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2012 STATE OF THE DENTAL BENEFITS MARKET

March 2013

2013 © Copyright, National Association of Dental Plans, Inc

March 2013NADP 2012 State of the Dental Benefits Market 2013 © Copyright, National Association of Dental Plans, Inc.2

National Association of Dental Plans12700 Park Central Dr., Suite 400

Dallas, TX 75251972‐458‐6998 ‐‐ Fax: 972‐458‐2258

www.nadp.org

Evelyn F. Ireland, CAEExecutive [email protected]

The National Association of Dental Plans is a non‐profit trade association representing the entire spectrum of the dental benefits industry, including dental HMOs, dental PPOs, discount dental plans and dental indemnity products. NADP’s member dental plans provide dental benefits to more than 160 million of the 177 million Americans with dental benefits. NADP’s members include majornational, regional and single state‐companies.NADP, National Association of Dental Plans is a registered trademark of the National Association of Dental Plans, Inc.Companies that purchase this report or receive a complimentary copy for their participation may use the report and its findings internally in their company. Any reproduction or circulation of this publication in any form by purchasers or contributing companies to individuals, companies or institutions outside of their company, whether by copy or excerpt, requires NADP’s express written permission.

Source: NADP 2012 State of the Dental Benefits Market, March 2013, pg. (insert page number), Dallas, Texas.

THIS REPORT AND THE INFORMATION IT CONTAINS SHALL NOT, IN WHOLE OR IN PART, BE REDISTRIBUTED, EXCEPT AS GRANTED ABOVE WITHOUT PRIOR WRITTEN PERMISSION OF NADP®.

About the Report 4Major Trends in 2011 5Enrollment Trends 6

Overall Enrollment Trend 7Commercial Enrollment Trend 8Benefit Structure 11Dental Benefits Offered by Employer Size 12

Out of Pocket Trends 13Annual Maximum Benefit 14Annual Deductible 15Premium Trends 16

Children’s Access to Dental Care 17Customer Service Trends 20Developments in Claims Processing 24Market Size and Sales Trends 27What to Expect in 2013 30

Market Dynamics 31Dental Plan ACA Initiatives 33State and Federal Legislative Initiatives 36State and Federal Exchange Initiatives 37

Appendix 39

Table of Contents

March 2013NADP 2012 State of the Dental Benefits Market 2013 © Copyright, National Association of Dental Plans, Inc.

3

About this Report


4

This document is NADP’s Executive Summary of industry research conducted in 2012.

Except where noted, industry data is as of December 31, 2011 or encompassing all of calendar year 2011.

Major trends in 2011


5

Commercial dental plan enrollment continued to recover from losses experienced in 2008 and 2009.

Premiums showed signs of growth after stalling the previous year

Consumers are bearing more of the cost of their dental benefits.

With little improvement in operational metrics, the opportunities to improve profitability is minimal.

Health care reform will continue to impact the business of dental benefits as federal regulations are finalized and state‐based exchanges are implemented.

Enrollment Trends

March 2013

6

NADP 2012 State of the Dental Benefits Market 2013 © Copyright, National Association of Dental Plans, Inc.

Enrollment Trends ‐ Overall


7

Enrollment in 2011 improved slightly compared to 2010 (less than ½%) , but the percentage of Americans with dental benefits remained unchanged.

154,54

4,86

8

155,93

9,27

5

160,70

0,53

4

162,48

4,53

3

170,53

4,92

3

174,29

6,98

7

177,65

9,87

7

167,84

9,28

9

175,62

6,76

8

176,26

6,37

9

54% 54% 55% 55%57% 57% 58%

55%57% 57%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% of P

op with

Den

tal B

enefits

Popu

latio

n with

Den

tal B

enefits

144,027K 149,131K 152,695K 154,129K142,796K 143,183K 147,409K

117,753K 120,658K 121,621K 118,281K110,914K 111,672K 113,303K

2005 2006 2007 2008 2009 2010 2011

Commercially Insured Dental Enrollment vs Full Time Employment

Commercially Insured

Employed Full Time

Enrollment Trends ‐ Commercial


8

Commercial dental benefits enrollment tracks very closely to full time employment.

