 Personal Finance PowerPoint Presentation Decision to Buy Dental Insurance Prepare to get financially fit by practicing personal finance. Remember that insurance is part of our long-term risk mitigation strategy where we use the adage of measure twice, cut once, putting a formal plan in place, looking something like setting our insurance goals, developing a plan to reach the goals, putting the plan in action, reviewing the results, and repeating the process periodically. We're now going to be talking about dental insurance. Most of this information can be found at Investopedia Guide to Dental Insurance, which you can find online. Take a look at the references, resources. Continue your research from there. This is by Amy Fontenille, updated March 7, 2022, Should I Buy Dental Insurance? So in prior presentations, we've been looking at insurance in general, thinking about the concepts of insurance and the risk mitigation related to it. We then dived into the medical insurance, noting that the medical insurance can be more complicated due to just the medical field in and of itself and due to policies related to the medical field and the insurance. Now we're going into the dental insurance, which is going to be easier than the medical insurance, but still is a little bit different in nature than what you might think of as kind of standard insurance that you might get for, say, property insurance or life insurance or something like that, or liability insurance, where you're usually safeguarding when you think about insurance against some future event that may be less likely to happen. But if it did happen, it would be financially devastating, such as getting sued for millions of dollars for liability insurance or property insurance or house burning down or something like that. With the medical insurance, you have a similar kind of thing because you can have a big medical event with the insurance, which would cost you a lot of money, but they also kind of expanded it so that the insurance is also covering more routine medical procedures. On the dental insurance, that's a similar case. It's a little bit easier on the dental insurance oftentimes to categorize the different dental procedures, so therefore it could be easier to think about than the medical insurance, but you're even more often thinking from the perspective of having the dental insurance cover kind of the routine maintenance on the dental type of thing and possibly not using it so much or using it in conjunction with self-insurance to try to cover, you know, the big event if you have a really expensive dental thing that happened. Okay, should I buy dental insurance then is the question. There's no question that dental work is expensive, especially when you need to have major work done, which is why so many people eventually ask themselves, should I get dental insurance? So clearly you're saying, okay, I got medical insurance, I got my property insurance, liability insurance. The dental, it's kind of part of the medical and I could pay for my routine visits and whatnot, but do I need the added dental insurance and what is actually the purpose of the dental insurance? Is it going to try to help me to pay less for the preventative care or am I buying it to safeguard against a big bill that pops out of nowhere due to the fact that I got some weird dental problem that's going to need fixing? So if you're not covered through your job, you may have to purchase it on your own. However, purchased individually, dental insurance can be a waste of money if your plan doesn't match your needs. Let's look at how to drill through these plans to find out if dental insurance is right for you. We're going to drill through it. Oh, my goodness. Okay. So overview of dental insurance. First, here's a breakdown of how individual dental insurance works. You select a plan based on the provider's dentist. You want to be able to visit and what you can afford. So if you already have a dentist you like and they are in the insurance company's network, you'll be able to opt for one of these less expensive plans. So clearly you might first look at the dentist that you have and determine if you can get a plan that is around your dentist. Otherwise, you might get the plan first and look for a dentist that is in your area. So if you don't have a dentist at all, you can choose from any of the dentists who are in the network. And again, have the option of a less expensive plan. If your existing dentist is not in the network, you can still get insured, but you'll pay significantly more to see an out-of-network provider. So if your dentist is not in the provider and you're going to them, then the insurance isn't going to help you out so much with those day-to-day kind of routine maintenance costs. The monthly premiums will depend on the insurance company, your location, and the plan that you choose. For many people, the monthly premium will be around $50 a month. This means that you'll spend $600 on dental costs each year even if you don't get any work done. Is dental insurance worth it? Now you may think that most people don't come out ahead with most kinds of insurance and you may be right. After all, if insurance companies don't make a profit, then they would all go out of business. So clearly, when you think about insurance, you might start to think, well, the insurance company needs to be making a profit. So how can it possibly be that it's a benefit to me if the costs that they're giving me, somehow they're making a profit and they're paying for my dental costs, right? They must be making a profit. Therefore, you would think it would not be beneficial. Now the traditional thought to that would be