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State Mandates for Dental Loss Ratios | Keenan

One of the legislative trends we are watching in 2024 is a multistate move to require dental plans to meet a specific government-mandated dental loss ratio (DLR). What is a DLR and is this a good development for employer-provided group health plans? The first question is easy to answer. The answer to the second question depends on who you ask.

Dental loss ratio (DLR) is similar to medical loss ratio (MLR) for medical plans—it is the percentage of premium that a carrier spends on clinical costs and health improvement measures. DLR is generally calculated by dividing the amount of dental insurance premiums spent on clinical costs and health improvement measures by the total amount of dental insurance premiums collected. A DLR of 85% indicates that the carrier is using the remaining 15 cents of each premium dollar to pay all other business expenses—such as marketing, salaries, administrative costs, and agent commissions—as well as profits. Since 2011, the Affordable Care Act (ACA) has required group health carriers for large groups to maintain a medical loss ratio of 85%. (The MLR requirement is 80% for individual and small group plans.) Carriers that don’t meet that ratio are required to issue refunds to premium payers. The ACA did not set a similar mandate for dental plans.

On January 26, 2024, the National Council of Insurance Legislators (NCOIL) Health Insurance & Long Term Care Issues Committee adopted a model act for states seeking to mandate an MLR for dental plans. If adopted by NCOIL’s full board in its current form, the model legislation would not dictate a particular percentage for dental plans to meet. Instead, it would require dental plans to report their medical loss ratio information to the state. The state would then use the data to calculate an average “dental loss ratio” for each market segment and identify dental plans that fall significantly outside the average dental loss ratio. The state insurance commissioner could then investigate those outlier carriers and potentially take remediation or enforcement actions, including ordering carriers to pay rebates. This is a data-based approach that takes into account the differences between the large group, small group and individual markets.

This is not the approach most states considering legislation are taking. California Assembly Member Ortega recently introduced AB 2028, which would establish an 85% DLR in the state, regardless of market segment. Other states introducing similar DLR legislation in 2023 and 2024 include Connecticut, New York, Illinois, Nebraska, Oklahoma, Pennsylvania, Rhode Island, Virginia, Washington, and West Virginia.

But what impact will this have on employer-provided dental plans? It greatly depends on how the legislation is drafted, and the impacts could vary widely from state-to-state.

Massachusetts enacted a DLR requirement by ballot initiative in November of 2022. It requires dental plans that don’t meet an 83% DLR to issue rebates to customers beginning in 2024. This is the first state in the country to establish a specific DLR requirement. While Arizona, California, Colorado, Nevada, New Mexico, and West Virginia require DLR reporting, none of those states have set a DLR threshold to date.

It is likely too soon to say what the impact of this law will be on the quality of coverage or rates of reimbursement for dental services in Massachusetts. There is, however, a concern that this legislation will decrease competition among dental plans and increase premiums for patients.ⁱ According to the National Association of Dental Plans, five dental carriers have determined that they must exit the Massachusetts small group market. Recently, Guardian informed about 1,500 employers in Massachusetts that it will not sell policies to companies with fewer than 25 employees, beginning in 2024.ⁱⁱ

In a recent blog post, Mike Adelberg, Executive Director of the National Association of Dental Plans NADP), noted the differences between medical plans, where an MLR mandate has been in effect for more than a decade, and dental plans.ⁱⁱⁱ

• Premiums and fixed costs—There is a marked difference between medical premiums, which typically cost hundreds of dollars a month, and dental premiums, which cost less than $50 per month. Despite this, dental and medical plans perform most of the same administrative tasks.
• Mandated coverage vs. voluntary coverage—The ACA didn’t only establish an MLR threshold. It also included a large employer mandate, and other provisions like subsidized marketplaces, which made coverage nearly universal. In contrast, dental coverage is a non-mandated, non-subsidized purchase. The concern is that premiums will increase in response to high government-set MLR thresholds.

Proponents of DLR mandates (primarily dentists) argue that these measures require dental carriers to be transparent about their costs. They also argue that a DLR mandate will force dental carriers to provide more robust coverage for treatment of dental illnesses and injuries.

Regardless, it’s shaping up to be an interesting year for dental plans. (How often do we get to say that?) We’ll keep a close eye on both the NCOIL model and state legislation as well as how the Massachusetts market is faring. In the meantime, if you have questions about your company’s dental coverage, please don’t hesitate to reach out.