As full time employment recovered in 2011 and has continued to improve through 2012, enrollment in dental benefits should also continue to increase.

Enrollment Trends ‐ Commercial


9

In 2011, DPPO continued to expand market share of commercial dental benefits, particularly at the expense of Dental Indemnity products. There is nothing to suggest that this long term trend will abate in 2012 or 2013.

15% 15% 14% 10% 9% 9% 8% 8% 8% 8%

42% 45% 50% 56% 62% 63% 67% 69%74% 77%

35% 33% 25% 23%19% 17% 14% 13%

11%9%

8% 7% 9% 10% 9% 10% 10% 9% 6% 5%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Commercial Dental Benefits by Plan Type

Direct Reimbursement

Discount Dental

Dental Indemnity

DPPO

DHMO

64,637

,913

65,283

,130

67,589

,910

63,541

,856

57,453

,016

60,480

,104

56,551

,458

57,300

,687

57,102

,946

53,746

,198

63,456

,680

66,604

,637

2006 2007 2008 2009 2010 2011

ASO vs Fully Insured Dental BenefitsDPPO and Dental Indemnity Enrollment

Fully Insured ASO

Enrollment Trends – ASO/FI


10

The Affordable Care Act creates incentives for employers to move from fully insured plans to self‐insured plans. The trend toward self‐insurance for dental benefits should continue and may even accelerate as the law is implemented.

Benefits Structure

Group97%

Individual2%

Integrated w/ Medical

1%

Other0%

Employer Pays All10.3%

Employee & Employer Share Cost66.1%

Employee Pays All

(Voluntary)23.6%

Group Policy Funding

March 2013

11


While the Affordable Care Act may have encouraged a children’s dental benefit to be integrated with medical benefits, the market has not yet moved in that direction. Recent releases of clinical rules regarding Essential Health Benefits in products offered on and off Exchanges appear to mitigate the need for insurers to create an integrated dental benefit.

Long term, the structure of Exchanges appear to encourage small employers to move toward a dental benefit that is more like a voluntary or individual product. Although in 2014, employers are allowed to designate the plan in which their employees are enrolled. This effect will only accelerate a trend toward employees bearing more of the costs of their dental benefit.

40%

61%

68%

79%85%

89%93%

41%

57%

70%

87% 85%

92%95%

45%

74%

89%93% 93%

97% 96%

6‐24

25‐50

51‐100

101‐24

9

250‐49

9

500‐99

9

1,00

0+

Percent O

fferin

g De

ntal

Number of Employees

2005 2008 2011

Likelihood of Offering Dental Related to Size of Employer


12

More and more, smaller employers are providing dental benefits to their employees. The disruption in the benefits market caused by the implementation of Health Exchanges makes anticipation of enrollment trends in dental benefits too difficult to project at this time.

Source: 2011 NADP Purchaser Behavior Study

Consumer Out of Pocket Trends

March 2013

13


Annual Max ‐ Trend


14

3% 3% 4% 4% 4%18%

42% 46% 47% 50% 49%

54%

3%

37%

43%35%

40% 38%

26%18%

7%14%

5% 8%

99% 97%

2011 2012 2011 2012 2011 2012 2011 2012

DHMO DPPO (In‐network) DPPO (out‐network) Dental Indemnity

No Maximum

$2,000 or more

$1,500 to $1,999

$1,000 to $1,499

$0 to $999

Price pressures from previous years are starting to impact plan design. Greater price sensitivity to dental premiums has resulted in generally lower Annual Maximum benefits.

Annual Deductibles ‐ Trend


15

94%

14% 14%7% 4% 9% 14%

2%

14% 9%10%

8%

19%20%

2%

69% 72%74% 80%

65%66%

2% 3% 4% 9% 8% 6%

2011 2012 2011 2012 2011 2012 2011 2012

DHMO DPPO (In‐network) DPPO (out‐network) Dental Indemnity

$100 or more

$50 to $99

$25 to $49

Less than $25

Greater sensitivity to premium cost is also affecting the amount enrollees must pay for deductibles. For DPPO plans the Annual Deductibles are trending higher.

Monthly Premium


16

Generally, premiums increased slightly for ALL GROUPS for each product type, ranging from 0.1% for DPPO plans to nearly 2% for Dental Indemnity plans.

