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The National
Insurance Guide
compiled by the SAO and approved by the AAO
401 North Lindbergh, St. Louis, MO 63141
AAOmembers.org
800.424.2841 or 314.993.1700
Revised 2008
SAO OFFICE INSURANCE GUIDE
CONTENTS
Preface 3
Chapter 1: Hist
Chapter or
oryy of Dental Benef
Histor its
Benefits 5
Chapter 2: TTypes
Chapter ypes of Dental Reimbur
Reimbur sement
eimbursement 8
Chapter 3: Plan Design
Chapter 14
Chapter 4: Claims A
Chapter dministration
Administration 19
Chapter 5: HIP
Chapter AA
HIPAA 31
Chapter 6: Or
Chapter thodontic Codes
Orthodontic 33
Chapter 7
Chapter 7:: Of
Offfices of Stat
Stat e Insurance Commissioner
tate Commissionerss 35
Chapter 8: Glossar
Chapter Glossaryy of Dental Benefit TTerminology
Benefit erminology 36
Chapter 9: FFrequently
Chapter requently Asked Insurance Questions
Asked 47
ADDENDUM: POLICIES, FFORMS,
ORMS, AND LETTERS (separate PDF)
(separate
Privacy P
Privacy olicy (4 it
Policy ems)
items)
Filing Information (2 it
Information ems)
items)
Information on Third P
Information ar
Par ties (1 it
arties em)
item)
Sample Policy and Le
Policy tt
Lett er
erss (3 it
tter ems)
items)
What You Should Kno
You w About Y
Know our Or
Your thodontic Insurance Benef
Orthodontic it (11 it
Benefit ems)
items)
Flexible Spending A
Flexible ccounts/DR (7 it
Accounts/DR ems)
items)
Sample FForms
orms tto
o File Complaints (2 items)
items)
Repor
eportt on Insurance Refusal/R
Refusal/R equest ffor
efusal/Request or A dditional Inf
Additional ormation (1 it
Information em)
item)
2
SAO OFFICE INSURANCE GUIDE
PREFACE
PREFA
The idea to produce an office manual must expect differences in outcome for value
related to Third Party issues in orthodontics came received against dollar paid. The integrity of the
as a result of an SAO survey that revealed signifi- orthodontic profession depends on our under-
cant office confusion and frustration with insur- standing of and independence from Third Party
ance claims administration. Recurrent problems involvement and on our understanding of and
common to all practices prompted the SAO dependence on the ethical care of patients.
Executive Committee to authorize an Insurance There is always opportunity for the
Committee whose charge was to assemble as orthodontist’s and staff’s knowledge to be a
much helpful information on this subject as decisive factor in CEOs’, HR personnel, benefit
possible and make it available in a usable form managers’, and patients’ decisions regarding
for office staff. dental benefits. At the very least, the AAO and
The purpose of the manual is to educate, ADA provide a wealth of resource information for
instruct, troubleshoot, and heighten staff aware- prospective purchasers of dental benefits to
ness to the responsibilities of data processing analyze and evaluate. Nothing but ill will is
patient care in a Third Party environment. As it is created when the doctor or staff degrades a
time dated to issues that are constantly changing, patient’s insurance. Their benefit package is a
updates and revisions must necessarily follow as significant ‘perk’ and must be respected regard-
needed. less of its worth or effectiveness. Our job is to
There is an inherent bias evident in help patients understand the benefits of orth-
sections dealing with self-funded dental benefit odontic treatment, provide that service in a
plans like Direct Reimbursement (DR), Direct professionally competent environment, and
Assignment (DA), and Flexible Spending Accounts facilitate Third Party transactions into the daily
(FSA). No apologies are necessary when years of practice of orthodontics.
documented facts speak for themselves. Orga- Hopefully, this office guide will improve
nized Dentistry, with good reason, has favored, the management of reimbursement and support
supported, and promoted this type of benefit for the profession’s effort to deliver superior service
many years. With Third Party intervention both as to an informed public.
a collector of funding and a payer of claims, one
ACKNOWLEDGEMENT S
WLEDGEMENTS
CKNOWLEDGEMENT
Compiling the material for this manual has dentistry been as adversely impacted as
would not have been possible without the willing medicine. To its great credit the AAO has always
permission granted by various contributors. We been at the forefront in the dental benefit arena
have directly quoted, paraphrased, and copied and has kept alive and viable the alternatives to
parts of their content as it appeared in various Insurance control of the profession. The Council
forms. We did not attempt this challenge as any on Health Care and Council on Insurance and
type of original work nor did we seek to re-invent AAOPAC have been watchdogs who bark, growl,
any wheel that was already rolling. The idea was and bite when necessary. One has to begin with
to gather as much usable and useful information appreciation expressed to Dr. Kelly Carr who in
related to Third Party intervention into the daily the 1960’s originated the concept of Direct
practice of orthodontics between two covers — Reimbursement and never wavered in his convic-
hoping that it would educate office staff and tion that it was a better idea. In spite of all the
facilitate the challenging job of keeping a smooth expected opposition, he convinced enough key
efficient operation with Third Party payers. Fortu- people in the AAO that DR is now a household
nately, this has been less of a problem in orth- word in the benefits lexicon. We have borrowed
odontics than in general dentistry and in no way extensively from AAO and ADA brochures and
3
SAO OFFICE INSURANCE GUIDE
information. We have benefited from information tions of Dr. John Harrison in determining and
supplied by the Mr. John Stoner Organization in gathering the materials that should be included in
St. Petersburg, FL who was a key developer of the original Guide and this Update. His counsel
Direct Assignment Plans and from Mr. Roger was invaluable. Dr. Harrison has served honor-
Shultz who contributed much to the art of selling ably as the SAO representative to the AAO Council
Direct Reimbursement. Mr. Bob Macdonald of on Health Care for 8 years.
the Florida Dental Association’s Dental Benefits The SAO Board of Directors is to be
Department has been a tremendous help in commended for encouraging the project because
allowing us to use material in his Dental Office of the need expressed in the membership survey.
