Dental Loss Ratio - Massachusetts Ballot Question

Massachusetts has a question on the ballot to set a minimum loss ratio for dental insurance at 83%

What do the experts here think?

A few thoughts come to my mind:

  • How are they defining “loss ratio”? Both what goes into the numerator? Denominator? How is data aggregated?

  • How was the “83” number derived?

  • What happens when the number ends up being below 83? How would the cost of enacting/enforcing this consequence be accounted for?

A few guesses come to mind, but agree these would be good to have nailed down-

  1. My guess is it would align with ACA. (Paid medical services + Quality improvement activities) / (Premium Revenue - Allowable Deductions e.g. taxes, reinsurance etc)
  2. Maybe between the 80 and 85 thresholds in the ACA
  3. Refunds directly sent to beneficiaries, similar to the ACA when medical spend doesn’t meet the minimum MLR.

An interesting question would also be what is the current MLR among dental providers.

If this is already “mandated” . . . what’s the point of “nailing down” a specific value? FTR, I’m familiar with the politics of ratemaking from a P&C perspective; and it seems that the state is trying to “deny” the company 3% of what might otherwise be profit (that could be added to surplus to help with the following question). I just don’t know if there might be some other reason for such a move (that may not necessarily be related to ratemaking).

If the LR for a given time period happens to be 95%, does the company get to use the 10% (95 - 85 of the upper end of the ACA range) to offset the denominator in future years in some fashion?

Sorry if unclear. It is mandated in Health, but Dental does not count as Health. 80% minimum for individual and small group, 85% minimum for large group.

In Health insurance it is a 3-year rolling average for rebates.

One potential concern I would have is around volume and total revenue as well. Dental premiums are cheap, especially compared to medical premiums, so while it may be reasonable to run overhead on 15% of medical premiums I’m not sure how reasonable that is on dental revenue, since the raw dollar amount is much lower.

I don’t work in dental though, so I’m unfamiliar with any specifics.

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I don’t mean to be pedantic (it is a mental condition!), but:

  1. Shouldn’t it be DLR?
  2. Providers are paid revenue, not premium (except for DMOs), so DLR isn’t apt.
  3. Looking at Net Income as a percentage of revenue should suffice. And, I’m guessing it is a pretty nice percentage, based on the cars my dentist has driven over the past 20 years.

lol, carriers not providers and DLR not MLR, yes.

Regulated loss ratios are stupid unless the state has crushed competition by not allowing all carriers who want to sell to sell. But onto the actual reasons why not to have a dental loss ratios.

The MLR requirements in the ACA resulted in agent and broker commission being dropped to 0% of premium in the individual market as companies needed to be able to decrease their costs. To make up for some of the lost commissions, carriers increased commissions on ancillary product lines so that agents could continue to make money selling health insurance rather then work for free. It doesn’t entirely cover the lost income because 20%ish commission rates on individual products were not uncommon pre-ACA. I don’t recall what a typical dental loss ratio is (it’s been awhile since I did any work on ancillary products) but I’m going to guess nowhere near 83% in most places. The likely end result will be a small reduction in carrier profits, some (Many?, All?) carriers will stop offering dental coverage, and agents will make less as commission drops to zero. Dental premiums are relatively low so while the profit margin might be high the dollar amount is low. I just checked Delta Dental rates for MA and it looks like the most expensive plan is $2,300 a year (family coverage over 50). There just isn’t much juice to squeeze from that orange. The likely outcome of the loss ratio requirement is lower commissions and less competition and maybe some small reduction in premiums. If they really want lower premiums (which is what I’m guessing the goal is) then increase competition.