Direct Reimbursement:
The Dental Benefits Plan for Smart Companies

Direct Reimbursement is an innovative approach to self-funding employee dental benefits. It is strongly supported by the American Dental Association as a cost-effective way to provide a dental plan for employees that gives them the freedom to choose their dentists.

How it works
One of the most attractive features of a Direct Reimbursement dental plan is its simplicity of operation. Under a Direct Reimbursement (DR) plan, the employee and covered dependents visit the dentist of their choice, receive the necessary treatment, and usually pay the dentist's bill directly to the dental office. The employee then presents a paid receipt or other proof of treatment to the employer and is reimbursed for all or part of the expense, depending on the plan design.

Benefits are stated as a maximum dollar limit per year per eligible individual, or a percentage thereof. Reimbursement is based on dollar expenditures rather than on treatment received. Unlike conventional plans, there are typically no exclusions and few, if any, limitations on specific treatments.

Unlike medical costs, dental costs are low enough for the employees to participate in the cost of treatment, and to make sure that the work is satisfactory. In other words, with Direct Reimbursement, the plan sponsor expects the employees to be responsible for the best use of the benefit dollars available. Additionally, employees are involved in the cost containment process through cost-sharing provisions such as annual maximums and co-payments.

Flexibility
The details of a Direct Reimbursement plan may vary widely depending on the level of benefits the employer wishes to provide. Some of the options to be considered in designing the plan include:

• Employees only or employees and dependents
• Co-payment provisions
• Annual benefit maximums (individual or family)
• Immediate benefits or a waiting period for eligibility 
   
  Several examples of possible Direct Reimbursement benefit designs illustrate this flexibility:

• Plan A
  100% of the first $200 of dental expenses
  80% of the next $1,000
  total annual maximum benefits of $1,000 per individual*
• Plan B
  100% of the first $100 of dental expenses
  80% of the next $500
  50% of the next $1,000
  total annual maximum benefits of $1,000 per individual*
• Plan C
  75% of $1,000 of dental expenses
  total annual maximum benefits of $750 per individual*
• 
  Plan D
  50% of $1,000 of dental expenses
  total annual maximum benefits of $500 per individual*

*Totals could be a family maximum 

The variations on the concept are limited only by the degree of financial commitment the employer is prepared to make. An employer may begin its plan by offering a conservative annual maximum. After analyzing a few years' experience with the plan, the employer may revise the benefit levels.

Administrative considerations
By removing the unnecessary administrative features associated with most dental plans such as detailed claim forms, treatment limits and exclusions, a Direct Reimbursement plan is generally well-suited for administration by the employer.

The only routine administrative actions are:

• Verifying patient eligibility
• Calculating the benefit payment
• Issue the benefit check
• Maintaining records of amounts paid to each employee
  educating employees
  

Documents required to be filed with the federal government such as tax disclosure reports and summary plan documents may be prepared as required by qualified in-house staff or outside consultants.

As with all forms of benefit plans, it is suggested that an employer consider retaining the services of an experienced attorney, accountant, or benefits consultant in order to establish an appropriate plan design and effective administration procedures. The employer may also elect to have a third party administrator (TPA) manage the Direct Reimbursement plan. The charges for these services are usually modest.

Available to small groups
Both large and small employers have instituted Direct Reimbursement programs to assist the employees in meeting the costs of their dental care. Companies with 2 to 16,000 employees have enjoyed cost savings with a DR plan. Even a small employer can design a DR plan to meet the needs of its employees while, at the same time, satisfying the company's financial and administrative concerns.

Cost considerations
A Direct Reimbursement dental plan gives the employer immediate control of the maximum level of benefits offered. By including cost-sharing measures in the plan design, the employer is protected against wide fluctuations in benefit costs.

Unlike conventional insured programs where the employer's premium rate frequently is determined by the pooled experience of many groups, the employer's expense for a Direct Reimbursement program is based only on its own employees' experience. In addition, employer funds that would typically be held in reserve by the third-party payer can be invested by the employer or its agent to generate additional income which can be applied against the cost of the program.

Perhaps the most clearly discernible savings to the employer are in the administrative costs of a Direct Reimbursement plan. The simplification of claim forms and other extraneous paperwork reduces much of the transactional cost of administration. Further, since a Direct Reimbursement program is not considered "insurance," there is no premium tax liability. Finally, a decision to self-administer the program will greatly reduce the charges usually made by a third-party payer for administrative services, marketing costs, and profit.

For more information
One of the most important features of a Direct Reimbursement plan is the employees' freedom to choose their own dentists without restrictions. Because employees have this freedom to choose their own dentists and their own dental treatment, the employer's potential liability exposure can be greatly reduced.

This information was prepared to provide an overview of the Direct Reimbursement approach to providing dental care benefits. Ultimately, the decision to implement a DR program, and the specific details of your plan, is yours. The Massachusetts Dental Society, as well as a number of benefits consultants across the country, are knowledgeable in this area and may be of specific assistance to you.

In addition, the ADA Council on Dental Benefit Programs will provide to interested employers a kit which details a step-by-step process for writing and administering a Direct Reimbursement plan. Please visit the ADA's Web site on Direct Reimbursement.