Guide For Understanding Dental Benefits Pro- Lastly, an expression of thanks goes to Dr. Steve
grams, a course he presents to the University of Tinsworth who was insistent that a manual
Florida College of Dentistry. We were already far dealing with insurance issues be undertaken by
along with our work when we learned of its the SAO. We appreciate the willingness of every-
existence, but it helped us reshape our ideas and one involved to do whatever is necessary to help
relate his presentation to orthodontists. Copy- people understand dental needs and the services
righted material from the ADA and other sources that provide that care.
required permission. We are appreciative of the offices who
The AAO has been a driving force behind assisted in reviewing and suggesting comments
the growth of and respect for self-funded dental to add to the content of this updated Guide. In
benefit plans across the nation. particular, we would like to thank the staffs of Dr.
The SAO is appreciative of the contribu- Beth Faber and Dr. Michael Rogers.
DISCLAIMER
The SAO Insurance Office Guide is pre- orthodontic benefits in the market place. The
sented for informational purposes only. Legal guide is not intended to offer or challenge any
advice requires an attorney, and this guide should philosophy of practice related to Third Party
not be relied on as legal advice or as a substitute payers. We have attempted to be responsibly
for a personal attorney. Laws, facts, and condi- objective with descriptions and definitions. The
tions change as well as conclusions based on content of this guide has come from many reli-
them. The SAO Insurance Committee will update able sources and we have liberally used the
information as needed to keep our members statements and ideas they expressed.
current with practice implications as related to
4
SAO OFFICE INSURANCE GUIDE
Chapter 1: History of Dental Benefits
Chapter
What are Dental Benefits?
Benefits?
Insurance can generally be defined as a group of people
pooling resources to reimburse one of its members who suffers a (1) The amount payable by a
financially catastrophic and unpredictable loss. “Dental Insur- third party toward the cost of
ance”, then, is somewhat of a misnomer in that its losses are various covered dental services
extremely predictable and are not generally catastrophic. Never- (2) The dental service or proce-
theless, “dental insurance” developed, and it is useful to under- dure covered by the plan.
stand why. Source: AAO Policies on Dental
The early 1960s generally marks the advent of dental Benefits Programs
insurance. Unrelated economic, political, and dental phenomena
occurred at roughly the same time which acted as a stimulus to
prompt the development of this insurance. It is important to Who Are Third Par
Par ties?
arties?
examine each of these separately to understand their impact.
The first phenomenon involved the federal government. •Employers/ Third Party
There were those in Congress who felt that access to health care Administrators (TPA)
was limited and that, to some extent, this lack of access was •Insurance Company
related to the number of available practitioners and to the costs •Dental Service Corporation
involved. The government’s solution to this problem was to use the •Prepaid Dental Plan
economic “supply and demand” principle. It was felt that by •Independent Practice
stimulating an increased supply of practitioners, the lack of avail-
Association
ability would be met on the one hand, and increased competition
would meet the problem of cost on the other. Therefore, programs
were developed to stimulate more graduates from our health care AAO STATEMENT
professional schools.
During this period there was a dramatic increase in the OF POSITION
number of dental school graduates, so much so that there became
In consideration of the role of
known the term “busyness problem”. Fees were not reduced but
orthodontics in health care for
stabilized. Dental incomes did not keep pace with inflation for
the American people, the
approximately 15-years. The law of supply and demand failed in members of the American
this instance since the percentage of the public receiving dental Association of Orthodontists
treatment did not increase. believe that:
The second phenomenon also occurred in the early 1960s.
• Orthodontics is an
The labor force in this country began demanding more in the integral part of oral
way of fringe benefits. The insurance industry was quick to recog- health and that oral
nize this opportunity and designed a dental insurance system health is an important
without any significant guidance or consultation with the dental health care service.
profession. These dental plans were designed using the industry’s Orthodontic care
medical insurance experience as a model. contributes to the
It was clear to some at that time that the economics of patient’s overall
dentistry and medicine were very different and that the medical health, quality of life
model would not suffice. It was also known that providing a dental and self-esteem.
• All American patients
benefit was extremely predictable in terms of cost. However,
should continue to
“dental insurance” promised to solve the “busyness” problem have the freedom to
dentists were facing, so not much opposition was raised regarding select qualified dental
its development. health care providers
The third phenomenon began to occur in the 1970s and of their choice. The
extended into the 1980s. Overall costs in health care began to rise freedom of patients to
disproportionately—greater than the general inflation rate or cost of select their dental
living index. The insurance industry felt great pressure from their health care provider is
5SAO OFFICE INSURANCE GUIDE
clients to contain costs. The overabundance of dentists and the a fundamental Ameri-
“busyness” problem made dentistry a prime candidate for man- can right. The personal
aged care devices even though dentistry did not account for very relationship between
much in the rise in health care costs. dentist and patient is
the foundation of
Commercial insurance carriers turned the success they
effective treatment and
were having controlling medical costs through development of quality health care.
Health Maintenance Organizations (HMOsHMOs
HMOs) toward dentistry. The • The advantages of fee-
basic indemnity plans were ratcheted down into several hybrid for-service dental
alternatives. Dental Health Maintenance Organizations (DHMOsDHMOs
DHMOs) health care and ben-
began to appear as “prepaid” dental plans. It features a efits systems should be
“gatekeeper” function where everyone is assigned a general practi- maintained because of
tioner who determines if referrals to dental specialists are neces- their high quality and
sary. cost effectiveness. All
The DHMO is an exclusive provider plan, which provides employers, govern-
mental and private,
care to prepaid enrollees who receive care only from contracted
should be encouraged
providers. These plans are popular because of their low cost to provide dental and
monthly premiums and non-employer involvement. They are orthodontic coverage
known as “capitation” plans because the provider dentists receive as a benefit of employ-
a monthly payment per “head” (patient) to care for the patient ment. Direct reim-
regardless of whether the patient was seen for any dental services bursement is the
that month. Usually that amount is 60% of the monthly premium. preferred benefit plan
Another option presented was Preferred Provider Organiza- design due to its
PPOs
tions (PPOs
PPOs). The “capitation” and “gatekeeper” function is re- simplicity of adminis-
moved; patients can select from a list of providers and can receive tration and cost effec-
tiveness.