Carriers have had to contain premiums in a highly price sensitive market, but to do so has required them to sell plans with greater out of pocket expenses for consumers.

Improving full time employment should ease price sensitivity for employers.

However, implementation of the Affordable Care Act will strain budgets employers have available for benefits.

Per Enrollee per Month % Change

2011 2012 11-12

DHMO

Less than 50 $ 12.60 $ 14.27 13.2%

50 to 99 $ 12.30 $ 12.97 5.4%

100 to 499 $ 12.01 $ 12.50 4.1%

500 or more $ 11.05 $ 11.30 2.2%

ALL GROUPS $ 13.63 $ 13.86 1.7%

DPPO

Less than 50 $ 29.35 $ 29.06 -1.0%

50 to 99 $ 26.98 $ 26.16 -3.0%

100 to 499 $ 25.88 $ 25.48 -1.5%

500 or more $ 23.57 $ 24.17 2.6%

ALL GROUPS $ 25.69 $ 25.72 0.1%

Dental Indemnity

Less than 50 $ 35.34 $ 36.30 2.7%

50 to 99 $ 31.50 $ 31.78 0.9%

100 to 499 $ 26.20 $ 27.05 3.2%

500 or more $ 22.64 $ 22.43 -0.9%

ALL GROUPS $ 27.12 $ 27.60 1.8%

Children’s Dental Access

March 2013

17


Children Dental – Consumer Study


18

Starting in 2014, the Affordable Care Act requires a child dental benefit as one of the Essential Health Benefits in policies sold in the small group and individual markets. For those purchasing their benefits on the exchange the potential for splitting the child’s dental benefit from the parent’s dental benefit is greatest. Considering that 82% of all children receive their benefit through their parents’ coverage, the impact of this change in how or what dental benefits are sold could be significant.

100%

46%

26%

[82% of children covered have a

parent with dental benefits]

myself spouse / partner children

Family Members Covered by a Dental Benefit

6% 6%

21%

63%

4%8%

15%

28%

45%

4%

have not visited a dentist < than once per year once per year 2 times per year > than 2 times per year

Child Visits to the DentistChildren with and without dental benefits

Have Dental Benefits No Dental Benefits

Benefit Utilization


19

Children covered by dental benefits are far more likely to visit the dentist than children without dental benefits.

More children with dental benefits should result in greater utilization by children. In many areas this could further strain the provider workforce.

Customer Service Trends

March 2013

20


Customer Satisfaction


21

Customer Satisfaction levels have dropped substantially for all dental benefit product types. For dental benefits, value is a main driver for satisfaction.

Declining levels of satisfaction leave dental benefits vulnerable to reductions in enrollment as consumers conclude dental benefits do not provide enough value.

78% 79% 79%

70%71%67% 68%

64%

DPPO DHMO Dental Indemnity Discount Dental

2005 2012

First Call Resolution

Yes18

No6

Does your company measure first call resolution, defined as resolving a member issue fully on the first

contact?

69.0

96.399.0

89.185.0

97.0

99.8

93.8

First Call Resolution Rate

Based on External Methods Based on Internal Methods

March 2013

22


First call resolution is one measure of customer service. Despite high first call resolution rates, satisfaction is declining. While customer service may be an important component of satisfaction, it is clearly not the major driver of satisfaction for the consumer.

Performance GuaranteesGroup size and types

29% 50% 21%

Minimum group size for offering performance guarantees

100 or less 101 to 500 501 or more

38%

63%

58%

46%

29%

8%

33%

Do not offer guarantees on metrics

Call abandonment rate

Average speed to answer

Member satisfaction rate

90% or higher of calls answered in30 seconds

90% or higher of calls answered in20 seconds

Other

Does your company offer performance guarantees on any of

these metrics?

Service guarantees are often a contract consideration for employers and they provide a means for carriers to differentiate their product and add value. Most carriers do not offer service guarantees to small employers. Without the added value of service guarantees, employer loyalty may not be strong enough to prevent small employers from sending their employees to the state health Exchanges for coverage.


23

Developments in Claims Processing

March 2013

24


February 2013NADP 2012 State of the Dental Benefits Market 2013 © Copyright, National Association of Dental Plans, Inc.

