You might be wondering if supplemental dental insurance is the best way to make your oral care more affordable.
The issuing companies configure plans to take in more money in premiums than they pay out in claims. So, it is natural to ask whether investing in a policy is a worthwhile use of your money.
First, learn how the supplemental coverage works because seniors on Medicare have one plan design, while younger adults have a different configuration to assess.
Then move on to how much supplemental dental insurance costs – net of any claim payments you project to receive in return. The budget-friendly option relies on IRS rules for significant savings.
How Supplemental Dental Insurance Works
To grasp how supplemental dental insurance works, you must understand that two distinct designs fit the definition.
- Extra coverage for people with a primary dental plan that pays fixed benefits according to a published schedule and has no in-network providers
- Additional insurance that fills holes left by Medicare and operates like traditional plans for most types of oral care for seniors
No Waiting Periods
The first thing that makes supplemental dental insurance (Design 1) affordable is the preventive benefits available with no waiting period. For example, consider how routine exams and cleanings every six months with the dentist pays off with good oral health and extra money in your pocket.
The following preventive benefits are payable without a waiting period for each person covered by the plan. For example, a family of four would receive $700 back by merely having a dentist check their teeth according to ADA guidelines.
Periodic Oral Evaluation
However, the same family would have to practice delayed gratification before seeing a return on any other oral care treatments. A new policy would impose different delays, depending on the service.
Periodontal Gum Treatments
Crowns & Other Restorative
Root Canals & Endodontic
Dentures & Prosthetics
Seniors on Medicare
Supplemental dental insurance for senior citizens on Medicare has the second plan design, making the affordability analysis trickier. The projected benefits are variable rather than fixed. Plus, pre-tax payroll deductions rarely apply during retirement.
For example, the AARP dental insurance option provides supplemental coverage to members needing to fill the known hole in Medicare (zero oral care claim payments). Both plan design choices have variable benefits for seniors.
- PPO (Preferred Provider Organization): participating dentists agree to accept the pre-negotiated allowed amount as full payment.
- HMO (Health Maintenance Organization): a primary care dentist provides care with no deductible or annual maximum
It is incredibly tricky for low-income Medicaid recipients to justify supplemental dental insurance to fill any holes in this public program for two reasons.
- Medicaid covers dental work for adults in many states, and providers who treat enrolled patients often must accept the government-determined reimbursement without the ability to balance-bill.
- Medicaid eligible families live at or below the federal poverty level and often pay little or no income taxes, making pre-tax payroll deductions less of a money saver on the premiums.
You can purchase supplemental dental insurance as an individual in two places that could make a world of difference in whether the budget math works in your favor. Pre-tax payroll deductions available at work typically save more money on your monthly premium investment than direct payments.
Buying at Work
Buying supplemental dental insurance for individual plans at work is the ideal option. Companies such as AFLAC and Colonial Life market these plans to employer groups as a voluntary benefit, but the employees own the portable coverage.
Paying the premiums using pre-tax deductions then reduces net costs significantly. For example, a married couple earning $60,000 saves 29.65% on most dollars spent.
- Federal tax bracket: 22%
- FICA tax avoided: 7.65%
Getting supplemental dental insurance for individuals in the direct marketplace (outside of your employer) is less favorable. First, the plans that you can purchase online on your own offer fewer optional riders for orthodontia, cosmetic procedures, and other services.
Plus, it may prove more challenging to realize any tax savings on the premiums because you must meet two IRS expense thresholds.
- Itemized deductions must exceed the personal exemption to cut costs
- Qualifying medical and dental expenses above 7.5% of AGI yield savings
What Supplemental Dental Insurance Costs
You have to compare what supplemental dental insurance costs to the projected benefits to determine whether your monthly investment is worth it.
For illustration purposes, we contrast the after-tax premium costs for Design 1 with a series of possible benefit payouts based on the type of care needed.
- Annual premium for two-parent family: $1,920
- Pre-tax payroll savings (29.6%): ($569)
- Preventive benefits (2 children): ($700)
- Net yearly cost estimate: $651
Suppose you wanted to buy supplemental dental insurance to cover implants. In this case, four critical factors would determine if the investment might prove worthwhile or a waste of money.
- A missing tooth exclusion means that the policy will only pay for implants on teeth extracted after the coverage effective date.
- The policy includes a 6-month wait for extractions, which must precede any implant treatment to overcome the missing tooth exclusion.
- The policy contains a 24-month wait for implants, which means that you must fund two years of premiums before realizing a return.
- The annual maximum benefit of $1,800 limits what the plan will pay.
Surgical Placement of Implant Body
Implant Abutment Placement
Crown Porcelain or Ceramic
In summary, a new plan might return $1,850 after year three to replace one tooth that the dentist extracts after the policy effective date, in exchange for about $1,953 in net premium costs. In other words, you lose money on the deal.
- The extraction takes place in year one or two.
- Implant treatment begins in year three and must allow time for healing in between placement of the implant body and abutment.
However, in year four, the investment begins to yield a positive return if you replace another extracted tooth with an implant. The incremental net cost is $651 compared to an extra benefit of up to $1,800.
Now suppose that you want to buy supplemental dental insurance covering orthodontic braces, and want to know whether an investment in the net premium cost will prove worthwhile.
In this case, you have to purchase an optional orthodontia rider in addition to the base policy. The rider also includes a 24-month waiting period with defined benefits and a $30 monthly cost.
- Annual premium for a two-parent family: $360
- Pre-tax payroll savings (29.6%): ($107)
- Net yearly cost estimate: $253
- $600 for initial treatment
- $200 per quarter for ongoing care
- $1,200 lifetime maximum per member
- $2,400 maximum per policy year
Therefore, our family of four should expect $2,400 in return in years three ($1,200) and four ($1,200) if one adult and one child have orthodontic treatment. In exchange, they must invest only $1,012 in net premiums on the rider, which sounds terrific on the surface.
However, the analysis does not include the base policy, which you must purchase and fund in tandem.
Our analysis’s final step isolates whether supplemental dental insurance makes fiscal sense if you do not need implants or orthodontia. In other words, does the net annual premium investment payoff for a family with common oral health issues?
Well, the annual benefit maximum us a quick answer.
- Yearly Maximum: $1,800
- Unused benefits after preventive claims: $1,100
- Net annual premium cost: $651
In other words, you gamble that $651 in assured costs will yield up to $1,100 in uncertain claim payments. The bet pays off at 1.7 to 1 if your oral health is poor and you have a queue of scheduled dental work that maxes out the plan every year.
The sample chart below of the more expensive procedures might help you make this value determination.
Extraction of Erupted Tooth
In conclusion, determining whether supplemental dental insurance is affordable means looking at more than the monthly cost. Several other factors determine whether buying a policy is the best option.
First, two distinct plan configurations fit the definition. Design one fills holes in traditional dental insurance by paying fixed benefit amounts without regard to network status. Design two works like primary dental coverage for senior citizens without oral care benefits through Medicare.
Second, preventive benefits have no waiting period. Families who go to the dentist for regular checkups, x-rays, and cleanings realize savings every year.
Third, buying the coverage at work is ideal because pre-tax payroll deductions provide first-dollar savings on the premiums every year. Without the IRS discount, the numbers rarely work in your favor.
Finally, families with poor oral health who need continual dental care find the most value – because they exercise the policy and maximize the benefits every year.