care out of network although out-of-pocket expenses for the patient
• All dental health plans,
will be higher than the plan allows for reimbursement. PPOs have including publicly
higher monthly premiums and cover more services. Large insur- funded plans, should
ance corporations offer a variety of dental plans (indemnity, PPO, include patient protec-
and DHMO) but inherently oppose self-funded plans such as Direct tion principles includ-
Reimbursement (DR DR
DR) because they are competitive alternatives to ing, but not limited to:
“traditional” insurance products. freedom of choice of
The coalescence of these three phenomena at roughly the provider, third party
same time changed the face of the dental profession dramatically. accountability, elimina-
No longer can the individual dentist make all decisions regarding tion of gag rules, and
self-referred access to
his patients and practice independently. The Third Party now plays
specialists.
a prominent role in that process. • Benefits for orthodon-
To counter the intrusion of third parties, organized dentistry tic treatment should be
became a Third Party in California: California Dental Services gave included in privately-
birth to Delta Dental
Dental, a Dental Service Organization run by dentists funded dental health
which became a giant provider not unlike the major players in the care plans, but must
dental prepayment marketplace. be designed to pro-
Concerns with Delta prompted interest in independent mote quality care.
IP
practice associations (IP As
IPAs
As). Dental IPAs allowed dentists to own a Both publicly and
corporation that controlled the quality and type of care delivered privately-funded plans
should provide orth-
under a contract to employer groups. The dentists were at risk for
odontic benefits to
the success of the venture, not a Third Party. IPAs can design a achieve correction of
variety of plans from fee-for-service to capitation. The dentists congenital anomalies
were the stockholders and the providers and thus have the opportu- such as those associ-
nity to be competitive and profitable. ated with cleft lip/
The other alternative to managed care developed by orga- palate or traumatic
nized dentistry to return to the basics of dental care delivery are the injuries to the teeth
employer self-funded plans of Direct Reimbursement (DR DR
DR) and and/or orofacial struc-
6SAO OFFICE INSURANCE GUIDE
Direct Assignment (D DA). These are truly fee-for-service, freedom of tures. Publicly-funded
choice of dentists, cost-based not procedure-based options that plans should provide
give back control and responsibility for dental health to the patient, orthodontic benefits for
not a Third Party. indigent and “special
needs” individuals,
Many state dental associations have taken a pro-active
regardless of age, if
role in promoting self-funded dental benefit plans by directing they do not receive
informational advertising to target markets and cooperating with dental/orthodontic
insurance agents capable of initiating or converting dental plans to benefits from their
a self-funded model. This partnership was the stimulus needed to employer.
make a product like Direct Reimbursement viable and sellable to • The tax deductibility of
skeptic of human resource personnel. They inherently trusted the dental health care
agents’ role of providing information and options more than that of benefits, including
dentists. Naturally they were suspicious of dental self-interest and orthodontic care,
self-righteous indignation over insurance cost cutting; plus dentists should be retained.
Self-employed indi-
were only offering a concept, not the nuts and bolts needed to put
viduals should be able
a plan in place. Without a knowledgeable commissioned sales to deduct the full cost
force subsidized by dentists, self-funded plans would have re- of dental health care
mained stagnate. Phenomenal growth occurred because of this benefits for themselves
cooperative effort. Much credit must be given to the AAO for its and their families.
commitment and dedication to counter balance the cost saving
limited service of Managed Care with dollar enhancing, free choice,
responsible dentist / patient relationship dental care. The AAO
because of their 30+ years experience has provided critical assis-
tance to insurance agents unfamiliar with cost-analysis of self-
funded plans and also to state dental associations. The AAO
promoted its own brand of Direct Reimbursement nationwide until
2004, when the DR baton was passed on to the ADA for implemen-
tation and marketing. Like any alliance, a partnership is only as
good as it continues to meet the self-interest of all parties, noble
causes notwithstanding. Working with “beasts” who can harm you
and devour you takes skill, diligence, and resolve. We have seen
what happened so quickly to the Medical Profession. Dentistry, on
the other hand, has in place a better “mousetrap” with a promising
future.
HISTORY OF DENTAL BENEFITS
1950s/1960s Dental Service Corporation (CDS)
1970s Delta, Blues, Indemnity Plans, Direct Reimbursement, Closed
Panels
1980s Managed Care Plans (PPOs), DHMOs, Prepaid Plans), IPAs
1990s Direct Assignment, Dental Referral Plans, Point of Service
2000s Consumer-Directed Benefit Plans (HRA, MSA, FSA)
7SAO OFFICE INSURANCE GUIDE
Chapter 2: Types of Dental Reimbursement
Chapter
There are a variety of dental payment mechanisms offered DENTAL P
DENTAL AYMENT MODELS
PA
in the market place. They can generally be categorized as fee-for-
service, indemnity, discount managed care, self-funded, payroll pre- NON-NETWORK:
tax funded, and government-funded plans. Each has its own spe-
cific characteristics. The golden rule applies: whoever has the gold •Fee-for-Service (FFS)
makes the rules.
•Self-Funded Plans
(DR/DA=$ based)
Fee-for-service means the traditional transaction between two
parties, the patient and the dentist. The dentist performs a service •Self-insured
and is reimbursed according to the payment mechanism agreed to (100-80-50=Procedure Based)
by the patient and dentist. The patient is at risk for the entire fee. •Indemnity Plan
There is no Third Party involvement. Some insurance plans claim (Traditional Insurance)
to be fee-for-service but this is a false, erroneous statement be- •Consumer Directed
cause it contradicts the true definition. (HRA, FSA, MSA)
Indemnity or traditional compensation dental insurance NETWORK:
plans are freedom-of-choice plans offered by state regulated
commercial insurance carriers. They compensate a percentage or a •Preferred Provider
fixed amount of the total fee. Orthodontic coverage is designated
Organization (PPO)
as a maximum lifetime amount as a co-payment to offset the
•Dental HMO/ Point of Service/
entire fee of the insured. Typical amounts are $1000 and $1500,
but the reality is that the plan will only reimburse at one-half the EPO/IPA
fee up to the maximum. This is confusing to patients who expect to •Prepaid Dental Plan
always receive their maximum amount. Only if the fee is twice or •Dental Referral Plan
more than twice the maximum could the patient expect full indem- •Consumer Directed
nification. For example, if the orthodontic fee is $2500 on a co-pay (HRA, FSA, MSA)
basis, the patient will incur $1250 (50%) expense out-of-pocket. If •Closed-Panel (Salaried)
the benefit is $1500, the patient will receive only $1250 of the
$1500 stated benefit.
