Twelve years ago, a mid-size employer hired my team for benefits consulting services. Two weeks later, one of our first recommendations was to change the funding of the group dental plan from fully insured to self-funding. We had easily determined that the employer could maintain their current dental benefits, vendor and network and reduce costs by 15% — just by changing the funding arrangement.
One week later, I sat in the employer’s conference room with the chief financial officer, chief operating officer and HR vice president, presenting the financials. With my then youthful exuberance, I triumphantly cited the bottom line 15% savings and expected to see excitement in the room. Not quite. Instead, the CFO removed his glasses, tossed his pen down, turned to me and sternly said, “Good grief, Zack — 15%? That’s only $50,000. We’re spending $6 million on our health plan. Don’t we have bigger fish to fry?”
He was right that most of their benefits spend was — and continues to be — tied up in our health plans. However, 12 years later, despite continued routine resistance, I remain convinced that when it comes to benefit plan cost management, pennies make nickels and nickels make quarters. Or, in other words, if you see five $10,000 bills on the sidewalk, you pick them up. Others disagree. One that did not disagree was a recent new client. Here’s how we redesigned their dental benefits and lowered costs by 20%.
The new client’s existing group dental plan model
· Two plans offered: capitated dental-HMO (DHMO) featuring no annual maximum, traditional fee-for-service dental PPO with a $2,000 annual maximum
· Fully insured
· 80% employer premium subsidy
Challenges of this existing model
· Because of the employer’s moderately rural locations, the DHMO network offered sparse network access to 75% of the eligible employees
· Of those DHMO dentists within geographical reach, many were not accepting new patients
· Excessively high dental PPO fully insured premiums
As you might guess, the first place we went looking for $10,000 bills was the funding arrangement. Once the necessary reporting was in hand, it took 20 minutes to determine that this employer could maintain their current vendor and dental PPO network and reduce PPO plan costs by 25% by switching to self-funding.
Next, while a capitated DHMO and its unlimited annual maximum can provide high value in the right situation, it wasn’t the right tool for this employer. Thus, we recommended eliminating the DHMO and introducing a new dental EPO (aka a PPO with no out-of-network benefits) with a $1,000 annual maximum, normative in-network benefits and no orthodontia coverage. Employees with minimal dental claims risk could select this new dental EPO. Employees with higher claims risk, out-of-network coverage needs and/or orthodontia needs could buy-up to the existing PPO. Here is the resulting design comparison (simplified).
|New EPO ||PPO |
|In-Network ||In-network ||Out-of-network |
|Dental annual maximum: ||$1,000 ||$2,000 |
| Preventive ||100% ||100% ||100% |
| Basic ||80% ||90% ||80% |
| Major ||50% ||60% ||50% |
|Endodontia & Periodontia covered under: ||Basic ||Basic |
|Orthodontia: ||No coverage ||50% ||50% |
| Lifetime maximum ||Not applicable ||$1,000 |
To allow the PPO enrollees to buy-up from the EPO, a defined contribution arrangement was introduced. Under this arrangement, the employer contributes the same dollar amount to each of the four enrollment tiers (single, employee + spouse, employee + child(ren), family), regardless of which plan the employee selects.
|These EPO employer contribution percentages set the defined contribution ||Resulting monthly employer defined contribution dollar amounts ||Resulting monthly employee dollar contributions |
|EPO Single ||80% ||$16 ||$4 |
|EPO Employee + Spouse ||75% ||$30 ||$10 |
|EPO Employee + Child(ren) ||75% ||$37 ||$13 |
|EPO Family ||75% ||$56 ||$19 |
|PPO Single ||$16 ||$11 |
|PPO Employee + Spouse ||$30 ||$24 |
|PPO Employee + Child(ren) ||$37 ||$28 |
|PPO Family ||$56 ||$44 |
· Plan moves from fully insured to self-funding, offering long-term cost control and stability.
· Excellent network access provided to all eligible employees, with all participating in-network dentists accepting new patients.
· Competitive employee premium contribution amounts achieved.
· Enrollees may choose the plan that best suits their dental claims risk, risk tolerance and personal preference.
· Employer achieves overall $30,000 net cost reduction.
When we met with this new client’s CFO, COO and HR VP in their conference room to present these recommendations, I was in an old scene. But this time, despite my presentation’s lack of youthful exuberance, the executives agreed that these plan improvements coupled with the $30,000 in budgetary reductions were more than acceptable.
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