A Kick in the Teeth

In November, Massachusetts became the first state to use a ballot measure to impose minimum loss ratios for dental plans.

Nearly three quarters of voters voted to approve the measure, which requires fully insured plans to pay out at least 83% of their premiums on patient claims beginning in January 2024.

One of the provisions of the Affordable Care Act (ACA) was to enact minimum medical loss ratios on insurance plans. That law requires health plans to spend a percentage of premiums they take in—80% for small groups and 85% for large groups—on claims costs and improvements to healthcare quality. Loss ratios for dental plans were considered when the ACA was being crafted, but they weren’t enacted. Dental insurance was likely left out because it’s a much different beast than medical insurance, with dramatically lower premiums and much leaner coverage.

But for almost a decade, the issue has been simmering in statehouses across the country. Though setting minimums has yet to be successful in most states, a wide swath of state legislatures, likely bolstered by the Massachusetts measure, brought loss ratio minimum bills up for consideration in 2023. The measure could be a tipping point in the battle, and depending on whom you ask, loss ratios could be the death of dental insurance or breathe life back into a market that has changed little in decades.

“When I went into practice 40 years ago, plans provided $1,500 in maximum coverage. Since then, premiums have gone up substantially, but the maximum payout has stayed the same,” says Mark Vitale, immediate past chair of the American Dental Association’s Council on Government Affairs and chair of the New Jersey Dental Political Action Committee. “By introducing loss ratios, plans have to be accountable for the money they are collecting and ensuring the consumer gets back what they are paying for.”

Hitting the Mark

Medical loss ratios are, in simplified terms, the value of claims paid out plus allowable quality improvement costs, divided by income from premiums. To meet minimum requirements, insurance carriers would either have to bring in less money or pay more to reduce their overall profits.

One option is to lower monthly premiums to make less money. That would be challenging in dental insurance because the average monthly premium is already low—about $47 monthly, according to a Forbes Advisor analysis, as opposed to $659 for individual health plans, according to Kaiser Family Foundation numbers.

Carriers could make the business leaner by paying some of the income that is now kept for salaries and other business expenses for claims. But most experts think that is a very unlikely scenario.

“Most dental insurers have an operating margin between 3 and 5%. That’s not profiteering,” says Mike Adelberg, executive director of the National Association of Dental Plans. “A company with this kind of margin is not going to become unprofitable in order to make an MLR target. It will cut services or, if that’s not possible, leave a market.”

Another option would be to pay more in dental claims by covering more procedures, allowing dentists to bill higher rates, or lowering patients’ out-of-pocket expenses. These payment changes would be some of the simplest ways to meet loss ratios, says Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, who authored a report on the ballot measure before its passage.

“We found that the most likely path was an increase in the amount of money paid out to dentists, whether through higher prices or broader coverage of dental procedures,” Horowitz says. “And while we had a game-theoretic explanation for why that would be, perhaps the clearest sign is that dentists pushed hard for this ballot question to pass.”

The Massachusetts ballot measure was created by an orthodontist based outside of Boston and boosted by $5.5 million in funding from the American Dental Association. These bills are typically supported by state dental associations.

Helping Consumers

Dentists such as Vitale think the market is ripe for changes that make it more consumer friendly. The maximum coverage amount when he began practicing four decades ago was $1,500. That used to buy a lot of dentistry for a plan member. Benefit limits have not changed since then. They still come in between $1,000 and $2,000, and those dollars don’t stretch nearly as far.

“I charged $600 for a crown 40 years ago, and now I charge $1,600,” Vitale says. “Patients used to get a couple out of their plan; now they barely get one. Does the consumer get what they are paying for? Is that cost-sharing fair?”

Most dental insurance plans use a 100/80/50 rule. Carriers pay 100% of preventive care, 80% of basic procedures like filling a cavity, and 50% for major procedures like crowns and deep cleanings. One simple way to satisfy the new loss ratio in Massachusetts would be to pay a larger share of the cost, such as 75%. As with any medical or dental plan, reducing excessive cost-sharing would make at least some consumers more likely to get needed care.

According to a 2021 survey of about 2,000 consumers performed by ValuePenguin, 48% of U.S. adults who had insurance still skipped going to the dentist for regular visits or recommended procedures because of cost.