A claim form must be accurately and exactly filed after INDEMNIT
INDEMNITYY PLAN
diagnostic records have been obtained and the case treatment
planned by the orthodontist. The reimbursement can either be •Issued by third party payer,
assigned to the orthodontist or to the patient. If the orthodontist insurance carrier, dental service
accepts the fee from the insurance company, this is called assign- corporation (DELTA or BC/BS)
ment of benefit. Some offices never accept assignment of benefit who accepts risk
as stated in their office policy to all patients and other offices
alw
alwaays accept assignment. Practice philosophy determines how •Guaranteed payment of claims
claims will be handled. in exchange for monthly
Insurance companies vary in how and when they will premium
reimburse, but they are legally at risk for the designated amount as
long as they are assured the patient completed treatment. Con-
•Freedom of Choice of Dentist
tinuation of treatment forms are routinely sent to verify the fact.
They are a nuisance factor of Third Party payment and can be
avoided by office policies known to the insured before initiating •Assignment of benefits/
treatment (sample letter, PDF supplement). The insured gives balanced billing
proof of continuing treatment by their receipt of payment or copy of
their canceled check to the orthodontist. •Reimbursement by UCR or
Direct Reimbursement (DR) is a self-funded/ fee-for-service / TOA
8SAO OFFICE INSURANCE GUIDE
freedom-of-choice plan that reimburses patients according to DIRECT
DIRECT• REIMBURSEMENT
dollars spent on dental care, not type of treatment received. In-
stead of paying monthly insurance premiums, employers pay a •Freedom of choice of dentist
percentage of actual fees-for-service. The design of the DR plan is
selected by the employer to fit the company’s budget and will vary •Fee-for-service
among companies. Commonly, a two- or three-tiered structure will
be encountered whereby 100% of the first $200 of dental expense
•Self-funded (ERISA)
will be reimbursed, 50-80% of the next tier, and or 50% of the third
tier up to the maximum. Totals may be individual or family maxi-
mums. The financial obligation is the patient’s responsibility since •Dollar Tiered Benefits
there is no insurance company involved; the employer is the Third
Party. An ADA claim form or receipt of payment is required by the •Simple administration
employer to reimburse the employee. Pure DR is very popular with
informed human resource personnel because their employees may •No predetermination or prior
choose their own dentist and are free to elect any dental procedure authorization
without restriction.
The downside of DR/DA is the lag time between the time the •Few restrictions, limitations,
patient paid the provider and the time the employer processes exclusions
payment to the employee.
Every dollar spent goes toward dentistry, thus avoiding the
25-35% retention associated with fully insured products.
Variations of DR were developed to facilitate introducing
this novel plan into the market place. Third Party Administrators
(TPAs) have been enlisted by organized dentistry to promote,
market, and manage this unique approach. Remuneration for their DIRECT ASSIGNMENT
effort and success is a commission typically 10-15% of premiums
paid, still well below conventional insured products. •Freedom of choice of dentist
A more flexible direct reimbursement plan, Direct Assign-
ment (DA), was developed by organized dentistry, adding an
•Self-funded (ERISA)/stop-loss
assignment of benefits feature so the patient does not have the up-
insurance
front cost due at the time of treatment. Stop-loss insurance is
available to protect the employer from over-utilization of the plan
(adverse selection) when the plan is initially brought into service. •Fee-for-service/balanced
Some DA plans include another feature, “co-pay”: an office billing
visit charge, which is collected by the TPA and withheld from the
check back to the dentist for the administrative service charge. The •Option: assignment of benefits
dentist/orthodontist has also agreed to subsidize the plan (dis-
count the fee) $5 for every billable service; therefore, for orthodon- •Dollar Tiered Benefits
tists, quarterly or semi-annual billing prevents an unnecessary $5/
month service charge or withhold from the plan administrator. This •Simple administration
co-payment shared by patient and dentist pays the TPA for the cost
of plan administration and lowers the premium cost, thus making
•No predetermination or prior
it more competitive in the marketplace. Patients not utilizing the
authorization
plan are not subsidizing those in the group that are and the dentist
/orthodontist is getting a patient they would not have gotten except
for this type of plan. Typically, stop loss is not necessary in spite of •Few restrictions, limitations,
the fear of over-utilization. As long as the plan is funded, experi- exclusions
ence has shown that DR/DA plans do not need stop-loss as an
added expense. The dentists will still receive 98% of the fee
similar to credit card financing.
Dental Ser vice Cor
Service poration (Delta) and Pref
Corporation erred Pr
Preferred ovider Organi-
Pro
9SAO OFFICE INSURANCE GUIDE
zations (PPO’s) are large discount managed care organizations PREFERRED PR OVIDER
PRO
that reimburse by a table of maximum allowances or fee schedule. ORGANIZA
ORG TION (PPO)
ANIZATION
Delta offers a cafeteria of plan models to compete with all forms of
plans. An orthodontist agrees to be a Delta or PPO network pro- •Dentists contract with plan to
vider by agreeing to Delta’s or the PPO’s fee schedule which could
join network
differ considerably from his regular fee-for-service. There is no
allowance for any additional charges (“balanced billing”) beyond
•Discount fee schedule
the schedule for a network provider. The fee schedule will vary
from region to region because of variations in demand for services (15%-30%)
and utilization of the plan. Cost containment through discounted
fees and other limitations are supposedly offset by the argument of •Dentists at risk
large patient enrollment to fill up empty chairs and increased
business. •Enrollees may select dentist in
Patients should not believe the notion that a “preferred network or pay a higher fee for
provider” is somehow specially selected because of their out- non-participating dentists
standing ability or superiority over a “non-preferred” provider. This
is an insurance marketing term to make the product seem attrac- •Plan reimbursement based on
tive to the public. Their preferred provider is subject to annual
fee schedule
review and can be “deselected” without due process if his stan-
dards of treatment vary outside the parameters set by the organi- DENT AL HMO/
DENTAL
zation. AID PLAN
PREPAID
PREP
Some PPOs allow the option for a patient to go out of
network (Delta); others may impose some monetary penalty. Billing
•Dentists contract to join
the patient for the balance due to the difference between the fee
network
schedule and the orthodontist’s customary fee may or may not be
allowable (balanced billing).
