Eliminating the Costs, Frustration, and Waste of Dental Insurance Plans
Bruce Bryen, CPA, CVA
Insurance has long been a bane of existence for many dental practices. Trying to calculate the amount of time and effort needed by dentists and their staff to navigate the insurance industry to collect what is owed the practice can be extremely difficult, as each patient's plan coverage varies. Most practitioners undoubtedly would appreciate if the administrative cost, time, and energy expended in the insurance process could be eliminated and fair compensation was provided consistently.
This article will discuss concepts that can enable dental practices to more effectively address this often distressful aspect of running the business of dentistry. These ideas are aimed at both assisting patients finance their treatments and increasing the practice's bottom line.
What are the Current Expenditures?
First, the practice must understand how much time and money is currently being expended on the collection process with its patients' insurance policies. Knowing the cost of what it requires for the various office personnel to accomplish the task of collections, as well as identifying the amount of bad debt write-off, will help the dentist realize how much the practice may be losing while he or she is busy with patients and their procedures. Having an actual understanding of the losses taking place and the employees' cost may be an eye opener to some dentists and allow them to conclude that it might be prudent to review and discuss with advisors alternative ways of conducting this part of the business.
Alternatives and Their Cost
Dentists who have not studied or even considered options to existing insurance plans may be surprised to find out that alternatives exist. The typical type of standardized coverage in conventional indemnity offerings many times suggests little return per hour for the dentist's work effort and overhead costs. Many dentists fear that they will lose so much business that they cannot afford to drop existing insurance plans from their practice. The conventional thinking is that if they terminate standard type plans, any number of patients may leave the practice and along with them a potentially significant amount of cash flow. The key point is that the dentist must know the cost of keeping the insurance currently in place prior to considering making changes.
While the percentage of write-off with existing coverages may be a consistent complaint, what can the practice do about it? Implementing innovative, nonconventional approaches, as described in the following sections, may cause some patients to drop off the active charts; however, ultimately, these approaches are intended to significantly increase a dental practice's bottom line. Many dentists, having settled for a limited array of choices, are so discouraged navigating the insurance industry that they may well be ready to “think outside the box” and try something different. Although new and innovative concepts may not be for everyone, dentists should know that options are available that can help them eradicate the losses they've been passively accepting. With any new ideas and strategies may come growing pains, but with standard insurance alternatives there are almost always gains in income to the practice.
Some practices have developed their own insurance plans. This is known as self-insurance. After a practice studies what its real cost is by including the employee(s) it is paying, the loss in collections per hour to the practice, and the percentage of accounts receivable that are not collectible, it can determine an actual amount so that a plan within the office can be developed. For example, once an employee cost is determined and the loss in collections by the dentist equals a certain amount per hour of effort, the dentist can create an internal plan to overcome this charge-off. The self-insurance plan can offer the patient a certain payment amount to the office per month that provides reasonable coverage per procedure. This allows more benefit to the dentist, when considering the monthly cash flow, than what the dentist would collect from the insurance company. The plan can include deductibles for the patient and may allow a lower monthly charge than the patient's current payment. Coverage may even be better with the self-insurance plan, without the need to wait for payment. Insurance companies earn their income not just from patient premiums but also from sound cash flow management of each month's receipt.
Benefits of Multiple Location Self-Insurance Coverage
In the preceding example, the time spent developing the coverage and charge per procedure can be extensive, but once completed, the bottom line of the practice can only increase. The collection per hour certainly will accelerate substantially. The monthly cash flow from the patient that is earned by the dentist will absolutely contribute to the increase in practice profit as well.
Suppose the dental practice has more than one office? The additional cash flow will assist in retaining patients who opt to choose the internal self-insurance plan, especially because patients generally do not want to change dentists. Multiple offices also will increase the monthly cash flow to the dentist. Having the additional income at the office(s) can allow the practice to accomplish many more of its financial goals. For example, debt can be reduced, retirement plans can be created, and additional money will be available to spend.
Discerning dentists should give thought to who nonconventional and conventional third-party administrators are, their functions, and what they earn. Dentists should realize that third-party administrators do not exist without profit in order to meet their overhead. The question dentists must ask is, when considering the impingement they feel on their income from the profit of a conventional insurance company, can they do better with a self-insurance plan?
Some non-insurance company third-party administrators sell the idea of having them take control of multiple dental practice insurance coverages. Like an individual dentist's self-insurance plan, the non-insurance third-party administrator charges a fee to the dentist and administers the dentist's plan along with many other dental practices' plans. The fees may be less than insurance companies charge and the prevailing thought is that the non-insurance third-party administrator's service is better because it is not an insurance company, which typically are less service oriented. This concept is similar to someone other than an insurance company taking over the administration so dentists do not have to devote their energy to it. The administrator collects monthly charges from the patient and manages the claims. Bear in mind that the administrator's fees do not include what they may earn or save from the cash flow that they collect on behalf of the patient.
Analyze Actual Costs and Earnings
With this analysis, of utmost importance is understanding the costs involved and the per hour collections occurring with the current insurance plans. These actual costs and earnings per hour must be analyzed before attempting any changes. The dentist can then determine whether the practice can profit more from having its own self-insurance plan. Another consideration is whether it would be beneficial for the practice to subcontract out the administration of the plan and cash flow or keep it in house.
Insurance plans always seem to cause the dentist to come out on the losing end, especially with regard to time. Those plans, however, are profitable to the insurance companies; otherwise, they would not be in business. Astute dentists who devote some time and resources to developing their own insurance plans can enjoy these profits while being able to more readily resolve patient complaints. The goals of such plans are increased profit and the retention of patients.