when you're looking at liability insurance or property insurance would be, well, wait a second. No, you can have a large pool of people and you're talking about events that possibly are less likely to happen. But if they would happen, they're going to be financially devastating. So therefore, the fact that you're insuring against some big event that would be devastating to you but the insurance can help you handle would make it possibly worthwhile. So the insurance company can make money by having a big pool of people that have a very low individual risk of something happening but be fairly sure or fairly confident given the big pool of how often something happens so that they can make competitive premiums and still lower the risk to that individual who's safeguarding against a big risk that can happen. You have a similar thing with the dental insurance but the dental insurance being a little bit different because, again, you're kind of designing your dental insurance around helping you to pay the maintenance kind of cost. So you still have that big pool kind of effect but you're not really insuring against like one big or some low probability high cost thing that can happen. You're also kind of dealing with the routine kind of maintenance but you've got the similar kind of thing where you've got this pool of people that they can get some idea based on the full pool of competitive insurance prices that could be advantageous to an individual. So insurance is designed to protect you in a worst case scenario. Dental insurance is significantly different from most other kinds of insurances, however. And that's the case that we want to kind of wrap our mind around because it's called insurance here but you've got a little bit of a different structure. With health insurance or homeowners insurance, for example, the potential downside is so high that almost no one can afford the risk of not being insured. So again, in that case, it makes sense because to me, if that event happened, my house burnt down, it would be financially devastating. So even though the risk of it happening is low, it's often worth having the insurance in that case. With dental insurance, the potential downside is fairly low as is the potential upside. So you've got a different dynamic here because if you've got a big medical event and I believe part of this is due to if you've got a big kind of medical event and it was surgery or something like that, then you might be categorizing it different than the normal kind of wear and tear on the dental kind of things from lack of maintenance and dental care and old age and that kind of stuff. So you might have this different interplay so it seems that then the insurance on the dental side is often focused to actually kind of lower the costs that you're paying for the more routine type of stuff rather than that big event like the home burning down. In a good year, when you only need the standard cleaning exams and X-rays that make up good preventative care, you could lose money by having dental insurance. For example, if you paid out of pocket for these services, you might spend around $400 for the year whereas you might spend $600 for the year on insurance premiums. In that case, again, you might be saying, well, I'm paying the premiums, I'm getting the preventative care. If I pay $600, then the premiums or for the preventative stuff might be fully covered and I could have paid basically $400 simply out of pocket. In my mind, if you are also paying for the big event that possibly could happen, then that might make it more worth it but if the insurance itself is really designed to simply cover the more maintenance kind of stuff, then this interplay between these variables could be more significant. Obviously, if you have a bad year, then the bills are going to go up but you've got this cap on the insurance in terms of how much the insurance is going to pay that's fairly low still so it's kind of an interesting interplay. Older adults represent a group that may find it worthwhile to enroll in a dental insurance plan. Dental insurance for seniors is similar to plans for other individuals but focuses on the types of coverage that seniors need. These include crowns, root canals, dentures, and tooth replacements. Obviously, these items are going to be more costly. They're not the normal preventative kind of stuff and so therefore the dental insurance, if you're going to have that going on more often, which is possibly the case, if you're older, then it might be more worthwhile for the insurance is going to come out ahead to actually pay the insurance possibly in those cases. Notice that even as we get older, the kind of things that you're going to have done possibly just in terms of old wear and tear and not taking care of maintenance of the teeth, crowns, root canal, dentures, and so on, these are things that can be fairly well predicted as opposed to, like I say, other medical conditions. When we get old in terms of more medical conditions, we often just don't know what's wrong. We're like, something's wrong. We're going to specialists all over. I don't know how to categorize exactly, and that's going to be one of the factors that kind of complicates the medical insurance as opposed to something that should be a little bit easier, hopefully, for the dental. So even though these coverages are not unique to older individuals, there is a higher probability that seniors will need one or more of these procedures. Note that seniors on Medicare may require a different dental insurance plan than those without it. Will it be there when you need it? That's the question. So the question to me oftentimes would be, okay, well, if