•Insureds select from network
Dental Health Maint enance Organizations (DHMOs)
Maintenance DHMOs) are managed dentists
care discount plans that base their reimbursement on “prepaid”
“capitation” (dollars per month per head). These limited plans are •Network dentist receives
not encountered in orthodontics. The dentist receives a fixed monthly capitation fee per
payment each month for providing no charge services outlined in covered enrollee
the plan regardless of whether the patient is seen or not seen. Non-
covered procedures preformed by the dentist are highly discounted •Dentist at risk
and requires payment by the patient. Obviously it is to the dentist’s
advantage to perform as little treatment as possible or to diagnose
•Discounted fee schedule of
only major procedures. Ethical and professional concerns are
40%-50%
realities in this type of arrangement. They are the least expensive
dental plans.
DHMO/POINT OF SERVICE
SERVICE
Prepaid Limit ed Health Ser
Limited vice Organization (PLHSO) is another
Service
type of managed care program sold primarily to groups, but also to •Visit designated primary care
individuals on voluntary enrollment. Participating specialists, network dentist (Gatekeeper)
orthodontists, are placed into the network by agreement to provide
services for all procedures and services at a 25% discount. If the •Verify dental services needed
plan requires pre-authorization prior to referral, the specialist must
agree to the subscriber’s (patient’s) discounted schedule of ben-
•Select any dentist and have
efits. American Dental Plan and Or al Health Ser
Oral vices (now known
Services
dental treatment
as Com
Compp Dent
Dent) are examples. Since there is no verification of the
authenticity of the discount unless non-plan fees are posted, this is
a dubious honor system at best. •Pay dentists FFS and plan
A PLHSO is a characteristic capitation model with a reimburses up to limits
10SAO OFFICE INSURANCE GUIDE
monthly fee (premium) that covers preventative and diagnostic MEDICAL S
MEDICAL AVINGS
SA
services at no charge. The member dentist (not orthodontist) is ACCOUNT
CCOUNTSS (MSA)
(MSA)
paid 60% of the monthly premium to provide all the no charge
services provided by the plan. Forty percent is retained by the •Employer Funded
PLHSO. Other basic and major dental procedures are scheduled at
highly discounted fees and require payment by the subscriber. The
•Limited to self-employed and
subscriber “believes” (has been informed) that they will encounter
25% higher specialists’ fees if they seek treatment out of network. small employers (50 or less
This is not necessarily true, nor is it usually true since there is no employees)
valid comparison unless the documented fee estimate is 25% less
than an out-of-network specialist documented fee estimate. There •Requires high deductible
is no treatment reimbursement from the plan, except for the insurance policy ($1,600 to
capitated premium; nor is balanced billing in a prepaid capitation $2,400) with 65% deductible
plan allowed. Incentive commissions are very high (15%) for
brokers selling these “Certificates of Benefits” to subscribers •Covers payment for health
because the PLHSO takes no risk, and they have such a large share care services
of the market. These plans are aggressively marketed to the public
and are popular with large employers because there is no contribu-
•Like IRA (15% penalty for early
tion or hassle on their part, and it is the simplest way to offer
withdrawal) before 65 years old
“perceived” access to dental care to a public that is always ready
for a bargain. Issues could be raised with ethical standards where
quality and treatment could be compromised with “least expensive HEALTH S
HEALTH AVINGS
SA
alternatives”. ACCOUNT
CCOUNTSS (HSA)
(HSA)
Medicaid is the major government funded dental program. Dentists •Employer/Employee Funded
who participate must complete an application form and have an
approved provider number from the state. Reimbursement is •Non-taxable
limited and fixed, and there can be no balanced billing for the usual
fee charged by the orthodontist. Many orthodontists who partici-
•Requires high deductible
pate do so as an act of charity or benevolence.
health insurance plan
CHAMPUS is the military dependent program that contracts with
dentists to provide services to eligible patients. •Covers payment for health
care services
Vocational Rehabilitation and W
Rehabilitation or
Worker
ork s’ Compensation are other
ers’
governmental programs that provide dental care to the public. •Owned by the individual like
an IRA
Independent Practice Associations (IP As) are exclusive provider
(IPAs)
corporate networks consisting of dentist stockholders who treat the
insured under contract. They can operate under various plan INDEPENDENT PRA CTICE
PRACTICE
designs and can insert whatever restrictions are needed to be ASSOCIATION
ASSOCIATION
competitive in their bidding process.
•Exclusive Provider Network
xible Spending A
Flexible
Fle ccounts (FS
Accounts As) are a win-win situation for
(FSAs)
everyone: reduced payroll taxes for the employer, a significant •Capitation or Discounted Fees
health care tax deduction for the employee, and prompt payment
to the dentist. These plans allow for employee payroll contributions
•Restrictions, Limitations and
for a menu of health care benefit options with pre-tax dollars. Both
Exclusions
income tax and Social Security taxes are avoided. An individual in a
30% income tax bracket, coupled with Social Security and Medi-
care at 7.65%, realizes a 37.65% reduction on his orthodontic fee •More Competitive than DHMO/
Prepaid Plans in the market
11SAO OFFICE INSURANCE GUIDE
in real money. MEDICAL S
MEDICAL AVINGS
SA
Flex plans operate on a 12-month plan, and once a deter- ACCOUNT
CCOUNTSS (MSA)
(MSA)
mined amount is elected, it is irrevocable. Any money left in the
account at year’s end is forfeited. This “use it or lose it” feature is •Employer Funded
not a factor with predictable dental expenses which are ideal for
this mechanism. There is an employer determined maximum,
•Limited to self-employed and
usually $1000-$2500 each year. Dental practitioners should
small employers (50 or less
encourage their employed patients to take advantage of this
benefit. employees)
Employers, however, are not always eager to implement this
plan and may need some convincing from their employees. The •Requires high deductible
pre-tax savings to patients are considerable. insurance policy ($1,600 to
$2,400) with 65% deductible
Medical Sa vings A
Savings ccounts (MS
Accounts As)
(MSAs)
Regardless of who manages resources for health care (insurance •Covers payment for health
company, employer, or patient), the incentive is to spend the least care services
amount. The patient should have the right to decide how much to
spend and for what. This insures that the interests of the patient
•Like IRA (15% penalty for early
remain paramount. Health care managed by an insurance com-
withdrawal) before 65 years old
pany or government has two strikes against it: high overhead costs
and profit-driven health care decisions. Health care insurance adds
to the total cost of health care and often obstructs the rendering of
optimal health care by denial of coverage on the basis of cost
control. Furthermore, insurance never provides for full reimburse-
ment. First dollar costs are prohibitively expensive for any insur-
ance. MSAs provide the means for funding employee health care
benefits with regular pre-tax dollars that accumulate and grow in
CAUTION
invested funds. The annual “use it or lose it” feature of Flex Plans A strategy still used by insur-
does not allow for any roll-over into the next fiscal year, nor does it ance companies to reduce
allow the participants to retain control of the unused balance in reimbursement is called “Blind
their account. Patients need to accumulate assets to pay for PPOs” or “Silent PPOs”. If the
routine care (first dollar costs) and insurance premiums (last dollar orthodontist ever signed a
costs). contract that gave a deep
MSAs are completely portable and are the property of the discount, your name can be
individual regardless of job changes or loss of health insurance. passed to other PPOs (Silent).
