Managed care dental plans vs. traditional fee-for-service plans.

More and more companies today are offering their employees dental plans as part of their comprehensive benefits packages. In addition to being ideal employee incentive and retention tools, dental plans make sense financially. Why? Because dental benefits generally cost a company only a fraction of medical benefit costs -- typically, only about one-tenth of medical costs.

Over 100 million Americans are currently covered by dental insurance plans of some kind, and that number is steadily growing. Traditional fee-for-service plans outnumber managed care type plans both statewide and nationally at present. But the number and type of managed care options have risen dramatically in recent years and, with the national health care reform, managed care should predominate as the delivery system of the '90s.

The fact is, today many companies with managed care medical options for their employees are also implementing managed care dental plans. However, fierce competition among managed care providers has led to a multitude of dental products.

Some companies simply don't know the choices that exist for them in dental products. Unless their agents and brokers keep them apprised of the latest options, they cannot help but find themselves in a quandary trying to determine the most cost-efficient programs to offer their employees without compromising benefits.

Traditional fee-for-service plans continue to be popular with a number of employers, particularly smaller-sized companies with work forces of 100 or less employees. There are a number of reasons why. For one, the managed care concept is still not fully understood by many people. Some also question the accessibility and quality of care of provider networks as well as other features of managed care. However, quite the opposite is true.

Fee-for-service plans, also known as traditional indemnity plans, are designed around the usual, customary, and reasonable fee concept, with private practice dentists charging a specific amount for each service they perform. Patients have the right to go to any dentist they choose, with their employers paying either a percentage of the dentist's fee or a percentage of a predetermined schedule of allowances.

While such indemnity plans do offer certain advantages -- patients, for example, can go to any dentist they choose -- they also have a number of drawbacks. With indemnity plans, no controls are put on the dental care provider other than monitoring the treatment and that's done after the fact, and very little control, if any, is put on the quality of care. This results in higher and often uncontrollable costs. Control of both the delivery of care and the quality of care is much more efficient with prepaid plans, especially those offering "staff model" facilities.

Another major problem is cost. Typically, traditional indemnity plans can be anywhere from three to five times more expensive than prepaid managed care dental programs. That's a fact that relatively few employers are aware of.

In recent years, literally dozens of managed care plans have appeared on the market, each offering its own terms and conditions of coverage. Generally, however, such plans fall into three distinct categories: insured plans with preferred provider organizations (PPOs); dental health maintenance organizations (DHMOs), also called capitation plans; or a combination of these.

Each of the above plans has its own cost-benefit structure, with or without deductibles, preexisting conditions, annual maximums, co-payments and out-of-pocket expenses.

Under a true prepaid dental plan (DHMO), participating employers and covered dependents are given their choice of dentist from a specific network of providers. Those providers, in turn, are given a monthly capitation payment for each patient selecting that office. The payment remains the same regardless of the actual cost of service. The dentist must look at the total compensation in relation to the total cost to determine the cost effectiveness of the programs. Therefore, the dentist will stress early intervention and prevention.

The patients' costs or payments are determined based on a specific co-payment schedule per procedure. Co-payments can range, for example, anywhere from approximately $30 to $150 for crown and bridge procedures to upwards of $100 or more for bi-root canal or tri-root canal therapy. (In very rich plans, the co-payments may be zero.)

With prepaid plans, there are no deductibles and there is usually no annual maximum. Most preexisting conditions are covered, and no prior authorization is required. Conversely, most plans often charge little or no co-payments for routine diagnostic and preventive care or fillings. As a result, the out-of-pocket costs to the patient for the actual dental treatment required are a fraction of the out-of-pocket costs for typical indemnity coverage.

A large part of DHMOs' popularity lies in the fact that they place heavy emphasis on diagnostic and preventive care (i.e. regular teeth cleanings, cavity treatment). Indemnity plans, on the other hand, seem in many ways to favor the patient who needs major, costly work done such as root canals or crowns and bridges.

Insured plans with PPOs offer many of the features of fee-for-service, but require the patient to go to a dentist on a specific panel. Prior authorization is required for certain procedures as are claim forms, and there are also limitations on benefits for preexisting conditions and annual coverage.

