Managed care elements are becoming more popular in Discount dental plans as employers look for other areas to cut costs.

Physicians accepted managed care as a reality more than 10 years ago. Now, an increasing number of benefits managers looking to cut their dental costs hope dentists will begin following in their footsteps.

Managed dental care encompasses a variety of plans, including-preferred provider organizations offered by insurers that negotiate discounts with dentists. It also includes those plans that operate as dental maintenance organizations (DMOs) with fees that can be as much as 50% lower than the charge for the same service to patients who are not DMO members. Dentists who are members of the DMO panels are reimbursed on a fixed schedule. The reimbursement is calculated on a per capita basis. That is, the insurer reimburses each dentist each month based on the number of plan subscribers using each dentist.

As a result, these managed care programs are often referred to as capitated plans. Most employers, however, are offering Discount dental plans that combine capitation with some aspects of standard indemnity plans so employees can choose to use their own dentists.

At Avery Dennison Corp. in Pasadena, Calif., the process of adding a managed dental plan began as the result of the merger of Avery International and Dennison Manufacturing in 1989. When the two companies united, executives decided to develop one benefits program for the 10,000 U.S. employees who are now part of the merged organization. Avery Dennison produces speciality adhesives and associated products for commercial and industrial applications.

Flexibility and service

Taking the position that employees should be offered more than one dental plan choice, Avery Dennison designed several alternatives. "We wanted a vendor to be willing to utilize the plan designs that we had developed on our self-insured plan, as well as have a capitated DMO available to our employees," says Monica Desmond, corporate benefits manager. "We wanted someone who could handle all the options."

Delta Dental Plan of California, based in San Francisco, was able to provide the flexibility Avery Dennison needed. The new dental program, which became effective in January, includes three options. The self-insured core option has a deductible of $50 per person, and pays 80% of preventive and basic services and 50% of major services. Another self-insured option, which carries a higher premium, has a $25 deductible applied only to basic and major services; pays 100% of preventive services, 80% of basic services, and 50% of major services and includes a "small orthodontia benefit for children." Both self-insured options carry a $1,000 annual maximum benefit. The DMO does not have any deductibles, pays 100% of basic and most major services, has copayments for some basic and all major services, and has no annual maximum benefit.

Both self-insured options are basically indemnity plans that allow employees to choose their own providers, says Desmond. However, she points out that employees who choose a provider from Delta's dentist network are not required to fill out claim forms and are relieved of paying the entire bill and then waiting for reimbursement. Dentists within the network have fee agreements with Delta. Therefore, the employee is required to pay only a copayment for services received from a Delta dentist.

Desmond was not able to provide figures on how many Avery Dennison employees opted for the DMO plan rather than the indemnity options because enrollment was incomplete at press time. However, she believes that the DMO option will be attractive in regions that have accepted managed care in medicine and also to certain employees, such as those with children who are likely to need orthodontia. "I think there are trends in both medical and dental toward capitation," says Desmond. "That fixes costs for the employer and employee if they're cost sharing and everybody knows up front what the cost is going to be."

Given the extremely competitive insurance arena, employee benefits managers can select from a growing variety of Discount dental plans designed to match specific organizational strategies and goals. Some are choosing standard indemnity plans, while keeping a close eye on managed care possibilities in the future. Others are opting for PPOs or DMOs. Many are trying to ensure flexibility by offering employees a variety of alternatives.

A variety of options

Like Avery Dennison, Polaroid Corp., in Cambridge, Mass. is self-insured and a Delta Dental client. The firm manufactures photography products worldwide.

Although Polaroid does not currently provide a capitated dental plan option to its 8,000 U.S. employees, its plan has managed care elements. Employees are offered a plan with no deductible, 100% coverage for preventive and diagnostic services, 70% coverage for any work that involves restoring a tooth, 60% coverage for tooth replacement, and a $1,000 annual maximum, says Bill Hubert, corporate benefits manager. Bob Hunter, president of Delta Dental of Massachusetts in Medford, Mass., says the Delta indemnity plan operates more as a PPO arrangement because its contracts with our dentists call for discounts across the board.

Delta offers two PPO arrangements in Massachusetts. The first includes 4,500 dentists and the second, Delta Select, has about 500 dentists, Hunter says. Additionally, the organization offers a capitated plan, which, together with Delta Select, has been largely ignored so far by most benefits managers in Massachusetts.

Indeed, true capitation programs can be a difficult sell, especially when a company's employees are spread out geographically. At Willis Corroon Corp., an international insurance broker, underwriter, and third-party administrator with U.S. headquarters in Nashville, Tenn., the goal was to put a plan in place that would provide adequate provider access for some 5,500 employees located nationwide from Alaska to Florida. The solution is a standard indemnity plan from ITT Hartford Insurance Group, in Hartford, Conn.

"The ability to provide claims service and administrative support was critical in choosing a national plan for a decentralized organization," says Carol McAlpine, assistant vice president and manager, employee benefits. To ensure flexibility, the company put in place a Hartford plan offering two benefit levels. "Both plans have a common deductible, annual maximum per individual, and an orthodontia benefit. The variances are in the percentages that are paid for preventive, basic, and major services," says McAlpine.

Given Willis Corroon's decentralization, a true managed care approach wasn't feasible for the dental plan, notes McAlpine. "It's very hard when you have employees in Alaska, Florida, New Hampshire, and southern California, for example, to find a vendor that has an effective managed care provider network," she says. McAlpine points out that the same holds true for the firm's medical benefit plan. "We have HMOs in several areas, but we do not have a national managed care network for the very same reason that I can't find a dental [network]," she says.