Many Americans are uninsured short-term (less than six months) You may be on a “resell” list that
because they are between jobs. Unfortunately, current MSA law tells the insurance company
discourages offering these plans by limiting the total number of what discount you have agreed
plans allowable and limits them to small businesses of less than to give, and the insurance
50 employees. company will process your bill
MSAs are politically opposed by members in Congress who as a provider for the cheapest
favor national health care. Organized Dentistry and Organized PPO possible, thus reducing
Medicine need to unite and actively seek to eliminate the restric- your reimbursement and giving
tions and limited availability of MSAs. extra profit to the insurance
Major benefits to all Americans are: company at your expense.
1. Minimizing the role of insurance Unless you know what fee to
2. Enabling patients to participate more fully in decisions about expect, you may not know this is
their health care happening to you. Refuse to join
3. Giving patients a better opportunity to choose the best quality a PPO that will allow your name
of care to be released, and be sure you
4. Reducing over utilization know what your full payment
5. Encouraging prevention and early intervention should be.
12SAO OFFICE INSURANCE GUIDE
6. Relieving health providers of dealing with insurance matters HEALTH REIMBURSEMENT
HEALTH
7. Reducing fraud ARRANGEMENT (HRA)
8. Decreasing the cost of health care
9. Providing a strong alternative to national health care •Employer Funded (funding
10. Allowing participants to retain control of the unused balance in
pool)
their accounts
Attached is an addendum of the IRS Publication 969 which •Non-taxable employee benefit
describes HSAs, MSAs, FSAs, and HRAs regulations, or you may
download a copy at www.irs.gov/pub/irs-pdf/p969.pdf. The follow- •Pay health care premiums, co-
ing websites may be useful: www.heritage.org, www.ncpa.org, insurance payments, cost of
www.galen.org health care services
Health R eimbur
Reimbur sement Arrangements (HRAs). These are ac-
eimbursement •Limited to qualified health
counts to reimburse medical expenses under IRS Section 213(d) care services
provided and financed by employer contributions for their employ-
ees. There is no allowable contribution by the employee. Unused •Can be used as a defined
credits may be carried over to subsequent years and may be
contribution retirement benefit
coordinated with flexible spending accounts (FSAs). The potential
plan to pay health care costs
for savings with tax exempt medical expenses and growth from
unspent funds rolling over from year-to-year plus the ability to and Medicare supplements
select any doctor and consumers’ incentive to ration their own
health care is a big deal and could signal the end of “stuffing HINT
employees into unpopular HMOs”. Over time, participants could
HRAs and FSAs can be coordi-
build up sizable accounts with which to meet future health care
nated so that participants can
expenses. Already prototype plans have seen huge drops in health
be covered by both
care costs. Aetna and Humana are selling such policies to major
U.S. corporations.
Fee Financing, basically a loan granted to a qualified patient where by the entire fee less the com-
mission (7.5%), is paid to the orthodontist upfront, and the patient pays the lending company over
time with 10-18% interest charges. Orthodontic Fee Plan (OFP) is such an entity. The main advan-
tage is that it helps the traditional fee-for-service orthodontist compete with the no down payment
(no initial fee) advertised by some corporate orthodontic entities. Some orthodontists believe that a
high initial fee discourages patient acceptance since it has been reported that 77% of American
consumers would bounce a $500 check. Another advantage is that it takes any collection problem
out of the office. There is a strong buying mentality in America that is accustomed to monthly pay-
ments.
CAUTION
Usual, customary and reasonable fees (UCR) per zip code are quoted by insurance compa-
nies as the basis for their fee structure, but this has often been proven to be an erroneous
statement. Patients need to be informed that UCR is each insurance company’s computer
derived payment for each procedure that will still be profitable to the company in the trans-
action. It has no relationship to fees charged by dentists. There is high variability in the
determination of UCR and updating fees. Often a poor correlation exists with the reality of
fees in any given geographical area. A dentist’s/orthodontist’s fee may be higher or lower
than an insurance company’s UCR for many valid reasons and patients must be educated
beforehand that insurance companies determine their own fees for procedures. Problems
arise when the insured is informed that their dentist’s fee is much higher than their UCR
reimbursement, thus putting the dentist in an adversarial position.
13SAO OFFICE INSURANCE GUIDE
Chapter 3: Plan Design
Chapter
Lack of insurance is the top reason people give for not DENTAL BENEFIT
DENTAL BENEFITSS MARKET
visiting the dentist, yet not all dental plans are a good buy. Premi- Presented at National Dental
ums paid by the patient plus co-payment paid by the patient over a Benefit Conference sponsored by
period of time against the actual claims paid by insurance compa- the ADA in 2007
nies often exceed the actual dollar cost of the dentistry supplied.
