Group Chap 22: Estimating Dental Claim Costs

Question 1

Typical Benefit Plan

Answer 1

Basic idea
o In order to calculate premium–use amount paid to dentist less the portion paid by insured person, plus provisions for commissions, administration, network access fees, taxes, margins and profit

Question 2

Data Sources

1. Carrier’s own experience
2. Databases
3. Consulting Firms
4. TPAs
5. Actuarial Memorandum and Rate Filings
6. Data Quality Considerations (ASOP23)

Answer 2

1. If credible, carrier’s own historic data may be the best experience base
   - Reflects carrier’s plans, negotiated fee levels, demographics, underwriting, claims adjudication, utilization management
2. Databases which contain fee level information:
   - Fair Health®
   - National Dental Advisory Service®
   - American Dental Association “Survey of Dental Fees”
3. Some consulting firms sell utilization statistics
4. Actuarial memoranda and rate filings of other carriers
5. Charge level and utilization information from TPA or reinsurers
6. Data Quality considerations (ASOP No. 23) [Covered in greater detail later in syllabus]
   o Appropriateness of data for its intended use
   o Reasonableness and comprehensiveness
   o Limitations and modifications or assumptions needed to use data
   o Cost and feasibility of alternatives
   o Sampling methods used to collect the data

Question 3

Claim Cost Factors

Answer 3

Factors divided broadly into three categories, dealing with:
o 1.The plan
o 2. The networks and reimbursement levels
o 3.The insured population

Factors do not always operate independently (may overlap)

Question 4

The Plan

1. Covered Benefits and Sharing Provisions
2. Waiting Periods
3. Coverage Periods

Answer 4

1. Covered Benefits and Cost Sharing Provisions
- Highly discretionary nature of dental services
▪ Cost sharing provisions are significant drivers of assumed utilization in developing claim cost

• Cost sharing provisions impact claim cost for two reasons:
  ▪ 1. Reduce cost to insurer of services provided
  ▪ 2. Incent insured to choose less expensive services
• Encouraging preventive care is cost effective. For this reason, cost sharing is often waived for Class I
• Deductibles
  ▪ $0, $50, or $100 are common, and may be waived for Class I
• Coinsurance and Copays
  ▪ Richer benefits for basic restorative frequently tied to higher utilization of preventive services
  ▪ “Scheduled” plans pay a pre-defined amount for each procedure
  ▪ Take into account providers who will “balance bill” members the difference between schedule fee level and provider’s billed charges
• Maximum Limits
  ▪ Unlike medical, dental plans allowed to retain annual and lifetime maximums under ACA
• Only dental plans for children sold in the marketplaces may no longer have annual
  maximum limits (i.e. all other plans can still have a maximum)
  ▪ Annual maximums applied to Class I, II, and III, and lifetime maximums applied orthodontic
• Other Considerations (Interaction with existing group medical plan)
  ▪ Integrated deductibles, where both dental and medical costs can be used to satisfy deductible, lessen value of deductible in reducing claim costs
  ▪ If certain surgical services (e.g. removal of impacted teeth) are also covered under medical, a reduction in dental claim costs may be warranted

2. Waiting periods
- Period between when a person is enrolled and when person becomes eligible to receive benefits
(e.g. 0 months class I, 3 month wait for class II, and 6-12 month for class III)
- Discourages prospects from enrolling with intention of treating dental problems in 1st year and then dropping coverage
- Insured has incentive to keep the coverage to not have to repeat waiting periods the next time
coverage is desired
- Common to waive waiting periods with proof of prior coverage

3. Period of Coverage
- Rate of change and time between experience period and projection period needs to be recognized

• Trends in dental generally lower than in medical costs
• Consider number of effective (potential treatment) days within each period
  ▪ E.g. If number of floods, snowstorms or other forces of nature in base period was unusually high, adjust when projecting to a future period
• Rate of change (or trend) is a function of:
  ▪ Changes in negotiated reimbursement levels, method used to determine usual and
  customary, covered benefits, other policy provisions, provider networks, general dental practice, economy
  ▪ Trend impacted by “leveraging” impact of deductibles
  ▪ Also “dampening” impact of maximum limits

