Don’t say we didn’t warn you.
That’s the dental insurance industry’s message to the rest of us after Guardian Life told some 1,500 small businesses in Massachusetts that it will no longer sell policies to companies of their size come January.
Guardian points to a ballot question that requires that at least 83 percent of revenue from dental insurance premiums be spent on patient care. In November, Massachusetts voters overwhelmingly approved this new law, then-known as Question 2. Dentists poured millions into the campaign to promote it in the months leading up to the vote. The insurers fought back with millions of their own. The dentists won.
To Mouhab Rizkallah, the orthodontist who led the charge, Question 2 represents nothing less than a revolution, one that will drastically improve dental insurance for patients and serve as a model for other states.
But revolutions have casualties. And here’s the first one from Question 2.
Guardian is informing customers that it will no longer sell dental insurance to Massachusetts businesses with fewer than 25 employees after Dec. 31, though it will continue to provide them with other insurance products. In a memo last month, the insurer blamed the 83 percent “loss ratio” imposed by Question 2, saying the ballot question would require Guardian to cut back on product innovation and other expenses, to the point that smaller groups simply would no longer be profitable to serve. As a result, in Massachusetts, it’s sticking to group dental plans for companies with 25 or more enrolled workers starting Jan. 1. Guardian executives say they currently provide dental insurance to 2,100 businesses in Massachusetts, including about 1,500 with fewer than 25 workers.
From Guardian’s perspective, the costs to administer dental benefits for smaller businesses are similar to those for a larger group. Trouble is, as its head of dental benefits, Jill Purcell, puts it, the premium intake can be much different. Having a hard-and-fast dental loss ratio of 83 percent regardless of a client’s size, she said, simply doesn’t make financial sense for Guardian; there are not enough premium-paying employees in these smaller groups to spread the cost and make it economically sustainable. The company wanted to get word out to customers as soon as possible to give them time to make alternative plans.
Michael Adelberg, executive director of the National Association of Dental Plans, said Guardian is the first insurer to announce some form of departure from the Massachusetts market. But he said it probably won’t be the last.
He notes that the 83 percent figure is in the range of loss ratios that are required of health insurers, per Obamacare. But health insurance is a high-premium business. Dental insurance is not. Other dental insurers are eyeing the exit signs in Massachusetts, he said, but waiting for the state Division of Insurance to roll out regulations for how Question 2 gets interpreted and enforced. It’s not clear when state officials will wrap that up. The law takes effect on New Year’s Day, although the Division of Insurance presumably will finish its rollout before that date.
What can the agency do at this point? The fine print of what gets included as administrative expenses in the 83 percent calculations, and what does not, could offer some relief to insurers, said benefits broker Eric Gulko, president of the National Association of Benefits and Insurance Professionals’ Massachusetts chapter. Like others in the insurance industry, Gulko hopes the agency removes administrative costs that are outside insurers’ control from those calculations. He said he agrees with the voters’ sentiment: The vast majority of premiums paid should go toward care. But he worries the threshold could be too high for many insurers, and that more will leave. And then there’s the possibility that Question 2 causes the remaining insurers to raise their premiums, to increase payments to dentists and clear the new mark.
So what does Rizkallah, the original Question 2 proponent, think of all this doom and gloom? He expected it. Insurers, he said, are resorting to their typical scare tactics. In the case of Guardian, he said, the company is trying to persuade customers to sign on to a two-year agreement to lock in their rates before Jan. 1. Guardian certainly isn’t leaving the market completely. Instead, Rizkallah said, the company is exaggerating Question 2′s impact in an effort to influence political leaders in other states that are thinking of following Massachusetts’ lead.
Besides, Rizkallah said, it was always part of the plan that some insurers would leave. A destabilized market opens the door for more efficient rivals whose approaches are more in keeping with Question 2′s stated intent: to spend less on bureaucracy and more on patient care. A case in point is the pending arrival of BeneCare Dental Plans of Philadelphia.
Lee Serota, BeneCare’s president, said he’s eager to expand in Massachusetts now that Question 2 is the law of the land. Toward that end, BeneCare has submitted an application to the Division of Insurance to enter Massachusetts, which would become the insurer’s seventh state. He started the process nearly a year ago, anticipating Question 2 would prevail. The typical dental insurance model, per Serota’s description: Collect as much revenue as you can and pay out as few claims as you can. His stated model: Encourage members to make full use of their dental benefits, and reduce the cost of care over time by focusing more on prevention. Rizkallah has got the right idea, Serota said, and similar moves are being weighed in at least two dozen other states in no small part because of Rizkallah’s advocacy.
Will the Rizkallah Revolution take hold across the country? The results have been mixed so far but it’s still early. In recent months, legislators in Nevada, Colorado, and New Mexico passed dental loss ratio bills, according to the American Association of Endodontists. Nevada established a 75 percent threshold, while Colorado enacted new reporting requirements. Although the dental association notes that similar recent efforts failed to get enough traction in four other states, it seems clear that the concept behind Question 2 is starting to catch on elsewhere.
Dentists and insurers don’t agree on much, especially when it comes to this issue. But they do agree on one thing: This revolution will have consequential results for Massachusetts, and possibly many other states. Just how consequential remains to be seen.