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Dental, vision benefit offerings shrink

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Dental, vision benefit offerings shrink

Escalating medical costs are forcing employers to restructure their dental and vision benefits, shifting an increasing share or even all of the cost of these benefits to their employees and utilizing innovative benefit designs in an attempt to manage costs.

While dental and vision benefits are not particularly costly, medical benefit trends are rising at rates greater than general inflation, forcing some employers to redeploy their benefit dollars toward medical premiums, benefit consultants say.

According to the fifth annual MetLife Employee Benefits Trends Study, 93% of employers offer medical coverage, while 76% offer dental insurance and 63% offer vision benefits.

Fewer employers offer dental and vision benefits than medical benefits because employees do not place the same emphasis on these benefits, experts say. In fact, vision did not make the list of the most popular benefits in the MetLife survey. Dental was the fifth most popular benefit after medical, vacation, pensions and prescription drug coverage, according to the MetLife study, which was published in the third quarter of 2006.

New benefit programs are offering vision primarily as a voluntary benefit, said Tom Lerche, the Chicago-based health care team leader for Aon Consulting. "Vision is an important benefit, but it's not the most critical benefit in retaining employees," he said.

Small employers--those with fewer than 50 employees--were the most likely to offer dental benefits on a voluntary basis, with 17% making the benefit available to employees at their own cost, according to a survey by the Dallas-based National Assn. of Dental Plans. In contrast, only 5% of large employers--those with 10,000 or more employees--reported offering the benefits on a voluntary basis, the survey found.

About 18% of employers overall that offer dental benefits said they were likely to change dental coverage to a voluntary benefit, according to the NADP survey, and the number will likely keep rising, observers say. "It probably will continue as long as medical continues growing at double digits," said Richard Goren, senior vp, group dental for New York-based Guardian Life Insurance Co. of America.

Changes in dental and vision coverage are being driven by the need to shift benefit dollars to pay for rising medical costs, benefit experts say.

Health insurance premiums are rising so quickly that some small employers have to find places to save, so they are reducing their dental and vision benefit spending, said Vince Ashton, executive director of New York-based HealthPass, a partnership between the New York Business Group on Health, the city of New York and the health insurance industry that helps small businesses secure medical and dental coverage.

Rising health care costs have made dental and vision coverage a secondary benefit even for large employers such as Miami-Dade County Public Schools, which is facing a 10% to 13% increase in health insurance premiums, said Scott Clark, risk and benefits officer. "It's become increasingly difficult for us to make (dental and vision) a core product because we need these dollars to fund the medical insurance program," he said.

The school board offers a flexible benefit plan that allows employees to use the dollars to fund the benefits they want, including two dental plans--a dental maintenance organization and a preferred provider organization plan--and a vision plan, Mr. Clark said.

While medical costs are generally rising at a rate of 7% to 9%, dental benefit costs are increasing by 4% to 6%, while vision costs are rising at 3% or less, said Caty Furco, office practice leader for Watson Wyatt Worldwide in San Francisco. "We're just not seeing the same cost pressures on the dental and vision side as we are on the medical side," she said.

Vision benefits in particular are relatively inexpensive--about $15 per month per employee--so large employers continue to subsidize the benefit because they see the value in offering vision coverage, Ms. Furco said.

Cost control efforts tend to focus on dental benefits rather than vision benefits because dental coverage costs more and is increasing at a higher rate, benefit experts say.

One way to control dental spend is to increase the premium employees pay for their dental benefits. The NADP survey, though, found that 32% of employers were likely to increase the proportion of dental rates that their employees pay, while 44% said they were not likely to increase employees' share.

Another way for employers to reduce their benefit costs is to reduce the amount they pay for dependent dental care, or to stop paying for it at all.

Mr. Clark said he has not considage because he does not believe it is the right thing to do and probably would not be allowed during the collective bargaining process. As the cost of medical coverage rises, though, the board must examine the level of its dependent coverage subsidies, he said.

One cost management method that not enough employers are utilizing is to encourage their employees to join dental health maintenance organization plans, which are substantially less costly than dental PPO or indemnity plans, said Kevin Jackson, the San Francisco-based group vp, underwriting and actuarial for Delta Dental of California, New York, Pennsylvania and affiliates.

DHMO plan rates are projected to increase 4.5% in the next 12 months compared to a 6.1% increase in PPO plan rates and a 7.1% increase for indemnity plans, according to Aon Consulting's health care trend survey.

Utilizing innovative plan designs is a good way for employers to try to manage their dental benefits, one that employers are starting to show interest in, insurers say.

Eagan, Minn.-based DeCare Dental created a plan design that places dentists in network tiers based on measures such as efficiency and the quality of care they provide AIG Employee Benefit Solutions, a unit of American International Group Inc., resurrected a type of dental plan known as a schedule reimbursement plan--which were common 20 years ago--in which the dollar amount of the employer's contribution toward each service is fixed. The plans save money for employers because they do not have inflation costs built into them, said John Kohanek, vp, product development for dental and vision at AIG Employee Benefit Solutions, based in Neptune, N.J.

Regardless of these cost management initiatives, though, dental and vision coverage will continue to be squeezed by the need to devote benefit dollars toward medical costs, benefit experts say.

"I think we're going to continue to struggle to identify available dollars," Mr. Clark said. "We're going to continue to struggle to have employer dollars cover dental and vision benefits because it's going to continue to be eaten up by the medical." ered eliminating dependent cover age because he does not believe it is the right thing to do and probably would not be allowed during the collective bargaining process. As the cost of medical coverage rises, though, the board must examine the level of its dependent coverage subsidies, he said.

One cost management method that not enough employers are utilizing is to encourage their employees to join dental health maintenance organization plans, which are substantially less costly than dental PPO or indemnity plans, said Kevin Jackson, the San Francisco-based group vp, underwriting and actuarial for Delta Dental of California, New York, Pennsylvania and affiliates.

DHMO plan rates are projected to increase 4.5% in the next 12 months compared to a 6.1% increase in PPO plan rates and a 7.1% increase for indemnity plans, according to Aon Consulting's health care trend survey.

Utilizing innovative plan designs is a good way for employers to try to manage their dental benefits, one that employers are starting to show interest in, insurers say.

Eagan, Minn.-based DeCare Dental created a plan design that places dentists in network tiers based on measures such as efficiency and the quality of care they provide AIG Employee Benefit Solutions, a unit of American International Group Inc., resurrected a type of dental plan known as a schedule reimbursement plan--which were common 20 years ago--in which the dollar amount of the employer's contribution toward each service is fixed. The plans save money for employers because they do not have inflation costs built into them, said John Kohanek, vp, product development for dental and vision at AIG Employee Benefit Solutions, based in Neptune, N.J.

Regardless of these cost management initiatives, though, dental and vision coverage will continue to be squeezed by the need to devote benefit dollars toward medical costs, benefit experts say.

"I think we're going to continue to struggle to identify available dollars," Mr. Clark said. "We're going to continue to struggle to have employer dollars cover dental and vision benefits because it's going to continue to be eaten up by the medical."