As an example, $1000 could be paid out by the insured in one year
•162,500,000 people enrolled
when the total dental bill was $800. Insurance works because of
in dental benefit plans
under-utilization. Approximately 50% of employees with dental
insurance will not use it in any given year; therefore, the reservoir of --50% have PPO coverage
money accumulates for the insurance company. The ADA states --26% have Indemnity plans
that the average annual dental expense per person in the USA is --15% have DHMO coverage
very low. Obviously, orthodontic, oral surgery, periodontal, endo- --9% have Discount dental plans
dontic, and cosmetic expenses are much higher than the average
for general dentistry. Critics of dental insurance believe we should •Enrollment in dental plans has
only insure against a risk we do not anticipate or against a cata- increased by 8% in the last 10
strophic loss that we could not handle financially. years
Routine basic dental expenses over time are very predict-
able, and there are alternatives to insurance for higher dental •Key dental industry trends are:
expenses such as flexible spending accounts and medical savings
--Costs have been shifting to
accounts (where legal). They allow tax-free dollars to be deducted
consumers and employees are
from payroll, thus providing a significant discount at government
expense, not the dentist’s expense. In one sense they become an paying a larger % of premiums
interest free loan since the entire allocation set aside for dental --Rising costs are forcing
care can be drawn the first month the plan is in effect. By fully carriers into new territories such
utilizing all the features of a Flex Plan, it is actually possible to as the discount dental market
achieve a $5,347.50 tax savings over 3 years for a prospective --Administration costs have
patient’s parents in a 28% tax bracket. That would more than pay decreased by about 3% since
for a $4,000 orthodontic fee without any insurance benefit.* (John 2003
Stoner TPA) Surprisingly, this is not a well-known fact, nor are flex
plans as popular as they should be. • New innovations in dental
Insurance products add to the cost of dentistry because of plan benefits are:
the profit that must be made by the insurance company, adminis-
--Hybrid dental benefit products
tration /management costs, incentives and commissions to bro-
--Modified designs to older plans
kers, and marketing/promotions costs. The upside is that dental
fees are higher because of insurance than in pre-insurance days. such as annual maximum roll-
The downside is that insured orthodontic benefits in 1971 were overs
$1,000 and many are still $1,000 in 2008 in spite of increasing
premiums and increased costs delivering orthodontic services. •2,000,000 persons covered by
Plan design makes quite a difference to both patient and other plans (2%)
dentists alike, and decisions are necessary regarding the positives
and negatives of how each office will respond to various types. Not
all dental plans include orthodontic treatment, or the terms may be
different, and some plans have an age limit of 18. Most conven-
tional orthodontic insurance is a fixed lifetime maximum allow-
ance— typically $1,000-$1,500 paid at 50% of the charge up to the
maximum or whichever is less. UCR is meaningless because the
amount of the fee has no relation to the fixed benefit.
Managed Care Plans work from a fixed fee schedule at a
14SAO OFFICE INSURANCE GUIDE
reduced fee that the provider orthodontist must adhere to without Dollar-Based Plan Highlights
billing for any increased cost due to complexities (no balanced (presented by Regence Blue
billing). If the patient chooses to go out of the network of provid- Shield)
ers, reimbursement is either denied or subject to conditions. The
orthodontist’s option to work with managed care plans carries the •No procedure classes or
lure of high volume to offset the lower cash flow. There are no exclusions except cosmetic and
marketing- referral worries with the patients supplied. The fee-for-
orthodontic procedures
service orthodontist must be willing to accept the burdens of
•No deductible
making their practice attractive to more independent clients who
value freedom of choice and who are not financially dependent on •6-month waiting period
low cost or insurance products. There is a large market share of the •No network
population, approximately 50%, who will probably never purchase
dental insurance. There are reputable ethical orthodontists on both Plan will pay:
sides of the managed care issue and some in the middle who --100% of first $150 of care
incorporate both fee-for-service and managed care patients in their --80% of next $500 of care
practice. --50% of remaining care until
Annual Benefit Maximum is
Cost-containment features of both Indemnity Plans and Man- reached ($750, $1000, $1250,
aged Care Plans are: waiting periods, deductibles, office visit $1500 annual maximum
charge, co-payment by insured of 20%-50% of fee, UCR, table of
choices)
allowances, balanced billing, predetermination of benefits, prior
authorization, coordination of benefits, least expensive alternate
treatment (LEAT), limitations, restrictions, exclusions, time limita- Rates:
tions between procedures (radiographs, cleanings, crown replace- $44 Adult
ments etc.) and pre-existing conditions (See Glossary for definition $24 Child
of terms). Fortunately, orthodontics has not been as burdened by $50 65+
these encumbrances as has general dentistry, and obviously,
orthodontics is always a pre-existing condition before a plan goes Procedure-Based Plan
into effect. Exclusions are procedures not covered by the dental Highlights (presented by
plan such as implants, TMJ treatment, Orthognathic Surgery, Regence Blue Shield)
orthodontics, and cosmetic dentistry. Major Medical Insurance
may or may not cover TMJ treatment or Orthognathic Surgery, •$50 deductible waived if
excluding the orthodontic component.
patient has at least one prophy
It is important to understand that insurance carriers have a
and exam per year
customary fee (average) for a given geographical area (zip code’s
first three numbers) for every dental procedure in order to base the •No waiting periods
reimbursement on a percentage of the customary fee. All proce- •No network
dures are identified by specific categories in the ADA CDT-7 Code of •Benefits increase based upon
Dental Nomenclature. It is important that patients understand that length of enrollment
dental benefits only pay a portion of any fee charged. There are
many problems created when insurance carriers tell their insured Rates:
that the fees they are paying for dental services are above the $32 Adult
customary rate for the area. To avoid any impression that the $25 Child
patient is being overcharged, it would be best to explain how
insurance carriers actually arrive at what they misleadingly refer to
as usual, customary, and reasonable.
Rarely, if ever, are orthodontists required to submit radio-
graphs or photographs to an insurance company to gain prior
approval for coverage.
Coordination of benefits is an issue when an insured has more
than one dental plan or when there is an accident that will cover
15SAO OFFICE INSURANCE GUIDE
dental fees under another type of insurance policy (e.g., workers HELPFUL HINTS FOR
compensation, auto insurance, personal injury protection). It is a CONSIDERING PLAN DESIGN
criminal act if reimbursement exceeds 100% of the total charges.
