Voila! Just like that, you get to be your group’s hero but there was no magic involved.
*Affordable Care Act plan rates are not impacted by age or gender.