Paying for Dental Care with a Health Savings Account

Do you perhaps fit in one of the following groups?

  • *Employer offers no dental benefit plan.
  • *Employer offers dental benefit plan but does not subsidize premium, so it is no deal.
  • *Employer dental benefit plan excludes treatment you need, like implants.
  • *Dental plan that employer offers is a crumby PPO or DMO that excludes using good dentists not on the insurance list.
  • *You have a very healthy mouth, and virtually never need any treatment except regular cleanings, exams, and occasional x-rays, so dental coverage does not make economic sense.
  • *You are a self-employed individual without any form of dental coverage.

As expensive as dental care is, it really hurts to pay for it with after-tax income. Patients know that my #1 recommendation for funding dental care is through a FLEX benefit plan. It gives you complete freedom to pick dentists, and save all taxes on the money you put into it. You even avoid Social Security and Medicare taxes on salary you defer to the account!

Trouble is, as good as FLEX benefit plans are, not all employers offer them. And self-employed individuals cannot use them, unless they have a C-corporation.

What is a patient to do?

A good alternative is to use a Health Savings Account, which is much more efficient than buying dental insurance. Unlike when using a FLEX benefit plan, you will not avoid Social Security and Medicare taxes. But it will save some Federal and State income tax. How would you go about getting a Health Savings Account (HSA) open?

1. You must select a high-deductible, HSA-eligible medical coverage. More and more employers are offering this option. Typically the deductible must be at least $1200.
2. Fund the account to an EXCESS of what you need to pay for your medical deductible and copayments. For instance, if your typical out-of-pocket yearly medical expenses are $1500, contribute that PLUS however much per year you believe you will spend on family dental expenses. Ordinarily one would think to only contribute as much as a dental plan premium would cost monthly. But remember that any dental plan includes substantial out-of-pocket deductibles and copayments. So a starter would be to contribute 150% of the cost of premiums to a good dental plan.
3. The best place I have found to open a Health Savings Account is Delta Community Credit Union, because they have no fees and pay a good rate of interest. Perhaps some other credit unions have as good a deal.
4. You will get an HSA checkbook and/or debit card to pay your dentist with. He will love you, as you save him so many insurance hassles! And no insurance company will prevent you from having any dentistry you feel you want and need.

Individual dental benefit plans have always been a waste of money. We are finding that more employer-based dental plans are either poorly written, not a good deal, or both. Skipping the middlemen of dental plan underwriters can save you money and give you unlimited freedom of choice!

Feel free to e-mail me at KimHenryDMD@mindspring.com if you have any questions about implementing HSA dental funding.

“But I thought my cleanings were covered at 100%!”

That¹s what patients call to tell us when they get a bill for the balance on their periodic examination and cleaning appointments. Some are quite mad, and accuse us of ripping them off. They remind us that the insurance card in their hands plainly states “100% coverage for preventive treatment.”

What is going on? To understand, one has to grasp how the shell game of dental “insurance” has evolved over the years.

In the first generation of dental benefit plans, reimbursements were based on something called “UCR” fees. UCR stands for usual, customary, and reasonable. Fees were based on a percentile of real fee surveys within zip codes. They had a real resemblance to fees charged by dentists in the community. Sure, some insurance companies gamed the system by not updating their UCR fees with any regularity. But by and large, when insurers promised patients “100 coverage for preventive treatment,” the claim was generally correct.

In the second generation of dental benefit plans, called PPOs, fees were still based on some sort of UCR ideal. These plans were concocted to save employers money. They promised to deliver patients to dentists who participated (by signing slanted contracts) with plenty of patients, provided the dentists billed 20 to 30% less for procedures. Often this was the dentists¹ whole profit margin, so most resorted to procedure upcoding and other antics to make up the difference. The dental insurance companies really did not care. The important point of these plans was that they penalized patients for choosing their own dentists. A cleaning covered at 100% at a “participating” dentist would be covered at only 70-80% by a freedom-of-choice dentist.

In the latest generation of dental benefit plans, employers have flexed their muscle with dental insurers. Many now only pay companies a per-claim fee for administration, typically $5 or less. Employers now designate any “allowable” fee they wish, based solely on a cost target for their company. In these plans, any fee whatsoever can be designated for any procedure. For example, an employer can set $25 as an “allowable” fee for a dental cleaning, even though no dentists in the US may charge so little. The fee is merely a fairy-tale price concocted on the whim of the employer.

Meanwhile, the card given the employee still says “100% coverage.” But sadly, when employees use the benefits, they may discover the plan only covers $25 of a $90 cleaning. Few employees truly understand what is happening, and their anger is deflected onto the dentist. Instead, they should blame the employer, who is playing a deceptive shell game with its workers.

The whole driver of these shenanigans is the desire by employers to save benefit dollars. We can certainly empathize with that goal in this difficult economy for business. However, we think honesty with employees is a better path than deception. The honest thing to do would be to cut the benefit maximum, or lower percentage reimbursement for dental services. Unfortunately, that makes it a lot more obvious to employee-patients that benefits are being cut. Thus, the deception of employer-proscribed low “allowable” fees goes on.

We remind our patients once again that dental “insurance” is an inefficient contrivance born in an era of high marginal tax rates. The crucial test of your dental plan is whether it pays out more in benefits each year than the premiums you pay for it. With employers cutting benefit plan subsidies and at the same time lowering “allowed fees,” fewer and fewer dental plans are worthwhile. It seems remarkable, but if an employee is covered by a FLEX benefit or 125S Cafeteria plan, it is usually more economical to drop the dental benefit plan. Paying for dental expenses by a FLEX or Cafeteria plan is more efficient, and gives you complete freedom of choice in choosing dentists!

by Kim Henry, D.M.D.