Question 5

Network and Care Management

Answer 5

1. Provider Reimbursement
- Methods to reimburse dental providers separated into:
▪ 1. Fee-for-service
▪ 2. Dental Preferred provider organization (PPO)
▪ 3. Capitation

• For providers, patient payments for coinsurance and non-covered services a critical component of revenue

(1) Fee-for-Service
▪ Appealing due to simplicity

▪ Dentist compensated only when services actually performed

▪ Reasonable and Customary (R&C) fee schedule
* Insurers typically pay up to provider’s billed amount, subject to maximum for a particular service
* Maximum equals lower of (1) a high percentile (e.g. 90th) of national fees and (2) a high percentile of locally charged fees
- (1) above is considered “Reasonable” and (2) is considered “Customary”. Together this forms the R&C fee schedule

▪ UCR (Usual, Customary, and Reasonable)
* Requires dentists to pre-file their rates for approval
* Maximum fee schedule is lower of:
o Provider’s usual fee
o Customary fee in geographic area
o Reasonable fee based on circumstance
* Subject to high inflationary trends as providers make their usual fees equal to customary
* May permit provider to “balance bill” patient. Effectively increases coinsurance affecting utilization

(2) Dental PPO Networks
▪ Insurer agrees to list the dentist in its network in exchange for a reduced fee schedule

▪ Provider not allowed to balance bill patient for difference between his/her usual charge and amount in the fee schedule

▪ The fee inflation portion of trend can be controlled by the insurer

▪ Cost sharing lower if a participating provider is used
* Encourages insureds to use network providers
* When pricing, estimate in and out of network costs separately, then blend based on expected usage of network

▪ PPO maximum allowable charges (MAC) similar to UCR maximum schedules but with lower percentiles
* Maximum schedules too deeply discounted impair insurer’s ability to attract providers to its network

▪ Analyzing impact of maximum fee schedules on claim cost (also known as Fee schedule factors to take into account)
* Providers may use fee schedule to determine the minimum they will charge instead of the maximum
* Insurers increase schedules only every two to four years. Result in constrained charge level followed by a spike
* Fee schedules do nothing to control utilization rates or intensity of services

▪ Tiered network
* More heavily discounted fee dentists into highest tier, intermediate fees to the next tier, and highest reimbursements to dentists will to sign up without a
discount
* Insurers use higher coinsurance, lower copays, etc. to steer patients to preferred dentists
* Providers achieving greatest oral health score at lowest cost get into the most preferred tier

• Scheduled plans
  ▪ Plans that use a table of allowances similar to a maximum fee schedule
  ▪ Insured pays difference between the dentist’s charge and the amount allowed by plan
• 3.Capitation
  ▪ Associated with dental HMO plans

▪ Dentist paid amount per member enrolled, even if no services are performed

▪ Components making up capitation rate are:
* 1. Assumed utilization of services by members
* 2. Allowed average payment per service

▪ Adjustments to fee-for-service data before using to develop capitation rates
* Capitated arrangements lead to reductions in utilization of certain services and increases in others
* Dentists are incented to use less expensive alternatives

▪ Providers may ask for downside protection. This type of guarantee may lessen incentives to provider to avoid more costly services

▪ Risk margin appropriate

▪ Key is assigning sufficient number of members to capitated provider

2. Discount Cards
- No insurance aspect, but steer people to a network of dentists because of discounted pricing on
services
- May require a membership fee in order to receive the discount
o Advantages to insurers:
▪ Can offer a wider range of solutions and price points
▪ Keep up with competition
▪ Strengthen their clout with dentists

3. Care Management
- Care management program that is most effective depends on methods used to reimburse dentists
▪ Dentists on fee-for-service – have incentive to over-treat patients
▪ Dentists on capitated basis – have incentive to under-treat patients

• Preauthorization
  ▪ aka “predetermination”
  ▪ Used to manage utilization in fee-for-service plans
  ▪ Requires prior authorization before services are delivered
• Self-Management under Capitation
  ▪ Providers managing themselves differently than fee-for-service due to different financial incentives
  ▪ Incentive to under treat patients. Dental HMOs use quality assurance mechanisms to guard against this

Question 6

The Insureds

1. Age and Gender
2. Geographic Area
3. Group size
4. Prior Coverage and Pre-Announcement
5. Employee Turnover
6. Occupation and Income
7. Participation and Contribution

