Health And Dental Insurance – Not Really Insurance

Many years ago I was working as a student actuary pricing health and dental plans for employers.  As I was poring over claims that were not eligible to be paid because they were too large (wait, it gets even more exciting) I had an epiphany.  I rushed into my supervisor and declared “this stuff, it isn’t really insurance”!

“No, Glenn”, my knowledgeable actuary supervisor explained, “they’re benefits, not insurance.”

“But everyone thinks they have insurance!” I said. “People think if they get really sick, they will have coverage.”  My supervisor’s response was that employers use these benefits to attract and retain employees, and that they are expected by employees – but the employers need to cut costs.  And they do so sometimes by reducing benefits that nobody every asks about.  People are more worried about whether they have a card they can swipe to pay for their drugs than they are about a cap on their annual claim amount.

Now, before I get specific about health and dental insurance, I want to mention the basic precept of insurance.  Insurance is intended to cover catastrophic financial loss.  And it should be both – catastrophic and financial.  If it’s not financial, it’s not really insurable.  And if it’s not catastrophic then there’s no real need for insurance.  With that out of the way, let’s look at what we probably have with our work plans.

Health insurance

For the most part, when people talk about health insurance they really mean drug costs.  There are other benefits with many health insurance plans like chiropractor coverage, but drug costs are the base coverage.

Can we suffer a catastrophic financial loss with drug coverage?  Absolutely.  I can imagine a situation where I or a family member has thousands or tens of thousands in drug and related costs every year.  And those costs could be ongoing.  Such a problem is certainly financial and easily catastrophic.  The perfect fit for insurance.

So you have a plan at work and you have $20,000 of drug claims one year.  You’re covered right?

Not so fast.  Many work plans have a cap or an upper limit.  You may find your work plan has a drug cap of say $5,000.  Any costs in excess of that $5,000, and you’ll quickly find out that you don’t actually have insurance (that’s what I was doing in my work above, finding claims in excess of I think it was $2000, and capping it at that level – because that’s all the insurer was responsible for).  How’s that for an unpleasant surprise.

Now the various provinces have some assistance for us in worst case scenarios like this, but I think many of us are making the mistaken assumption that our work plan provides coverage in these situations.  If that’s your assumption, I suggest you call your HR department and find out what the actual caps on your drug costs really are.

Real Health Insurance

So you just realized you have a problem – if you actually need catastrophic drug coverage, your work plan may fail you in your hour of need.

The solution?  Stop loss coverage.  This type of insurance is intended to do just that – put a stop to an ongoing loss.  It’s not intended for little claims, just those where you’re really starting to bleed financially.  You can also view it as very high deductible coverage.  Small claims, no payment.  Large claims, it’ll cover everything past a certain point.

You can purchase this type of stop loss coverage privately, outside your employer.  Probably the best known provider is Manulife.  Their ‘CoverMe’ plan has a standalone option called catastrophic coverage that provides no coverage up to about $5000 (there’s a couple of options available) and then covers 100% of eligible drug costs past that.  One or two other companies may have similar standalone products, I’ll leave it to you to Google them rather than promoting a list of products.  Manulife’s CoverMe catastrophic coverage is available online.

If you are purchasing private health coverage, there’s one very big gotcha to look out for – how are your premiums determined next year?  Some companies reserve the right to raise just your premiums.  Others say they’ll only raise premiums as a class (or a group).  You probably want the second choice.  If you have $15,000 in claims one year, do you want to be with a company that has the option of saying here’s your renewal premium – it’s $18,000?  Kind of defeats the purpose.

In summary, be careful that you are informed.  You may think you have insurance for catastrophic drug coverage but really may not.  Get educated on what your work plan provides, and consider purchasing stop loss insurance privately to fill the gaps in your work plan.

Dental Insurance

Do you buy insurance to cover oil changes for your car?  It’s kind of a silly idea.  You know you need to pay $50 or so every 5,000 to 7,000 km (not spring and fall like one person I know).  It’s a routine event you can plan for, and the cost is not overwhelming for most of us.

So, why do you think you need ‘insurance’ for your twice yearly dental cleanings?  Twice a year you know you have to pay $120 to get your teeth cleaned.  It’s routine, it’s not unexpected (so you can plan for it) and the costs shouldn’t be catastrophic for most of us.

In fact, routine dental treatments such as cleanings simply don’t fit the basic insurance definition of ‘catastrophic’.  If you can’t pay the costs of routine dental cleanings, you can start to budget for them so that next time the cash is there.  No need to pay the insurance company’s 20% markup.

But what about braces?  Crowns?  Other items.  I would say that some of these things can be planned and budgeted for.  And they’re probably not catastrophic.  They might be expensive and dent our savings or our credit cards, but they shouldn’t break us.

So why does everyone want dental insurance?

The answer is because many of us see this benefit as ‘free’.  The employer pays for it so we don’t have to pay for that $120 cleaning – or even budget for it.  Of course it’s not free.  The employer is paying your dental costs + 20% in order for you to have this benefit.  (the same is true for things like glasses, chiropractors, and similar coverages).  So we’re conditioned to calling this insurance and thinking it’s for worst case scenarios.  But again, since when is $120 every six months something we need to have insurance for?

To summarize my initial point – there’s nothing wrong with this type of coverage.  But we as consumers should perceive this as a ‘benefit’ of working there, and not so much as insurance.