Some prepaid plans offer another benefit in that members can choose between "staff model," "IPO model" or a combination of both. With staff model plans, the provider owns and operates a number of offices which the patient can choose from. These types of offices have much tighter control on the quality of work to be performed and much higher standards due to this control. They are also generally more responsive to resolving patient problems.

In addition, many private practice dentists have neither the necessary equipment nor personnel to offer the variety of services available at staff model facilities. Nor can they match the cost control features of most staff model operations.

Patients also like staff model facilities because they are often located in neighboring areas within an easy commuting distance, and they offer the convenience of having evening and weekend appointments. In many cases, specialty procedures such as prosthetics and orthodontics are also available.

With IPOs (Independent Provider Organizations), plan members can choose among independent dentists who have contracted to serve that plan's participants. IPOs offer a broader base to a provider network as well as a larger selection of dentists, while still maintaining the managed care control. Privately-owned, IPOs offer only limited specialty services and have other drawbacks such as shorter operating hours.

Growing in popularity has been the combination staff model/IPO plan such as Western Dental because it offers the best of both options. Patients can choose a dentist from the provider organization's board network (based on local proximity, reputation, or other factors) or select their own dentist from the staff model or company facilities.

Presently, approximately 10% of California prepaid dental plans fall into the "staff model" category, and 90 percent are "IPO" type plans. The reason for the disparity is that it is approximately 1,000 times more costly to develop a staff model organization than it is to set up an IPO network.

Costs can be extremely high for space, building and maintenance expenses, equipment, infection control, personnel and other such items, but the result is a more consistent provider network.

California presently has more DHMOs than any other state, and the choice of plans is vast. Benefit structures can be custom-tailored for larger companies or chosen from a large selection of predetermined programs, and costs can vary substantially according to benefits. So, it is difficult, if not impossible, to analyze them individually.

However, there are certain points that companies should take into serious consideration when evaluating dental plans. They are:

* Monies available for a dental benefit plan. This will determine the extent of the program that a company can afford to purchase for its employees.

* The financial viability of the dental plan provider -- the company that will actually be providing the dental plan benefits. Is it stable? Does it have a good record of service to its plan members? If the group purchaser has operations outside California, it should be looking at a provider that can work with it on a national level.

* The quality of care to be provided. Most plans, as required by their state license, have stringent quality assurance (QA) measures incorporating both in-house and independent review and evaluation procedures to ensure that the attending personnel, treatment, and care are all of the highest quality. Some plans are much more effective in the follow-through of the QA program.

* Where their employees are located in relation to the providers available and how they can best be cared for in a convenient, efficient manner. In examining staff model or IPO options, or a combination of the two, the number of dentists available often is less important than access to those providers.

Can patients, for example, see a dentist when it is convenient to them? Are there facilities located close to where the patients live and work? Can they get timely appointments?

* A balanced cost management system. Dental utilization, for example, often varies greatly from one dentist's office to another.

Costs need to be monitored and controlled and increases not simply passed on to patients or the company (s) in the form of higher premiums.

President Clinton's health care reform bill is expected to have a major impact on the dental industry. The specifics are not yet known, but much will be determined by two key factors: 1) the amount and scope of dental benefits included in his package; and 2) how much the President taxes those benefits in excess of the "acceptable benefits."

Early indications are that whatever the measures adopted by the Clinton Administration turn out to be, they will have a very severe impact on indemnity plans. At the same time, increased emphasis on quality assurance programs and the management of the care -- much like recent California Department of Corporation requirements concerning prepaid plans in California -- may force many managed dental care companies to form coalitions or to merge. While that may affect cost-benefit structures, it is likely to enhance the quality as well as consolidate managed care plans on the market.

It is safe to say that managed care offers the biggest trend in dental benefits today. The concept of managed care, however, needs to be better understood, and agents and brokers can perform a valuable service by educating their clients on the ramifications of these plans.

To sum up, the choice of a dental benefits plan is ultimately up to each employer and that company's particular needs. By carefully examining and evaluating the variety of services and products available today, along with the overall performance and "fit" of each plan, dental plan purchasers can effectively satisfy the dental requirements of their rank-and-file.

Frank Pellkofer is president of Western Dental Services, the largest provider of dental care services in the state of California. Headquartered in Garden Grove, CA, the company operates over 50 staff model facilities in California and has contractual arrangements with over 600 independent dentists throughout the state to provide dental care for Western Dental Plan members.