Carriers hold the risk in fully insured plans, so their incentive, barring legislation like minimum loss ratios, is to keep consumers away from dentists, increasing what they net in premiums, says Chad Olson, the American Dental Association’s director of state government affairs.

“People don’t understand the mechanics of how dental plans are constructed until they realize they have to pay 50% of the fee when they get a major process performed,” he says. “The issue is about switching out incentives and constructing something that incentivizes people to get care.”

The Cons

But opponents of mandates say raising rates could end up hurting consumers on the back end. If an insurer is paying $1,000 for a crown and the insurer negotiates a higher rate of $1,500, loss ratios are improved. But if current cost-sharing and maximum benefits remain the same, those extra dollars for services will end up being paid by plan beneficiaries.

A June 2022 report by Milliman, commissioned by the National Association of Dental Plans, was used as a marketing tool opposing the bill. The report’s authors looked at a typical midsize dental plan in Massachusetts to illustrate how carriers would need to increase premiums and claims costs to ensure the group meets the loss ratio of 83%.

The report’s authors theorized that a plan, prior to the passage of the ballot measure, might have a premium of $38 per month with $26.60 in claims and $8.75 administration costs. With 2% taxes and fees and 5% profits, the plan would have a dental loss ratio of 70%. To meet the new loss ratio and just break even—not even profit—that same plan would need to raise premiums by 38%, to $52.50, and increase claims paid out by 63%, to $43.58.

Cindy Goff, vice president of supplemental benefits and group insurance at the American Council of Life Insurers, says dental insurance is so price-sensitive that even minor increases in cost for employers or consumers could push either out of the market. She pointed to a survey by BW Research Partnership that looked at the Massachusetts mandate.

The Committee to Protect Access to Quality Dental Care, which opposed the measure, commissioned the report, which surveyed about 700 residents and 500 businesses. Among the findings:

• 48% of insured individuals said they would drop their insurance if premiums rose by 40%
• 52% said they would delay or
  forgo care if their out-of-pocket costs rose by 20%
• About 90% of employers said they would change their coverage if cost to the business increased by 38%.

Potential plan changes included lowering employer contributions, scaling back benefits or dropping coverage.

Nearly half of the U.S. workforce has access to dental plans through their employers. Of those employees, about 75% take part in the plans, according to the Bureau of Labor Statistics, making them an extremely high uptake product for brokers. But if costs go up, it could make it more difficult to sell plans. And if carriers cut administrative costs, things like marketing, sales and broker fees could hit the chopping block.

“Our number one concern is reducing the number of affordable options employers have to choose from,” says Cari Lee, director of government affairs and public policy for law firm Steptoe & Johnson. “If all that is left is expensive ones, employers won’t buy.”

This could mean less opportunity to sell. And if small plans leave the market, Lee says, there would be even fewer choices for brokers to take to employers.

Though dental plans may not be as lucrative as health plans, they are an important part of a broker’s portfolio, Goff says.

“I think the agent community understands the importance of keeping prices on dental insurance low, because it is very popular with employers,” Goff says. “Brokers like having dental in their portfolio because it can be a door opener. A lot of times, when an employer talks to a broker about dental, it can open the door to talk about other products.”

The Costs of Running a Business

Another viable option for carriers is to cut administrative expenses like call centers, claims processing, mailing welcome packets to new members, and tracking fraud and abuse. Though medical plans may be more complex and complicated on the administrative side, managing a dental plan still requires a baseline amount of administration.

Shifting these costs could be particularly challenging for smaller plans. With dental premiums already low, that 17% loss ratio in Massachusetts would leave about $7 per plan participant per month on an average plan for administration and profits. On the medical side, carriers would have $98 for those same tasks. Administration, then, ends up eating up a larger amount of their budget.

The Milliman report found that small-group loss ratios averaged about 68%, with the report authors noting this was mainly because of fixed administrative expenses with fewer policyholders over which to allocate those costs. They found that large groups’ administration as a percentage of premiums was 9% and their profit percentage was 6.3%. Among small groups/individual plans, administrative costs were 21.4% of premiums, and profits were 4.6%.