I'm covering the cleaning and I'm paying more for the insurance than I would just to cover the cleaning, well, if the insurance is going to kick in in the event that I have to have a crown or some more expensive thing, then it may be that that's when it would be more worthwhile because that's when it would be acting more like a normal insurance covering the bigger cost kind of risk. But with some of these normal procedures also, you might be able to self-insure a lot more effectively, meaning save up and have your own kind of insurance that would cover those things more so than with the medical because on the medical side of things you can clearly have that big giant bill that can come up with sickness that's going to be catastrophic similar to if your home burnt down or something like that. You can't really cover your $500,000 home burning down too easily. You can't really self-insure against that as easily. So then the question is how high could the cost basically be? Could I self-insure what's the cap on the dental insurance in terms of how much they would pay if I had a high cost thing versus the high cost thing? So what about when you need some work done? In a really bad year, your dentist could inform you that you need a couple of fillings, a root canal and a crown. No, please dear no. On top of that, you'll still have to pay for your usual cleaning exams and x-rays. This is the time to be insured, right? That depends. The annual maximum. So now you got the maximums coming in and this is a little bit different than the medical insurance. You still got the deductibles the copays and so on, but with the medical insurance you got that thing that's the out-of-pocket maximum where the medical insurance kicks in after you pay so much and you know the medical insurance kind of kicks in. Whereas the dental insurance has the maximum that the insurance company will pay which is kind of low you would think. So unfortunately your insurance may not be as helpful as you would expect. Some dental insurance plans have low annual maximums around $1,000. This will vary by plan and provider of course. So $1,000 you know I can, if that's the cost that it was going to be, I can kind of self-insure against that. But that's per year so you got multiple years that that can happen. But if you go over that then you're paying for it. So that's kind of an interesting thing because again it's a little different than what you would expect for oftentimes for more other insurance. Once your dental bill exceeds $1,000 in any given year, you're stuck paying the rest of the bills in full the insurer won't pay for more than $1,000 in treatment. That on top of the fact that they might not pay for the cosmetic stuff which oftentimes people are going to go in like the whitening and just you know whatever veneers or something like that, it's kind of disappointing to some degree. So you may still pay a lower negotiated fee for the work that you need as a benefit of having insurance but even negotiating fees could be quite high. So for example if the dentist's regular fee for a filling is $150 then the negotiated fee might be $100. In this situation your regular oral maintenance and fillings could use up most or all of your annual maximum so only a fraction of your larger dental work bill might actually be covered. You might still pay $1,000 to $2,000 out of pocket plus your annual $600 in premiums. So the co-insurance costs on top of that, well you may pay 0% in co-insurance on preventative maintenance and 20% on fillings root canals and extractions the policy holder share of expensive procedures such as crowns bridges, implements tends to be a whopping 50% so you've got the same kind of dynamic we saw with the medical insurance with the deductible but then the co-insurance and so on but those co-insurances meaning you pay for part of it can be fairly high when you start talking about the fairly high cost stuff so this is known in the industry as the $180 $50 coverage structure even if you haven't used up your annual maximum by the time you need the expensive procedure you'll still have to pay several hundred dollars for it. What's not covered dental insurance also rarely covers expensive procedures such as orthodontics and cosmetic dentistry so again those kind of things and it's kind of interesting it can be disappointing because some of those kind of cosmetic things are falling under cosmetic orthodontics obviously the orthodontics stuff can be something that is kind of necessary and the cosmetic stuff more and more these days some of it might be more preventative as well but it's going to be falling under the category of cosmetic so even if you try to argue that you need a procedure to alleviate emotional pain and suffering so they're not taking into consider the emotional pain to say that it's necessary and I can kind of get that but still you would think it's still be preventative some of this stuff might be preventative but in any case so when insurance does cover them the annual maximum still often prevent you from saving very much if anything after you factor in your biannual cleaning and exams waiting won't work if you think that you'll just hold out and purchase dental insurance when you need it think again something that you want to be aware of because when you buy insurance you might think now wait a second does it make any sense that I can buy insurance right before I know that I need like a root canal or a crown or something or that I'm walking around you know husking my holding my jaw constantly so I know I have a pre-existing condition you might call it in the medical industry if I buy insurance and then the next day I go in wouldn't the