Establishing medical loss ratios for dental payers could possibly lead to decreased access to care and necessary administrative tasks being cut by insurance companies, according to one dental insurance industry executive.
Several states have begun considering and implementing medical loss ratios for dental payers after Massachusetts established the first-of-its-kind law in December. The law requires dental insurers to spend at least 83 percent of premium dollars on dental services or refund the difference to patients, among other requirements. The American Dental Association said last year it expects medical loss ratio bills to be filed in about 20 states. Bills have been introduced in several states, including Rhode Island and Connecticut, and Nevada recently signed its own into law.
Michael Adelberg is the executive director of the National Association of Dental Plans. He recently spoke with Becker's about how medical loss ratios differ in various states, the possible effects of these laws, and what states should consider when establishing medical loss ratios for dental payers.
Note: Responses were lightly edited for clarity and length.
Question: What are your thoughts on different states implementing medical loss ratios for dental insurers?
Michael Adelberg: The loss ratio is going to create problems for the citizens of Massachusetts. I think there is a high likelihood we're going to see very significant changes in the market in Massachusetts because of how rapid and arbitrary the number 83 is.
[The Massachusetts loss ratio] happened by public ballot, not by thoughtful insurance regulators sitting down and figuring out what might be the best overall policy. The thoughtful regulators who do this for a living have a [loss ratio] model at the National Association of Insurance Commissioners for low premium products, and the model for low premium products is very different than for high premium products. Professionals understand that low premium products take in vastly less money but have many of the same operating costs. Therefore, a low premium product can't possibly have the same loss ratio as high premium products. This is especially true for low-cost dental HMOs that serve small businesses and lower income workers. So, you are putting the most pressure on the product that serves the most vulnerable people. The likely result is that you are going to squeeze at least some dental HMOs out of the market, and employers or individuals who are buyers of that lowest-cost product might not have a product available.
Nevada recently passed a law with a 75 percent loss ratio. I'm not saying 75 percent is a good number, but it's a number that's been on the books in Nevada for many years. So, dental carriers in Nevada are already used to it. That's very different than what is happening in Massachusetts.
Several other states looked at dental loss ratios and chose not to pass a law. Colorado just passed a law modeled on Maine. What Colorado and Maine will do is regulate dental plans' reported loss ratios. No one likes being regulated more, but it is a sensible approach to say, "Here is what industry practice looks like, and if there is someone who is aberrant from what good industry practice looks like, we're going to take a look and potentially require that the outlier change their practice." That makes far more sense than arbitrarily establishing a MLR with no grounding in industry practice.
Q: What should states consider when developing a loss ratio for dental insurers?
MA: Maine has a law that requires dental insurers to submit their loss ratios and other product attributes, and then the regulator can look at that and basically draw a bell curve. And if everyone's at a certain level for a certain kind of product and then one carrier is way lower, the state of Maine can reject that product and can say "You have to be in the bell curve." That strikes me as a much more sensible way to go about this. I'm not opposed to letting regulators regulate. They need the toolbox and a rational basis from which to regulate. There are better approaches than to take an arbitrarily selected loss ratio and apply it to every kind of product sold in every different insurance market. The large group market, the small group market and the individual market are very different. We don't do that with medical insurance. The Massachusetts law is bad public policy because it doesn't show an understanding of how insurance works.
Q: What other effects do you think loss ratios could have on the dental industry?
MA: When you force an insurer with no time, without allowing a gradual change in practice, to come into compliance with an arbitrarily high loss ratio, the insurer's going to have to look at cutting administrative costs and how it pays claims. Dental plans have fraud and abuse detection programs. I assume we don't want insurers to pay fraudulent claims. Under a loss ratio, fraud and abuse detection is a problem for insurers in two respects. First, if you had just paid the fraudulent claim, your loss ratio is better because you're paying an inflated or fraudulent claim. Second, every dime you invest in fraud and abuse detection is a dime of administrative costs. So, fraud and abuse detection is a double whammy in loss ratio. Do we really want insurers to stop rooting out fraud and waste?
The biggest administrative costs include credentialing and maintaining a provider network, processing claims and maintaining call centers. Most of us would think that a high level of performance at your call center is a good thing. Most of us would think that paying claims promptly and seamlessly is a good thing. And most of us think that maintaining a broad provider network is a good thing. But all three of these very significant administrative costs will inevitably get looked at when an arbitrary loss ratio is imposed. When you force someone to dramatically change their loss ratio, plans must go where the money is. These are also three places where we might want to see insurers investing money, but they don't have the ability to invest money under an arbitrarily high loss ratio.