When deciding how to finance your company’s dental benefits, you have a lot to consider, especially with insurance costs on the rise. The right choice is what’s best for your organization, employees and bottom line. But figuring out what that means can take some time.
Many large employers choose a self-funded dental plan, which can offer robust savings, plan customization and flexibility. But how do you know if a self-funded dental plan is right for your organization? And are self-funded plans more affordable?
Let’s look at how self-funding works, including benefits, what makes this option unique and when it may or may not be a good fit for large employers.
What is a self‑funded dental plan?
A self-funded dental plan is a benefit funding option for which employers pay no insurance premium. Instead, they pay for employees’ dental claims as they happen. It’s a big change from more traditional funding methods like a fully insured plan, where the employer pays a premium in exchange for coverage.
Self‑funded vs. fully insured dental plans
Self-funding is an alternative to more conventional fully insured dental plans. With fully insured dental plans, an employer pays a fixed monthly premium to an insurance company that pays claims and handles administrative tasks.
Fully insured dental plans are considered a more predictable financial option, because you know what you’ll be paying each month. But those who choose self-funding may have more opportunities to save and customize their dental plan offerings.
How self-funded dental plans are administered
Most employers who choose self-funded dental plans work with a third-party to administer the plan – usually a dental insurance carrier or a Third-Party Administrator (TPA). You pay a fee, called Administration Services Only (ASO), for their management services, often on a per employee per month (PEPM) basis. This fee goes toward administering the plan throughout the benefit year.
Administration services can include:
- Processing claims
- Managing dental networks, provider arrangements and provider payments
- Reporting on possible compliance concerns
- Utilization review
- Open enrollment support
- Reconciliation of member enrollment data
- Online tool setup and resources
- Online billing and employer reporting.
- Providing customer support
- Trend management
- Integrating claims for health saving accounts and flexible spending accounts
Overall, the dental plan administrator relieves the employer of time-consuming tasks so they can stay focused on their business.
Pros and cons of self‑funded dental plans
With most choices you make for your organization, it’s important to consider the benefits and drawbacks. Self-funded dental plans are no different. Benefits often come alongside risks, and every organization’s needs and resources are uniquely positioned to balance these in different ways.
Advantages for employers
There are many advantages to self-funded dental plans. Self-funded employers typically aren’t subject to the same state-mandate benefits and premium taxes, which may present your organization with more savings opportunities. Also, if claims end up costing less than projected, the self-insured employer benefits.
Flexibility is another advantage with a self-funded plan. Since an employer takes on claims risk, they often have more control over plan design and what benefits they want to offer their employees. They can also get more detailed claims data. This makes it easier to get a better look at how and when employees are using dental health services, so you can design your benefits to be more effective for your employees and budget.
Potential risks and challenges to consider
The same things that make a self-funded dental plan appealing can also present risks. Claims expenses aren’t as predictable as the monthly premiums of more traditional funding methods. If employees use dental services a lot during a given month, you may have to pay more than you had planned.
Who should consider a self‑funded dental plan?
Self-funded dental plans are a great option for large organizations or organizations with extensive resources. Larger companies have dedicated HR teams that can manage compliance risks and administrative needs. They also often have cash reserves that can be dedicated to covering high claims costs during more expensive months.
When self‑funding may not be the right fit
Self-funded dental plans are typically offered to companies with 100 employees or more. Having more employees leads to more predictable claims data, making it easier for large employers to budget. Companies with fewer than 100 employees tend to have more unpredictable claims, making it challenging to budget appropriately. That’s why small employers typically only have the option to choose a fully insured dental plan.
For larger employers, self-funded dental plans may not be the best fit if they want more predictable monthly expenses and want to avoid unplanned high-cost claims. With a fully insured dental plan, the organization pays a consistent monthly premium, and their dental insurer handles claim payments and administrative tasks.
Making the right choice for your organization
Deciding how to fund your organization’s dental plan is a big choice, but you have resources. If you’re considering self-funding, it’s time to explore your options. Talking through plan choices with your broker or consultant can help you figure out if a self-funded plan is right for your organization.