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Clarifying the Opacity of Dental Insurance

We will compare four different types of coverage:

1. A traditional dental insurance plan with generous benefits. This is the Delta Dental PPO Premium Plan.
2. A low-cost dental insurance plan with basic benefits. This is the Delta Dental PPO Basic Plan.
3. A savings plan that does not offer any insurance coverage, but still offers discounts on dental procedures.
4. An in-house dentist membership plan.

The cost assumptions are zip code sensitive. The costs were derived from a Delta Dental cost estimator.

The disclosed costs are probably representative of any major US urban job center area.

The Basic Dental Insurance Evaluation Model

I start with using the basic costs, deductibles, and maximum coverage for the two Delta Dental PPO plans.

Next, I include the following features in the model:

• The average discount between the dentist billing cost and the contracted rate with the dental insurer. I use an average discount of 35%. This is conservative. I reviewed my own explanation of benefits since 2022, and the average discount was 45%.
• I list the most common procedures and their billed costs using the average from the Delta Dental cost estimator for my specific zip code.
• Next, I calculate the estimated contract costs for these procedures. They are equal to:

Billed estimate X (1–35%) = Contract estimate.

• Next, I include the % coverage for the two Delta Dental PPO plans.

With these inputs, I derive two main outputs:

• Net economic benefit
• Copay

Net economic benefit

Gross economic benefit = Billed — Contract + Covered amount

For short…

Gross economic benefit (GEB)= $Discount + Covered amount

Net economic benefit = GEB — Yearly premium — Deductible

Below, I compare the net economic benefit for three types of coverage:

1. Delta PPO Premium Plan
2. Delta PPO Basic Plan
3. A generic Savings Plan where you would pay $150 a year to get the same 35% discount as the insurance plans. However, such savings plans have no insurance coverage. Such plans are offered by insurers (Delta Dental, Aetna, etc.) and other contracting parties (500 Series Careington).

I look at 9 different scenarios. All scenarios assume that one gets two dental cleanings a year. And, in one of those sessions, one would also get an exam and X-rays. The 9 scenarios consist of having from 0 to 2 crowns and 0 to 2 root canals done in a year. These scenarios are common. Nowadays, if you get a root canal, you almost automatically will get a crown to top the root canal.

The tables below show the output for these 9 scenarios for the 3 different types of dental insurance or savings plans.

When comparing the 3 plans, you can see that the economic benefits of the Delta Basic Plan and the Savings Plan are very close. This is no surprise. The Basic Plan costs more in annual premiums. But, it covers 100% of preventive care. The Savings Plan costs less. But, offers no coverage. Both plans are associated with the same discount of 35%. So, on a net-net basis, they pretty much end up in the same place.

The Delta Premium Plan is very different. It costs a lot more. So, during a year when you only need preventive care, this plan will be more expensive than the other two. See the Delta Premium Plan has a negative net economic benefit of — $283 when you just get preventive care. The other two plans have a positive economic benefit value. But, the minute you have some work done, the Delta Premium Plan's net economic benefit quickly exceeds the other two alternatives. If you had 2 crowns and 2 root canals, the Delta Premium Plan net economic benefit is $1,200 higher than for the alternatives.

Risk coverage

Note that the Delta Premium Plan negative — $283 in net economic benefit still provides a lot of value in terms of risk coverage. This $283 pays for the potential risk of:

$2,000/( 1 -35%) = $3,077 in additional dental costs

And, this plan reaps some of this additional risk coverage benefit as soon as one incurs major work (fillings, crown, root canal).

Next, let’s look at copay.

Copay

As expected, the copay values are so much lower for the Delta Premium Plan than for the two other alternatives. That’s for a simple reason. It does provide some coverage for crowns and root canals, unlike the other two alternatives.

Next, let’s review a dentist's in-house membership plan.

Dentist's in-house membership plan

I am showing my former dentist’s plan. He dropped out of most insurance networks, as he balked at the 35% (or more) contracted discounts with dental insurers. And, instead created his in-house membership plan with a lower discount of 15%, as shown below.

This plan compares poorly with the Delta Basic Plan:

1. The yearly cost is $821 on sale for $550. Meanwhile, Delta Basic Plan costs only $367. This in-house plan's regular price is about the same as the Delta Premium Plan ($820 per year).
2. Discount for this plan is only 15% compared to typically 35% or more on insurance plans.
3. The Delta Basic Plan provides 50% insurance coverage for filings. This in-house plan does not provide any such coverage. The latter provides one emergency visit per year. So, it may only partly compensate for not having any coverage for fillings.

This in-house plan is not a good deal. Remember, the only incentive for a dentist to offer an in-house membership plan is to boost his reimbursement rate. My former dentist does that by lowering the discount he offers from 35% or more with insurers to only 15% with his plan.

Below, we will compare how much of a price increase this in-house plan translates vs. traditional dental insurance.

First, let’s compare the in-house plan vs. the Delta Basic plan.

As shown above, why would a customer pay $550 to $821 a year to my former dentist vs only $367 to Delta to incur an increase in prices ranging from 31% to 162% on dental procedures.

Next, let’s compare the in-house plan vs the Delta Premium plan.

As shown above, why would a customer pay $550 to $821 a year to incur price increases ranging from 162% to 554% on various procedures while the customer could lock in these lower prices (copay) by paying $820 a year to a dental insurer.

In-house membership plan [dentist perspective]

I don’t think this in-house membership plan will work for my former dentist.

On the positive side by lowering the discount he offers from 35% down to 15%, he now makes 31% more on each procedure:

(1–15%)/(1–35%) — 1 = 31%

But, to maintain his revenue base, he has to retain 76% of his existing customers:

1/(1 + 31%) = 76%

It is extremely unlikely he will retain 76% of his customer base. That’s because he has effectively increased his prices to his customers by 162% to 554% for the ones with regular insurance and by 31% to 162% for the ones with low-cost insurance.

THE END

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