Supplemental orthodontic insurance can make all of your dental care more affordable – if you know how to compare costs to benefits.
Insurance companies formulate plans that take in more premium dollars than they pay out in claims. So, why should you buy coverage?
The tiebreaker is tax savings available through payroll deduction.
Follow along as we illustrate how a family of four can save a modest sum of money on their most predictable expenses: braces for one child and one adult, plus regular checkups and cleanings for all.
Then, any unexpected dental expenses make the purchase a winning bet. What family goes four years without a single cavity or chipped tooth?
Supplemental Orthodontic Insurance Definition
Parents should begin with a clear understanding of what supplemental orthodontic insurance is, how it works, and how it differs from other coverage types.
Be prepared for an upfront investment because the premium costs will exceed claim payments in the early stages. Families who stay in the program for four years often save a bundle in aggregate – if they can manage the cash flow.
- Financing programs can smooth out deposit requirements
- Payment plans from providers stretch out other obligations
Do not confuse supplemental dental insurance for braces with a secondary plan. Although the terms seem very similar, the two designs can work much differently in practice.
- Secondary plans have traditional designs and coordinate benefits after the primary company makes claim payments. For example, the secondary coverage will fill any holes left by copayments, deductibles, and annual maximums, making a claim amount variable.
- Supplemental plans four unique design elements.
- An optional rider attached to a base plan that expands coverage
- Fixed payments that do not coordinate benefits with other plans
- Uniform claim payments at all providers – no networks
In other words, you have cost and benefit certainty, which facilitates your ability to compare the known upfront investment to your probable return over time – as we begin to do for you in the next section.
Do not expect to find supplemental dental insurance covering braces and other expensive services without a waiting period. While it would be nice to exchange enormous, immediate benefits for a relatively small premium payment – the issuing companies have no interest in unprofitable trades.
The need to straighten misaligned teeth should come as no surprise. Therefore, you have plenty of time to get your ducks in order and must exercise delayed gratification – because an orthodontic rider includes a 24-month waiting period.
For instance, this chart illustrates a possible upfront investment coupled with the probable return for the most likely treatments. Follow along in the following sections as we breakdown these example numbers for our family of four.
Supplemental Dental Insurance Costs
A close examination of how much supplemental orthodontic insurance costs compared to the projected benefits over time can help you determine whether a plan is a worthwhile investment.
In our example, our family of four (two adults and two children) might invest $4,932 ($1,233 X 4) in premiums after taxes over four years and wind up $668 ahead of the game. This modest return is unlikely to cause you to jump at buying the coverage – until you see possible payouts for other oral care needs.
Example premium rates for supplemental dental insurance covering braces is the primary component of the cost equation. Be sure to include the secondary tax considerations covered in the next section, which vary based on where you purchase the coverage (worksite versus individual).
First, you have sample monthly premium rates for the base dental plan where the adult parents are age 18 to 49. Then, you add the charges for the orthodontic rider to arrive at the fixed upfront monthly investment.
|Base Dental||Orthodontic Rider||Monthly Total|
In our illustration, our family of four pays $146 per month or $1,756 annually before tax considerations.
Example of Benefits
Projecting the possible benefits paid by supplemental dental insurance is tricky because you must forecast your need for regular oral care for over four years – including the braces treatment by the orthodontist beginning in year two.
Estimating the supplemental dental insurance claim payments for braces is straightforward, as the plan should spell out the exact parameters as in this example.
- $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 $1,200 in return in years three and four if one adult and one child have orthodontic treatment.
Forecasting the dental benefits paid by the supplemental plan is more complicated because families rarely know what type of oral care they might require when the need might arise, and if they have satisfied the waiting period for a specific treatment.
However, you can count on preventive care provided all family members get their regular checkups and cleanings every six months because claim payments begin immediately.
- $50 per person twice per year
- $800 annually for four family members
The family could then receive far more in return, depending on the type of unplanned dental work needed and whether the waiting period has elapsed.
Buying Supplemental Orthodontic Insurance
Possible tax savings dictate the best place to buy supplemental orthodontic insurance. As you saw from the previous section, the benefits paid by our hypothetical plan barely exceeds the premiums, which you must pay in advance.
Tax savings represent a critical tiebreaker. For instance, a household can shave 29.65% off its upfront premium investment.
- 22% Federal tax bracket in 2021
- Single filers: $40,126 – $85,525
- Married filing jointly: $80,251 – $171,050
- 7.65% employee share of FICA
In our illustration, our family of four can use the IRS code to reduce an annual $1,756 cost to only $1,233 after tax considerations.
Your worksite is the best place to buy supplemental dental insurance for braces because you can pay the premiums using pre-tax payroll deductions. The first dollar tax savings offered through this IRS-sanctioned cafeteria plan makes the math work in your favor.
Pre-tax payroll deductions lower your reported W2 income, which in turn reduces three possible obligations – without the need to meet expense thresholds.
- Federal income taxes depends on your marginal bracket
- FICA taxes are 7.65% for workers earning less than $137,700
- State income taxes vary by region
Of course, a worksite purchase is an option only if your employer makes the program available. Since employees pay the premiums 100% in many cases, it’s easy to ask your employer to give you this choice. Providers such as AFLAC and Colonial Life market the plan designs highlighted in our illustration.
Buying supplemental dental insurance covering braces as an individual should be your fallback option. Although you can still deduct the premiums on your taxes, the savings are not as high, and fewer families will qualify.
First, when you pay the premiums using after-tax dollars, you lose the chance to avoid paying the employee share of FICA taxes. A plan with a $1,000 annual premium would cost an extra $76.50 each year.
Second, your itemized deductions must exceed the standard deduction
- Itemized deductions include mortgage interest, state and local taxes, charitable contributions, unreimbursed medical and dental expenses, etc.
- The standard deduction ranges based on filing status
- Single or married filing separately — $12,200
- Married filing jointly or qualifying widow — $24,400
- Head of the household — $18,350
Finally, your unreimbursed medical and dental expenses do not begin counting towards your itemized deductions until they exceed 10% of Adjusted Gross Income (AGI). For example, a family with a $50,000 AGI begins saving money only on costs above $5,000.
In summary, supplemental orthodontic insurance provides modest overall cost savings for our example family of four who gets regular checkups and braces for one adult and one child over four years.
The most significant savings come by enrolling in a plan at work to get the first dollar tax savings on premiums available only through payroll deduction in an IRS cafeteria plan. Taking deductions after purchasing in the individual market is less likely to help.
You have to think like an investor, as the cost exceeds benefits in the early years because waiting periods limit the claims payments.
However, the biggest payoff comes when the unexpected occurs. Claims paid for cavities, periodontal care, wisdom tooth extractions, and other services are pure gravy.