Cost containment

With a record of annual premium increases that had gone as high as 80% in recent years for medical coverage, cost containment was a critical factor when John L. Hosey, vice president for business affairs at Charleston Southern University in Charleston, S.C., reviewed dental plan offerings.

The university selected a capitation managed care plan from HealthStream Corp., an insurer in Chattanooga, Tenn., as an optional benefit for its 227 employees. "We've looked at Discount dental plans for at least the six years I've been here and this is the only one that really interested us. The reason is that we're buying into a larger group. You stand alone for your claims experience, but when HealthStream looks at costing out the product, you're pooled with other people and the cost is spread out across the larger group. From where I'm standing," Hosey continues, "cost containment is the only way to make sure we're successful in the future. Medical and dental are the largest growing costs I think we've got."

The capitation plan is voluntary and does not include any employer premium contribution. However, for the first time, employees now are given "an alternative to paying 100% of their dental costs in the marketplace," explains Hosey.

HealthStream, which covers seven Southern states, offers a capitated plan that handles copayment on a percentage basis rather than on a fixed copayment fee. In Atlanta, for example, the negotiated fee for HealthStream providers might range from $20 to $30 for a one-surface amalgam, depending on where the dentist practices. However, no matter what fee is charged in that range, the employee is required only to pay 20% of the fee out of pocket, says Lynda Hunnicutt, president of HealthStream.

Demand is small

Although demand for managed care arrangements is growing, employers offering Discount dental plans that fall within any definition of managed care are still considered a minority. Those results are borne out in a recent survey of benefits managers conducted by Medical Economics Research Group for Delta Discount dental plans Association. Headquartered in Chicago, Delta Dental is a national system of state Discount dental plans. Of those survey respondents in organizations that offer self-insured benefits, 91% provided fee-for-service Discount dental plans. In contrast, just 19% of the employers offer dental PPO programs, 16% provide some type of capitated plan, and only 10% offer employees the option of joining a dental HMO.

However, it is clear that employer interest in managed care for dental insurance is increasing. The National Association of Prepaid Discount dental plans (NAPDP) in Indianapolis, Ind., reports that enrollment in DMOs rose about 25%, to 10 million enrollees in 1991, compared with 7.9 million in 1990. In 1992, the enrollee figure again escalated to 11.6 million and is projected to grow to about 13.5 million during 1993, says NAPDP President Evelyn Ireland.

Cost containment is the main reason some employee benefits managers are moving to capitated plans. For example, about 70% of NAPDP members, all of which offer capitated plans, held rate increases under 6% in 1991, and a similar number reported rate increases under 6% in 1992.

The dental Consumer Price Index (CPI) during 1991 was 8.3%, and 6.4% through 1992, reports Ireland. Therefore, rate growth for premiums on the majority of capitated plans is actually lower than the dental CPI for the last two years. Additionally, about 27% of the plans offered by NAPDP member insurers have had no rate increases over the last two years, Ireland says, and 21% plan to hold rates steady in 1993.

Those insurers that do not currently offer a managed dental plan are modifying indemnity plans to respond to employers' cost concerns. ITT Hartford Insurance Group in Hartford, Conn., for example, recently introduced a reconfigured indemnity plan that reclassifies certain procedures to result in a higher level of employee copayment. For example, X-rays which are 100% reimbursable in the insurer's standard indemnity plan, are considered a basic service with a 20% copayment in the new plan. However, "sealants and cleaning services that are highly effective at preventing dental problems are staying at 100% [reimbursement]," says Joe Walton, ITT Hartford dental product manager.

"One of the most effective ways to contain costs and avoid unnecessary utilization is cost sharing at the point of service," he continues. "We've made changes in our indemnity product to reflect this." However, he also points out that ITT Hartford plans to offer a managed dental product emphasizing full utilization review in the foreseeable future.

The Cigna Dental Access program offered by Cigna Dental Health, the managed dental care division of Cigna Cos.' Employee Benefits Division in Hartford, Conn., also typifies this approach. With Cigna Dental Access, "an employee can enroll in our managed dental care plan and the choose, at any point in time, to opt out of that network for dental services," explains Richard Orlowski, senior vice president.

In January 1992, the Delta Dental board of directors agreed that all Delta plans should be able to offer capitation programs to national accounts by the beginning of this year.

Closer plan examination

Most benefits managers and industry specialists agree that the increased interest in managed care for Discount dental plans is a fairly recent phenomenon. One reason is that the cost of dental care is fairly low, compared with medical costs. "There's a disparity of about $10 to every $1 when comparing medical to dental costs, says W. James Lintner Jr., executive vice president at CompDent Corp. in Louisville, Ky. CompDent is a specialized dental insurer servicing the Midwest with both capitation and indemnity programs.

Given that cost disparity, medical insurance has been the logical focal point for employee benefits managers. However, "employers are finally starting to take a look at supplemental benefits like dental and vision, not necessarily because they feel they have a handle on medical, but they feel they'd better look at the others before they start seeing the cost escalations there that they've already seen in medical," says Lintner.

For example, Discount dental plans are being scrutinized separately, rather than treated as add-ons to a medical plan, says John J. Gannon, partner in charge of the health care consulting practice in the Northeast for KPMG Peat Marwick, in New York. "By analyzing dental costs and medical costs separately, the employer can focus on the benefit package, the value of that package, and the associated costs.