Answer 6

1. Age and Gender
- Costs vary significantly on age and gender of patient
- Premium rates are adjusted, at policy level, to reflect age and gender composition of insureds

2. Geographic Area
- Costs of dental services vary significantly by area
- Different area adjustments may be appropriate for different service categories
- Negotiated reimbursement might also vary from billed charge levels by area

3. Group Size
- Smaller groups more likely to make benefit decisions based on specific needs of their employees
- Small groups likely to have higher claim costs than larger groups

4. Prior Coverage and Pre-Announcement
- Utilization within group that has not had prior coverage expected to be high
- Employees who require dental work likely to postpone treatment until plan becomes effective
▪ Preannouncement period can increase claim costs in first year
▪ Where there is no preannouncement, claim costs in second year may be higher

5. Employee Turnover
- Claim costs among groups with higher turnover expected to be higher

6. Occupation or Income
– Entertainers and professionals are higher than average users of dental
- Semi- or unskilled workers lower than average
- Another consideration is benefit awareness of the group

7. Contribution and Participation
- Groups that do not have 100% participation generate higher claim costs
- Participation is directly and inversely related to the required contribution (participation decreases when participants are asked to contribute more)

Question 7

Additional Consideration

Answer 7

1. Affordable Care Act (ACA)
- Pediatric oral services included in the definition of essential benefits
- Allowed dental benefits to be offered through state exchanges

• Summary of Key Considerations for Dental Coverage Under ACA
  ▪ Pediatric oral services are not required to be purchased
• (But this is an essential health benefit offered by insurers for small group and
  individual plans sold on exchanges)

▪ Coverage, benefit levels and age limits for pediatric dental vary by state

▪ Inclusion of maximum out-of-pocket provision
* Value of $350 per child/$700 per family

▪ No actuarial value standards for stand-alone dental, though AV must still be calculated
(previously it was 70% (low plans) or 85% (high plans))

▪ Little to no subsidy for stand-alone dental
* Advanced premium tax credits typically depleted before purchase of dental

▪ Max Out-of-Pocket must be combined for medical and dental (when not stand-alone plan)

▪ Outstanding issues – buying dental without buying medical first on healthcare.gov
- Ability to purchase benefits from exchange poses anti-selection risk and member loss risk for dental insurers’ group business

2. Voluntary Plans
- Group vehicle advantages include group rate discounts, group underwriting standards, pretax payroll deduction of premiums

• Since employee paid, subject to anti-selection
• To control selection, tiered coinsurance and maximum benefit structures vary by year of coverage
• Lifetime deductible on voluntary plans provides incentive to keep coverage in force, to avoid having to satisfy the deductible again
• Elimination (or waiting) periods, discourage enrolling with intention of having dental problems treated and then dropping coverage
• To control selection, also use participation requirements
• “Cafeteria plan” selection somewhat tempered since employer dollars are used
  ▪ Require a basic level of dental benefits and the ability to “buy up” to richer benefits
  ▪ Providing subsidy to the cost of the richer benefit minimizes antiselection

3. Multiple Option Settings
- Those likely to use more dental services choose a richer plan

• Drivers of selection in multiple option environment include:
  ▪ Differences in actuarial value of benefits
  ▪ Relative cost to employee of plan options
  ▪ Access to current providers
• Methods to control selection include minimum participation, “sole carrier” requirements, and underwriting loads
• Experience Rating
• Similar to process for medical plans
• Dental insurance more credible than medical at the same group size
  ▪ Increased credibility due to narrow range between lowest and highest annual claims o Even a sizable group may require manual adjustments if they have high turnover, low
  participation, or plan design change making past experience less reliable
• Because very large claims are unusual in dental, large claims analysis and pooling not a part of experience rating
• Maximum rollover – example of benefit design added by carriers where portion of unused
  maximum can be carried into the next contract period

4. Medical-Dental Integration
- Strong correlation between certain medical conditions and oral health

• Extra cleanings represent an increase in the cost of dental, but it can decrease long-run cost of medical
• Preventive services may be offered by stand-alone carriers for patients at risk for periodontal disease, oral cancer or tooth decay
  ▪ Additional costs expected to be offset in more major services such as extraction and restorations