So what about worst case dental scenarios?  Don’t we need insurance for those?

Sure.  But what are those scenarios?  I’m not a dentist, but unlike drugs, I don’t see a lot of risk in having $20,000 in dental claims, year after year.  I personally don’t see the risk.  I stand to be corrected, but if I run into a large dental claim, it’s likely to be seen as medical and treated under our provincial health care plan.

Like all insurance types, it pays to take a few minutes to inform yourself of what you’ve got in the way of benefits and what the limits are.  The same is true for dental insurance.  If you’ve got it for free at work, hey, snatch it up like it’s the last cookie.  If you’re paying for it it might be worth doing some budgeting to find out what your actual dental costs are, what you figure your risk is for large dental claims, and see if budgeting for those costs is better than insurance.  (The ability to do this points significantly to the catastrophic point I mentioned.  You can’t ‘budget’ your way around replacing a $500,000 home if it should burn down tomorrow – that kind of thing we need insurance for.).

It’s also perhaps worth noting that in other countries such as the US, it’s not just prescription drug coverage that’s important – true health insurance is a must.  While we Canadians are fortunate to have government health care, Americans can run into $5000 in costs just to have a baby, or $100,000 if they have a heart attack.  There’s a huge need for insurance as a result.

I’ll close with a short story.  When my wife became self-employed she lost her gold plated dental plan.  She was bound and determined that we needed dental insurance.  You know, EVERYONE has it.  So we purchased dental insurance for two years.  At the end of two years she added up our insurance costs vs our claims, and our costs were almost exactly 20% higher than our claims.

We no longer carry dental insurance – we budget for it.  I’m prepared to pay for braces or other dental emergencies – your risk tolerance may be different but it is something I recommend you at least address.

Glenn Cooke is a life insurance broker in Canada, and president of InsureCan Inc.  He maintains a health and dental insurance website at Health Insurance Brokers.ca.


10 Responses to Health And Dental Insurance – Not Really Insurance

  1. Excellent article. You should also be very careful ensuring your company has assessed your claim properly. Mine didn’t, and I then submitted it to my husband’s (who then made a real mess of it), and we’re still trying to sort it out, a year later!

  2. Yes- we are very aware of all the limiations of our benefits at work and try to get the most out of it every year (I schedule a slew of appointments at the end of the year to make sure we get a dental checkup etc. if there’s room left so we don’t have to do it in January thereby using up the next years room).
    Also- a warning- be very aware of what’s going on when you give your ‘insurance’ information out. We chose to have our baby at a hospital that had private birthing suites. These weren’t technically private rooms but unless the ward was at capacity (our midwives had never seen this happen) you would not have to share a room. The hospital asked for our insurance information when we preregistered and I thought this was in case there were any complications etc. in which our benefits would be needed. After having our baby and using their room for 17 hours (eating one meal and bringing all of our own diapers etc. as per hospital policy) we got a $200 bill in the mail. It turns out that the hospital had given us a private room. This meant that we had tv and phone access. I remember discussing the tv and phone thing at the preregistration and telling the nurse we weren’t interested however there must have been some miscommunication as she put us down for wanting that and we stupidly signed the paper (I know exactly which one though I obviously did not know what I was signing). In the 17 hours that we spent there, no one told us there was a working phone or tv in the room or gave us any instruction on how to use them. When I explained this to the billing department they were quite unconcerned saying, ‘what does it matter? you have insurance.’ The lady got quieter when I told her my insurance did not cover private hospital rooms. In the end, it was absolutely our fault that we signed off on the room without complete understanding but I felt like the hospital should have been a lot clearer than they were in our very rushed sit-down. After all, they do this every day and we were first timers.

  3. Great article…thanks!
    I wonder if it is fact or myth that dental offices charge a higher fee when clients have dental coverage. If so, that would have to be considered when deciding on $$$ benefit of coverage.

  4. I think you need to be careful with some dental. I’d have to check to be sure, but I think if you say lost 4 of your front teeth, there would have to be serious medical issues for it to be covered by provincial health care. It isn’t life threatening to live without teeth, and they sure are expensive to get replaced. Cleanings are one thing (so long as I get 2 a year I come out ahead in my employer coverage) that you can for sure budget for.

    Might be worth looking into dental insurance that only covers the expensive stuff.

  5. Mary, dentists do not charge more or less for those with insurance vs. those without it. Two points. First, as noted I don’t have dental insurance and I sure as sugar don’t get a break on my dental bills :). But more importantly the insurance companies have a clause that basically says they pay what is routinely charged to by the dentist. If the dentist charges $120, but then charges me $100 and the insurance company gets wind, then the dentist is only getting $100 from that point forward. Same with drugs I believe.

    It’s a fairly well controlled system.

    A whole other article would be a ‘dental discount card’. These are very popular in the US but no real penetration in Canada. You buy a card, say for $100/year, and are given a list of preferred dentists who will give you a discount based on the ownership of the card. It’s not insurance, but you can get substantial discounts immediately on expensive dental stuff because the dentists use it to compete for business. Again, nothing like that in Canada that I know of – I’d like to put something together but no time, no time!

  6. Wow, this article is eye-opening! I was always skeptical of dental insurance, but as you point out that since it is a “benefit” my employer offers I just go ahead and sign up for it… I will take a closer look next year and see if I am better off paying cash. Thanks for this!

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