- Chapter 176E was initially enacted in 1962 creating the dental service corporation, dba Delta Dental Plan of Massachusetts. During the legislative process, language was included that would eventually result in a reduction in fees paid to dentists to compensate for the greater ease and certainty of payment expected from Delta Dental Plan of Massachusetts. The Insurance Commissioner arrived at the rate of 5 percent for this discount in 1962 based on a survey of MDS members at the time the law was enacted that showed dentists had an average of 4 percent to 5 percent bad debt ratio.
- The discount allows Delta Dental to sell its products at a "discount" to employers and has resulted in the dental service corporation gaining a dominant share of the dental insurance business in the Commonwealth of Massachusetts.
- However, the rationale for the 5 percent discount has long since expired. Patients' methods of payments have changed dramatically. Most patients pay at the time of service by cash, credit cards, or verified insurance coverage. Delta Dental no longer provides any greater ease or certainty of payment to dentists.
- Among the dental service corporations nationwide, Delta Dental of Massachusetts is the only one with a discount mandated by statute. In other states, the purpose of the withhold was to help these new dental service corporations become stable organizations by withholding a percentage of payments to dentists in order to fund the company reserves. Once the appropriate reserve amount was achieved, the withholds were reduced or eliminated.
- The 5 percent discount has reduced the incentives for Delta Dental to operate efficiently. Competition between dental insurance companies would normally compel Delta Dental to control its administrative expenses. Although Delta Dental has become the largest dental insurer in the Commonwealth, its administrative expenses have increased more than that of other dental insurers, and the increased administrative expenses have not been accompanied by commensurate improvements in the speed of claims payments.
- The 5 percent discount has reduced competition between dental insurance companies, ultimately raising insurance premiums. Delta Dental does not need to engage in normal price competition because its dominant position makes it imperative for many employers to carry Delta Dental plans, and Delta Dental knows it will simply reduce dentist's fees by 5 percent instead of competing. Delta Dental is no longer a start-up corporation and does not need preferential treatment to fairly compete.
- The 5 percent discount has allowed Delta Dental to cross-subsidize expansion into other lines of business that subvert the intent of the 5 percent discount.
- Delta Dental has amassed excessive reserves, and it has not sufficiently returned operating profits to consumers in the Commonwealth, or to purchasers in the form of reduced premiums.
- The proposed legislation seeks to delete the language in 176E that allows the 5 percent reduction in fees. Elimination of the discount will help to provide a level playing field for other dental insurance companies to compete with Delta Dental of Massachusetts. It is well understood that vigorous competition is in the best interest of consumers.