Self-insurance: The secret to better dental benefits

Sam Rockwood, Actuary, Level

The products we’re building at Level are based on the idea that self-funding insurance can unlock better outcomes for employers and employees. If you’re not familiar with self-insurance, this post explains what it is, and why, when it comes to dental, it can be a superpower for businesses.

What’s self-insurance?

First, let’s tackle the basics of self-insurance, also known as self-funding. Simply put, it’s a benefits plan where you pay for employees’ incurred claims from your own funds instead of purchasing a policy from an insurance company that assumes full financial responsibility for all claims.

Over 90% of people working at large companies are on self-funded plans. Big businesses favor this model because they get to keep any unused benefits, which means cost savings.

When a business has a large workforce, they’re able to self-fund medical plans because healthy employees can offset the cost of the few that may require care. Meaning, the Law of Large Numbers works in their favor. For companies that don’t have thousands of employees, one catastrophic incident could mean millions of dollars of medical costs. As we know, people get sick all the time. This is also why even large employers add a reinsurance to their self-funded plan to put a cap on spending.

Sound complicated? It is. Large companies also have dozens of employees and consultants working behind the scenes: benefits leaders, lawyers, finance analysts, and even actuaries. A cross-functional team spends their days managing the self-funded medical plan.

Dental is a different ballgame

Dental costs are much more predictable. Services are covered up to a certain point (the annual max), which is usually a couple thousand dollars. So even if an employee needs lots of work done, costs remain consistent for the employer. To put this into perspective, a business with 300 employees and a plan with a $2,000 benefits max would typically not see claims spend fluctuate more than 5% year over year. That is, annual costs can be estimated within $10-20K.

When an insurance company underwrites a fully-insured dental plan, they estimate what the claims costs will be for a given population. Then they charge a little extra for administrative costs and taxes. On top of that, they add a risk fee to fund reserves and increase profits. At the end of the plan year, the insurer pockets all unused benefits dollars.

Cost allocation comparison between fully insured and self insured plans.

Companies have different needs when it comes to benefits, and dental is no exception. Some companies want dental plans that help them compete for talent, including add-ons like adult orthodontia, and perks like teeth whitening. Other companies aim to cover the basics and control costs.

With self-insurance, you get the chance to build the exact plan you want from the ground up. And perhaps most importantly, you can access data on how your workforce is using benefits.

How to take advantage of self-insuring dental

Despite the upsides, many businesses don’t take advantage of self-funded dental insurance. This is one of the reasons why we started Level.

We help companies maximize the benefits of self-insurance with an end-to-end platform. We design and underwrite plans, process claims and payments, operate a network of dentists, and even draft benefit documents. We also offer a modern, easy-to-use dashboard for employers and brokers to analyze data so they can optimize their plan for both the business and employees.

Even after taking into account the small administrative fee we charge for the work we do to help you self-insure, companies save an average of 20% switching to a self-insured plan with Level.

If you’d like to learn more about how Level can work for your business, contact us. And if you’re a broker that wants to help clients find new value through self-insuring their dental, get in touch.