WHY ARE MASSACHUSETTS dentists and orthodontists spending hundreds of thousands of dollars on a campaign to change the rules governing dental insurance? Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, has the answer in a report released Thursday: money.
A November ballot measure – Question 2 – would require dental insurers to spend at least 83 percent of premiums on clinical costs and quality improvements, rather than administrative costs, similar to an existing rule in place for health insurance. The message being promoted by the question’s supporters is that the policy would save consumers money and ensure dental plans are managing money efficiently by reining in administrative spending and requiring that the money raised by dental premiums is actually spent on patient care. But why are dentists and orthodontists campaigning for the question?
Horowitz’s report provides the answer. He says in order for insurers to meet the 83 percent “loss ratio,” they have a few options. They can cut administrative spending, as proponents hope they will. They can lower premiums so they take in less money. But the easiest way for them to meet the new rules is to pay more in dental claims, either by covering more procedures or, more likely, allowing dentists to bill higher prices for their services.
“Usually, when dentists and insurers negotiate, they have opposing interests: Dentists want to raise prices to increase their earnings, while insurers want to limit price increases in order to boost profits,” Horowitz explains in the report. “But the requirement that insurers spend at least 83 percent of their premiums on dental care warps this dynamic. It makes insurers more willing to accept dentists’ push for higher prices, because that would help insurers meet the new loss ratio.”
In other words, rather than saving the system money, the new rules would simply shift some of the profits from insurers to dentists. Because dental plans often make patients pay a substantial portion of their costs, the result would likely be higher costs for patients.
However, Horowitz says that despite the potential for some additional patient costs, the question is unlikely to have a major effect on patients. It’s possible, though unlikely, that insurers will lower monthly premiums, which could mitigate some of the impact of higher prices. And any increase in cost-sharing is likely to be fairly small for any individual consumer.
The biggest impact will probably be on insurers, especially smaller insurers that are more likely to struggle to meet the 83 percent standard, since they have many of the same fixed costs as larger insurers (space, computing technology, payment and claims processes, etc.) with fewer customers. Those smaller insurers are most likely to need to revamp their financing – possibly raising premiums and prices – or go out of business. The insurance industry is, unsurprisingly, opposed to the ballot question.
One positive of the ballot question, Horowitz writes, is it would impose new reporting requirements that would make the dental insurance market more transparent and lay the groundwork for better regulation in the future. Today, there is little publicly available information. It is not even clear whether most insurers are close to meeting the proposed 83 percent loss ratio. The only publicly available study on dental insurance finances was commissioned by a dental insurance trade group. (While a similar loss ratio is used for medical insurance, medical insurance is structured differently from dental insurance so it’s not a given that the two should have the same rules.)
Perhaps, Horowitz suggests, if the question fails at the ballot box, the Legislature could take it on itself to impose reporting requirements and get the information it needs to consider whether future regulations would be necessary or helpful.