The dental office is obligated to inform both insurance companies • Does the employer have
in situations where there is double coverage and it is the obligation access to sufficient
of the insurance companies involved to settle the monetary issue information to make a
between them. decision?
• How many dentists have
Assignment of Benefits is another issue as to whether or not an accepted the plan, and
orthodontic office chooses or refuses to accept assignment of what is the geographical
benefits which means that the insurance claim will either reim- distribution?
burse the orthodontist or the patient. Accepting assignment does • Are there enough den-
create various bookkeeping problems as the office deals directly tists to adequately serve
with insurance representatives and continued requests for docu- the group?
mentation. Wasted time on hold with insurance companies’ • How many dentists
inadequate customer service agents is a major complaint from withdrew from the plan?
most offices accepting assignment. Nevertheless, it may be a • What are the criteria for
necessity to assist the patient’s payment for treatment and may selecting dentists to
actually enhance the dentist-patient relationship. participate?
Not accepting assignment creates a wall of independence • What is the utilization
for the orthodontist from insurance ownership and its inherent rate for patients in the
problems and seems to help the patient and their employer be plan?
more responsible for the plan that they accepted, especially when • What is the average
there are irritating hassles. The entire fee is paid by the patient, waiting period for an
the same as a fee-for-service. The orthodontic office is out of the initial appointment?
loop as to when and how much the patient is reimbursed. Finan- • What is the average
cial accounting and monthly reporting is much less of a problem period between appoint-
for the office staff. It is worth mentioning that at the beginning of ments?
the 21st Century approximately 70% of the orthodontists in the • What are the benefits
SAO accepted assignment and 30% strongly held to not accepting for patients requiring a
assignment. This percentage may have changed since the original specialist’s care?
survey. There are happy patients and orthodontists in both camps • How are specialists
and so it will remain. selected and compen-
sated?
An ideal plan design would have these features: • Does the plan have
• Easy to understand adequate specialists’
• Amount of reimbursement known before visiting the orthodon- participation?
tist • Are dentists limited to
• No complex forms contracted specialists?
• Freedom to choose orthodontist • Does the plan provide
• No exclusions, restrictions for emergency treat-
• No pre-authorization ment?
• More dollars for actual treatment • What provisions are in
• Reimbursement based on dollars spent, not procedures the program for emer-
• Reduced administrative expenses gency care away from
• Funds budgeted to pay claims stay with employer home?
• Cost-effective • What provisions are
• Helps patient become a better dental consumer and involved in made for unforeseen
their treatment circumstances or diffi-
• Flexibility as needs change (ortho, oral surgery, perio, endo, cult cases?
reconstructive) • What percent of the
premium is used for
16SAO OFFICE INSURANCE GUIDE
Self-funded dental plans such as Direct Reimbursement (DR), HELPFUL HINTS FOR
Direct Assignment (DA), and Flexible Spending Accounts (FSAs) CONSIDERING PLAN DESIGN
allow the beneficiary freedom of choice of orthodontist and fee-for- continued
service. They reimburse according to dollars spent, not procedures.
The plan is designed by the employer, usually with the assistance of administration?
a Third Party Administrator (TPA). Cost estimations that have • Is freedom of choice of
proven to be exceptionally accurate are provided by the AAO, ADA, dentist important?
state dental associations, and TPAs. Recognized actuaries compile • Is freedom to decide
national dental treatment data. what dental options you
Basic plan design for DR or DA would pay 100% of the first have important?
$200, 80% of the next $500, and 50% of the remaining dollars up • What data has been
to the annual maximum of $1,000. There is no distinction as to used to establish the
what type of dental service is rendered. In DR the patient pays the UCR fee?
dentist and is reimbursed by the employer according to plan design • How often are the fee
with submission of a receipt of payment or standard ADA form. levels updated?
To compete with other models DA encourages the dentist to • At what percentile is
accept assignment, thus lowering the office visit cost to the patient payment made?
in the hope that this feature favors acceptance of treatment. Plan • What percentage of
reimbursement back to the dentist is normally within two weeks. claims has the plan
Some DA plans have a dentist-patient co-payment feature per denied patient cover-
claim to offset the administrative cost so as to compete more age?
favorably with lower cost managed care plans. This feature is not • How quickly are claims
desirable in an orthodontic practice with monthly billing; therefore, paid?
it is advisable to file a claim quarterly or semi-annually to reduce • What is the difference
the number of claim withholds that the dentist and patient contrib- between the table of
ute on each claim ($5/claim/dentist-$10/claim/patient). allowances and a typical
The idea behind the dentist/patient co-pay/claim is that only fee?
those who benefit from dental services pay for the administration • What dental procedures
whereas, in other models, patients are paying for plan administra- are excluded?
tion whether used or not. It was a reasonable way to lower the • What are the restrictive
premium on a plan favorable to employer, employee, and dentist so limitations?
that fee-for-service could be competitive in a managed care envi- • Is the terminology
ronment and not compromise or limit benefits. One must remem- consistent with the
ber that in managed care the dentist is in reality subsidizing the ADA’s Current Dental
plan by agreeing to a 20-25% discounted fee. DA allows for a $5 Terminology?
per claim subsidy from the dentist and a $10 per claim subsidy • What is the percent to
from the patient as a cost of business to run the plan. The dentist premium commission
always receives 95- 97% of his fee, not really different from the paid to brokers?
cost of accepting credit cards for payment. This feature may not be • Does your insurance
as critical an issue as it once was when managed care growth was consultant receive a
causing great anxiety in the profession and there was a need to rebate from the insur-
compete. That is one reason DA was developed. The other reason ance company selected?
DA was developed was an attempt to overcome some of the objec- • How will the plan be
tions to DR and make it more attractive in the marketplace. The administered, and how
30-year history to keep DR alive and well in the face of overwhelm- well will it be adminis-
ing opposition from insurance companies is one of heroic relent- tered?
less tenacity by organized dentistry at all levels. Substantial gains • What safeguards are in
for DR/DA as a percentage of the total covered patients over the place?
last five years are very encouraging and significant. • How well does the
Self-funded dental plans are not regulated by the Department benefits manager
of Insurance. These plans are administered under federal ERISA understand dental care
–preventative, mainte
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