Electronic Claims

The Affordable Care Act provides direct incentives for the adoption and implementation of Electronic Health Records. Electronic Claims are one component of that record.

Compared to last year:

The industry median for electronic claims increased from 56% to 61%. Low volume companies (less than 1 million claims) are just as likely to receive electronic claims as high volume companies as the percentage of claims received was higher for low volume companies, but remained static for high volume companies compared to last year.

Max

75th percentile

25th percentile

50th percentile

Min 30

52

6165

94

Percent of Claims Rec'd Electronically

45%51%51%

57%58% 57%

Low Volume High Volume

Electronic Claimsas % of Total

2009 2010 2011

NOTE: Data in this chart represents a weighted average based on the total number of claims reported. Not all respondents reported a total number of claims, so this chart represents a subset of the total number of respondents.

25

Diagnostic Codes

26% 28%

On Paper Claims On Electronic Claims

Plans Receiving Diagnostic Codes

69%

46%

For ClaimsAdjustment

For Risk‐BasedBenefits

How Plans are Using Diagnostic Codes

March 2013

26


The Affordable Care Act creates incentives for all health care plans to implement quality measures and using diagnostic codes is a way to study the impact of treatment on various health conditions. Although the timelines and standards have not been set for dental, and few diagnostic codes were available for dental until late 2012, NADP surveyed its members on their use of diagnostic codes in dental claims processing operations.

Market Size and Sales Trends

March 2013

27


The Dental Insurance Market was valued at $41.6 billion in 2011.


28

Compared to NADP’s 2010 market size estimate, the dental benefits market grew by about $3 billion to $41.6 billion

NOTE: Dollar figures represent estimated total size of the dental insurance market based on estimated in‐force premiums collected for each product type.

DHMO$2.1 Billion

DPPO$35.1 Billion

Indemnity$4.4 Billion

Source: Derived from 2012 NADP/DDPA Enrollment Report and 2012 NADP Premium and Benefits Utilization Report

Sales Trends

‐5%‐3%

10%

‐15%

‐5%

5%1%

3%6%

‐4%

1%

2005 2006 2007 2008 2009 2010 2011

Group Sales and In Force Growth Trend

Sales In Force

The 10‐year CAGR (compound annual growth rate) for new sales subscribers is a negative 3.8 percent, and a 10‐year CAGR for in force subscribers is 2.1 percent.

March 2013

29


New Annualized Premiums

($000s) New Subscribers

2011Percent Change 2011

Percent Change

Dental Indemnity $182,617 -17.9% 282,048 -20.1%

No. of companies 24 22 26 23

DPPO $3,059,589 0% 4,593,818 -4.3%


DHMO $125,822 31.4% 408,353 12.8%


All Plans* $3,368,061 -0.2% 5,298,624 -4.5%


*Totals include discount dental sales.

What to expect in 2013


30

Market Dynamics


31

As projected, 2011 commercial enrollment rebounded from recent enrollment lows of 2009 and 2010.

Enrollment trends in commercial benefits should continue to show improvement through 2012 and into 2013.

However, the Affordable Care Act includes provisions that may affect employment practices in the small group market, which could impact enrollment in dental benefits.

Market Dynamics


32

As the US economy continues to expand, anticipate the following: Price competition should ease as more employers and individuals seek out dental benefits

Easing price pressures will make transition to a new regulatory environment easier to manage for dental plans

The Dental Benefits Industry will continue to experience mergers and acquisition activity, but consolidation is more likely to be vertical rather than horizontal as health plans seek access to dental benefits as a way to comply with state Exchange rules and Essential Health Benefit provisions.

Dental Plan ACA Initiatives 2012


33

Initiative: Equitable Treatment Result: Essential Health Benefit Final Rules allow “Exchange‐certified stand‐alone dental plans” in the small group and individual market to meet Essential Health Benefits (EHB) in conjunction with a medical carrier. Focus now on how to implement.

Initiative: Allowance of Outside Coverage Result: Push to allow dental policies purchased outside an Exchange to meet EHB inside Exchanges was obviated by EHB Final Rules clarification that there is not a “required purchase” of pediatric dental inside Exchanges.