insurance company be upset with that well they're not going to try to screen you for pre-existing conditions to figure that out but they might put you on a holding period so the insurance won't kick in for certain procedures until after that time frame and so that's what you got to be aware of for that so because of what's called a waiting or probationary period this strategy won't work you didn't really think that you had found a way to outsmart the insurance companies did you so waiting periods for example one year after you first become insured your insurance will not cover any major work such as crowns or root canals and for three months after you first become insured you won't pay for any minor work such as fillings so waiting periods very by policy so in other words you're saying I'm in pain I'm going to buy insurance so that it'll cover my this big thing that I know it's going to happen because I might have my mouth hurts they're going to say no you're going to buy it seems kind of cruel but you'll buy the coverage and then they'll say yeah we'll clean your we'll give you a cleaning but we're not going to be able to do anything else with the insurance for you know a year or something like that well that's not going to happen if you're in in pain so so that's how they kind of take care of that pre-existing condition kind of thing so in any case insurance companies know that when you need a filling or a crown you need it now you won't be able to find out that you need a crown buy insurance and then get it taken care of so you're not you're not going to be able to say if I'm in pain I'm not you're not going to be able to wait 12 months after you purchase the insurance that's going to be the problem so and and that's the point of obviously the insurance's point is that you're supposed to get insured before you have the problem that's what they're that's what they're trying to do that's why they've got this debate with the pre-existing conditions with the medical insurance and that kind of thing obviously you know if you buy an insurance after you've got the calculation of the insurance so the dental is going to try to get around that by not dealing with the pre-existing condition but just saying we're not going to cover certain things until you've been insured for a certain amount of time which is a little sneaky but I can see why they do that so if you tried to do that you would probably suffer from a lot of discomfort and ultimately you lose your tooth and have to pay full price for that extraction so considerations for group plans surprisingly even if your employer offers dental insurance you might be better off skipping it which again this is seems kind of unusual because again you would think that I want to be insured against I have a big a big kind of dental problem but the way the dental insurance structured is a little bit different than other kinds of insurance so many people assume that employer sponsored benefits are automatically a good deal because you're receiving a group rate but this isn't necessarily the case so typically when you think about insurance in general you would think well if you get the group rate that's usually better than buying it on your own when evaluating your employer's dental plan make sure to examine the monthly payments the annual maximum and the co-insurance your employer may offer you a great plan that's only $20 a month to cover your entire family with a generous annual maximum or a mediocre plan that's $50 a month worth a thousand dollar annual maximum with the former you can really benefit but with the latter you could be wasting your money so in other words clearly depends on the employer they could have a really good plan that's going to be set up but they could have a fairly cheap plan that would be through the group policy the medical plans can vary quite a bit so do the math for your own situation to determine whether you're likely to come out ahead one situation where it can make sense that your dental insurance regardless of whether it seems like a good deal in the long run is if you are living from paycheck to paycheck with little or no money saved so in that case you're not going to be able to self-insure as easily so a fairly modest dental bill could still be fairly significant that means that one to two thousand dollar dental bill or even that maximum could be something that could be quite painful if you're living paycheck to paycheck so it might be worthwhile to pay for the insurance to guard against that so when you don't have dental insurance you have to be able to pay a one thousand six hundred dollar bill when you have the work done if not in full then in prompt installments if you can't do it and your options are to overpay for dental insurance neglect your only set of teeth or port dental work on a credit card that you'll have trouble paying off then your best bet is to get the insurance you'll probably waste less money on insurance then you would pay an interest on a credit card or letting your dental health deteriorate so what's the bottom line the bottom line is a horizontal kind of signal that we put underneath the last piece of text here and this is it so if you can't participate in a quality group dental plan either a preferred provider plan PPO or a dental health maintenance organization the DHMO then the best way to come out ahead on dental expenses may be to pay for everything out of pocket brushing and flossing regularly switching to an inexpensive electric toothbrush getting professional cleanings every six months and going to a dentist who does high quality work that lasts for years can be the most effective ways to save money in the long run