“Comparing health and dental plans’ loss ratios is like taking a set of assumptions happening in a swimming pool,” Adelberg says, “and saying, ‘Well, this must apply in my bathtub.’”

On the other hand, Olson, of the American Dental Association, says carriers could be more efficient with the administrative funds they are spending. “It’s like setting fuel economy standards so automakers will strive to be better,” he says. “We are eager to support states that are pursuing this [minimum loss ratios] in the next couple of years.”

Statewide Status

There are about a dozen bills that were introduced in the 2023 session in statehouses across the country. Most of them required some kind of reporting in lieu of setting mandates. But Goff says the major concern is model legislation being created by the National Council of Insurance Legislators (NCOIL).

“NCOIL is going to introduce a model law soon,” she says. “If a number [for a medical loss ratio] goes into a model law, it will be easier to get it passed in the states.”

When the Massachusetts referendum passed by an overwhelming majority, says Tom Considine, NCOIL’s CEO, “frankly, that caught a lot of people’s attention.”

One of those people was Steve Westfall, the chairman of NCOIL’s health committee and a West Virginia state legislator. Westfall has introduced a bill that would set loss ratios in his state at 70% for small group plans and 75% for large groups. Considine says he plans to work with Westfall to make a version of the West Virginia bill into model legislation for NCOIL. It will likely be considered at the organization’s meeting in July and be ready for the 2024 legislative session.

Even still, Considine says he wouldn’t be surprised if legislation on loss ratios ends up requiring reporting rather than mandating minimums. As receiving and tracking the data becomes the norm in a growing number of states, he says, the data will allow legislators to gauge what typical ratios are in their area instead of passing mandates blindly. Considine worked in the New Jersey Commission of Banking and Insurance when the ACA was passed, and he says it was a very intentional decision not to include dental loss ratios at the time.

“Dental costs and expenses are massively different than medical, so it may be somewhat telling that they chose not to include dental,” he says.

In 2014, California passed a bill that required dental insurers to file loss ratio reports each year to the Department of Insurance. The bill was sponsored by the California Dental Association, which supports minimum loss ratios because they create “more standardized requirements for dental plans that give people more meaningful coverage,” the association wrote in an email.

The association says the data collected “validates our concerns about the lack of value provided by dental plans, the vast majority of which are employer sponsored or paid for.”

According to the organization, the average percentage of premiums spent on patient care in California is 65%, with 35% going to overhead and profits. One third of the state’s dental plans have a loss ratio of less than 50%.

A Health Affairs study from 2018 analyzed dental loss ratio data from 2014 and 2015 plan years. It found the weighted average loss ratios were 76%. Overall, it found that preferred provider organizations and larger groups had the highest loss ratios. But it did note that products with fewer than 5,000 covered lives reported loss ratios higher than 80%, which, the authors said, “suggests that providing value for consumers is possible even at a smaller scale.”

What little data are out there publicly on dental loss ratios could help frame the discussion on legislation. Other states, including Maine, Washington and Arizona, also enforce reporting mandates.

Just a quick glance at a handful of reports shows that loss ratios for different companies vary widely even within a state. And while opponents of the Massachusetts legislation argue it will be detrimental for smaller groups, the size of the plans doesn’t always matter. In Washington in 2021, the last year data are available online, BCS Insurance, which had nearly 480,000 members that year, had only a 28% loss ratio. A smaller group, Assurity Life Insurance Co., which had 104 members, had an 86% loss ratio. Most carriers ranged from 40% to 75% loss ratios, but a smattering reported negative loss ratios, while others were upwards of 100%.

In Arizona, which also requires reporting, most carriers hit between 50% and 80% in 2022. Their data also show that smaller carriers can keep up with the larger ones when it comes to loss ratios. Arizona Dental Insurance Service Inc. had, by far, the most premium income in the state. The company reported a 74% loss ratio and $128,748,000 in premiums. A much smaller company, United Concordia Insurance Company, had $4,165,000 in premiums and a 73% loss ratio.

While reporting data can be informative, it might be wise to look at the small number of states—which have flown below the radar—that already have loss ratio requirements. New Mexico’s insurance superintendent created a rule in January that requires dental and vision carriers to meet a 65% loss ratio.

