Calif. approves law protecting dental insurance premiums

2014 09 26 14 20 25 347 California Flag 200

Late last week, California Gov. Jerry Brown signed a bill that establishes standardized requirements for dental plans to disclose how they spend patient premiums.

The bill, AB 1962 introduced by Assemblymember Nancy Skinner (D-Berkeley), puts the state on a path to establish a minimum percentage of premium dollars that must be spent on patient care, according to the California Dental Association (CDA), which sponsored the bill.

Under California law and the Patient Protection and Affordable Care Act (ACA), all medical plans must spend at least 80% of patient premiums directly on patient care as opposed to profits and overhead. This is known as the medical loss ratio (MLR). This ratio is simply the ratio of claims payments to premiums collected and does not reflect the ACA adjustment for quality improvements or taxes, which, if applied, would serve to increase the reported ratio. In California, no minimum standard exists for dental plans, and some dental plans spend only 38% of premium revenue on patient care, according to a report issued earlier this year by the Blue Sky Consulting Group that was commissioned by the CDA.

That report, titled "Dental Loss Ratios: Factors to Consider in Establishing a Minimum Loss Ratio for Dental Insurance in California," was issued in January 2014, just before AB 1962 was introduced.

“This law will provide greater transparency for patients and employers who have a right to know that they're getting value out of their premium dollars dedicated to dental care.”
— James Stephens, DDS, CDA president

According to the data that dental plans submit to the California Department of Managed Health Care (DMHC), the loss ratios for dental plans "vary considerably, both across plans and over time," the report noted. For instance, Delta Dental is the largest plan covered by DMHC with 35% of the total reported enrollment for commercial group plans in 2012. For that year, Delta Dental reported the highest loss ratio of all the plans, at more than 81%. "Other entities reported loss ratios ranging from 38.1% to 80.8%," according to the report, which gives an illustration of the situation the law attempts to address.

"This law will provide greater transparency for patients and employers who have a right to know that they're getting value out of their premium dollars dedicated to dental care," CDA President James Stephens, DDS, said in a press release. "This bill will shine a light on dental plan spending, which should incentivize plans to improve the value of their products and will help guide the state toward an appropriate minimum standard for spending on patient care."

This law requires healthcare services plans (those that issue, sell, renew, or offer specialized dental health care service plan contracts) and health insurers (those that issue, sell, renew, or offer specialized dental health insurance policies) to file a report, to be known as the MLR annual report, with the departments that contains the same information required in the 2013 federal Medical Loss Ratio Annual Reporting Form. The first such report will be due no later than September 30, 2015, and each year thereafter a new report is required.

Currently, dental plans self-report this data in California. This means there are no consistent standards and details necessary to verify their spending ratios, according to the CDA. As a result, there is a lack of reliable data for the state to develop an evidence-based minimum standard.

The new law requires dental plans to uniformly and publicly disclose the financial data necessary to assess their spending on patient care, which will put dental plan reporting on the same level as required for medical plans, the CDA noted. It also reflects the Legislature's intent to adopt a formal minimum standard for dental plans by 2018, based on the data reported.

"AB 1962 is a great step toward instituting a critical protection for the 15 million Californians enrolled in private dental plans, and we are very grateful to Assemblymember Skinner and the governor for moving the state forward on this issue," Dr. Stephens stated.

Under the MLR rule for medical plans, consumers have saved an estimated $9 billion on premiums since 2011, according to the "MLR Report for 2013" released by the U.S. Department of Health and Human Services on July 24, 2014. The report linked this to the fact that companies are charging lower premiums and operating more efficiently than they would have without the MLR standard. Medical plans that do not meet the standard must issue refunds to policyholders to make up the difference. The report noted that in 2014, 6.8 million consumers will receive more than $330 million in refunds, averaging about $80 per family.

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