34

Initiative: Correct Inclusion of Dental in Exchanges Result: Application of “Relevant” Consumer Protections to pediatric oral services of EHB EHB Final Rules allow separate reasonable OOP maximum for stand‐alone dental in lieu of coordination with medical

EHB Final Rules provide for dental AV of 70%, +/‐2%, and 85%,+/‐2%, which differs from medical AV levels

Prohibition on annual and lifetime limits applies to pediatric dental only

Result: Criteria for Qualified Dental Plans remain under discussion but accreditation will not apply



35

Initiative: Pediatric oral services benchmarked to small employer dental coverage for EHB. Result: Pediatric dental benchmark remains either a state’s CHIP program or the FEDVIP dental plan with the largest enrollment. FFE Exchanges will default to FEDVIPMost state Exchanges chose CHIP

State and Federal Legislative Initiatives


36

Dental Plans Year‐end ACA Conformity Bills (based on election results) Exchanges, EHB, Market Reforms, Brokers/Agents

Non‐Covered Services (NCS) Providers

Expansion of Duties/Scope of Practice for mid‐level providers

Provider reimbursement, external review, coordination of benefits, etc.

Interested Stakeholders Consumer Advocates concern over state’s setting “reasonable” OOP limit for stand‐alone dental plans covering pediatric dental for EHB

State and Federal Exchange Initiatives


37

Allow fair competition, which parallels today’s dental market NADP advocates medical carriers with embedded dental to also offer

medical policies without dental Several states are considering this option

QHPs will not have to embed dental on FFE (see slide 38) HHS will not allow “bundled” medical and dental products at this time on

FFE OPM is allowing the option for dental plans as Multi‐State Plans

Provide certification standards that are relevant to dental plans FFE has included: EHB, AV, OOP Max, licensure/Solvency, Network

Adequacy, ECPs, Marketing, Service Area, Non‐Discrimination Fair Exchange Pricing

NADP advocates Exchange fees be based on premium not on transaction FFE and most states are utilizing this option

Exchange Participation


38

Most states have opted to allow the Department of Health and Human Resources to develop and manage the state’s exchange (a federally facilitated exchange). This map depicts the number of plans that anticipated participating in the various state exchanges and the management structure of the state exchanges, as of December 2012. As regulations are adopted, the number of dental plans intending to offer may change.

Dental Plans Intending to Offer Stand‐Alone Dental in States

Appendix


39

Appendix ANADP Research Reports and Activities


40

Core Statistical Reports NADP/DDPA Enrollment Report NADP/DDPA Network Statistics NADP Financial Operations NADP/LIMRA Dental Metrics LIMRA/NADP Quarterly Sales State of the Market Report

Shared Research Industry Snapshots

Appendix ANADP/DDPA Dental Enrollment


41

Jointly conducted with Delta Dental Plans Association Provides the most complete census of the industry’s total

enrollment Estimates dental benefits enrollment at the state level and by

benefit type Identifies funding sources and underwriting classifications by

benefit type

Appendix ANADP/DDPA Network Statistics


42

Jointly conducted with Delta Dental Plans Association Provides the most complete census of dentists participating in networks

Measures trends in provider networks by product type and dental specialty at the national and state level

Appendix ANADP Premium and Benefit Utilization Trends


43

Sampling methodology Tracks in‐force premium by product type Tracks utilization of dental benefit by product type Tracks changes in core benefit design elements

Appendix ANADP/LIMRA Dental Metrics


44

Jointly conducted with LIMRA Customer Service Metrics Claims Processing Metrics Administrative Metrics

Sampling methodology Benchmarks customer service and claims processing metrics

Appendix ALIMRA/NADP Quarterly Sales


45

Jointly conducted with LIMRA The only report that identifies the responding company

Reports new sales for Q1, Q2, Q3, and Q4 Reports in‐force in Q2 and annually Limited to responding companies only; does not attempt to estimate the entire market

Appendix AAd hoc Shared Primary Research


46

Developed to provide member companies a means for conducting expensive, primary market research by sharing costs with other interested companies

Topics are developed by recommendation of member companies

Participating companies fund the research, NADP acts as project manager

Benefits include: Exclusive access to the raw data file Exclusive rights to the final survey instrument

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