And both Nevada and New Jersey have minimum loss ratios on the books as well. New Jersey’s applies only to Medicaid and state employee programs. Nevada has a 75% loss ratio, which dates back to a 1983 statute requiring the minimum, according to the state’s insurance commissioner, Scott Kipper. Kipper says he doesn’t think carriers have had a difficult time complying with the minimum; however, the state doesn’t require reporting, so there is
no oversight.

A new bill has been introduced this session in the Nevada legislature that would keep the ratio at 75%, but it requires carriers to report their data to Kipper’s office. If any carriers report ratios that are outliers, Kipper says, the bill would require his office to publicize the name of the company and require the insurer to take corrective action.

“I don’t think this will be catastrophic to the industry,” says Kipper, who has served as insurance commissioner twice before. “Adjustments will be made, and I believe carriers will take a good look at what they are doing and make it work.”

Market Dynamics

When policies are changed, a good question to ask is what problem is this solving. For his part, Horowitz says, he isn’t quite sure there is a problem that needs a solution, at least not in Massachusetts.

“Like a lot of ballot questions, it was the result of a quixotic push by well funded supporters, as opposed to a deliberate policy effort to address urgent needs,” he says. Based on his data, he feels that most carriers, particularly larger ones, will adjust to the new standard without making a lot of ripples on the larger market.

“Ultimately, for all the sturm und drang, I don’t think the changes involved in this law will have any large-scale impact on the nature of the market for dental insurance,” Horowitz says.

Because covering a wider range of services would be one way to pay out more, some have posited that mandating loss ratio minimums could cause dental insurance to expand and be more comprehensive.

“I think over the course of 10 to 15 years, consumers will push dental insurance to become real insurance and be part of a healthcare policy,” Vitale says. “There are a lot of reforms heading in that direction. We talk about the oral-health connection. The mouth is part of the body, so shouldn’t then dental be part of overall medical insurance?”

Olson says if fully insured plans are offering greater coverage, self-funded plans—which aren’t governed by state rules and thus won’t have to comply with state-legislated minimum loss ratios—would likely want more robust plans as well.

“I would hope to see that happen organically,” Olson says. “It would have a spillover effect because I think employers want to offer good benefits.”

Goff says that, while dentists think greater coverage would be a good outcome, the market has yet to prove that’s even an option. Dental insurers, she says, live and die by trying to find new ways to encourage people to have coverage, change their benefits, and enhance and add more to the plans. Even when they try to cover things consumers say are important, the market is too cost-sensitive for change. Insurers are capable of making the plans more curative instead of preventive, she says, but premiums would go up.

“It’s been very difficult to modify the product in any major way,” she says. “Because when you modify it, it means an increase in premium, and those are not tolerated by employers. Price increases are always what stop those kinds of enhancements.”

It’s on this point that Adelberg says carriers and dentists share a common cause. Insurers, he says, would love to offer a product with robust coverage, increased rates for some services, and higher (or no) annual maximum payout—but that would entail premiums of $100 or more. And plan beneficiaries are just unwilling to pay for that, he says.

And while more expansive plans may not be market-ready, Adelberg says that good oral health has been shown to save money for the overall health system. He says putting dental insurance into the limelight could begin discussions about working with medical systems on oral care for certain populations, such as pregnant women or people with diabetes.

“When we provide extra services for certain populations, we are saving the medical system money,” Adelberg says. “We should figure out how medical systems could compensate dental care for treating those patients. We can do that in common cause with our dentist partners.”

Though each side stands its ground firmly—either completely opposing any minimum loss ratios or wanting them expanded to all states—one thing all groups seem to agree on is that transparency is a healthy move forward. Legislation requiring that carriers report their loss ratios can help consumers understand if their plans are operating well and could inform future policy by providing a better understanding of market dynamics.

“We do believe that there should be reporting of loss ratios so people can see what different levels are out there,” Goff says.

That seems to be the preferred path for many states, she says. Adelberg agrees. In fact, he goes a step farther to say reporting provides a good tool for insurance regulators to monitor carriers, if necessary.

“It’s OK to give regulators a toolbox so they can look at an industry and remedy a bad practice if it exists,” he says. “A reporting program is something the NADP is open-minded to. We need to let regulators do their job.”