How Direct Reimbursement Works
Direct Reimbursement (DR®) is an innovative approach to self-funding employee dental benefits. It is strongly supported by the American Dental Association as a cost-effective way to provide a dental plan for employees that gives them the freedom to choose their dentists.
How it Works
One of the most attractive features of Direct Reimbursement dental plan is its simplicity. Under a DR plan, an individual simply visits the dentist of their choice, pays the bill, turns in proof of payment, and gets paid, or benefits’ payment may be directly assigned to the dental office.
Benefits are stated as a maximum dollar limit per year per eligible individual, or a percentage thereof. Reimbursement is based on dollar expenditures rather than on the type of treatment received. Unlike conventional plans, there are typically few exclusions or limitations on specific treatments.
Direct Reimbursement allows employees to be responsible for the best use of the benefit dollars available. Additionally, employees are involved in the cost containment process through cost-sharing provisions such as annual maximums and co-payments.
The details of a Direct Reimbursement dental plan may vary widely depending on the level of benefits the employer wishes to provide. Some of the options to be considered in designing the plan include:
- Employees only or employees and dependents
- Co-payment provisions
- Annual benefit maximums (individual or family)
Several examples of possible Direct Reimbursement dental plan designs illustrate this flexibility:
- 100% of the first $100 of dental expenses
- 80% of next $1,750
- 100% of the first $100 of dental expenses
- 80% of the next $250
- 50% of the next $2,400
- 80% of $1,875 of dental expenses
Total annual maximum benefit of $1,500 per individual*
The variations on the concept are limited only by the degree of financial commitment the employer is prepared to make. An employer may begin its plan by offering a conservative annual maximum. After analyz¬ing a few years’ experience with the plan, the employer may revise the benefit levels.
A Direct Reimbursement dental plan gives the employer immediate control of the maximum level of benefits offered. By including cost-sharing measures in the plan design, the employer is protected against wide fluctuations in benefit costs.
Unlike conventional insurance programs where the employer’s premium rate frequently is determined by the pooled experience of many groups, the employer’s expense for a Direct Reimbursement program is based only on its own employees’ experience. In addition, em¬ployer funds that would typically be held in reserve by the third-party payer can be invested by the employer or its agent to generate additional income which can be applied against the cost of the program.
Perhaps the most clearly discernible savings to the employer are in the administrative costs of a Direct Reimbursement dental plan. The simplification of claim forms and other extraneous paperwork reduces much of the transactional cost of administration.
Available to Groups of All Sizes
Both large and small employers have instituted Direct Reimbursement programs to assist the employees in meeting the costs of their dental care. Companies of all sizes have enjoyed cost savings with a DR plan. Even a small employer can design a DR plan to meet the needs of its employees while, at the same time, satisfying the company’s financial and administrative concerns.
By removing the unnecessary administrative features associated with most dental plans such as detailed claim forms, treatment limits and exclusions, a Direct Reimbursement dental plan allows for simple administration by the employer or by its designated third-party administrator (TPA).
The only routine administrative actions are:
1) verifying patient eligibility; 2) calculating the benefit payment; 3) issuing the benefit check; 4) maintaining records of amounts paid to each employee; and 5) educating employees.
As with all forms of benefit plans, it is recommended that an employer retain the services of an experienced attorney, accountant and/or benefits consultant in order to establish an appropriate plan design, effective administrative procedures, and compliance with applicable laws. The employer may elect to have a TPA manage the Direct Reimbursement dental plan.
For More Information
One of the most important features of a Direct Reimbursement dental plan is the employees’ freedom to choose their own dentists without restrictions.
This information was prepared to provide an overview of the Direct Reimbursement approach to providing dental care benefits. Many state and local dental societies, as well as a number of benefits consultants across the country, are knowledgeable in this area and may be of specific assistance to you.
Choose one of these easy ways to find out how to set up a self-funded Direct Reimbursement dental plan for your own company or for your client:
Call 800.621.8099 or;
The information given is not intended to provide either legal or professional advice. Dentists and others should consult directly with a qualified attorney or professional for appropriate legal or professional advice. To the extent that this presentation includes links to any non-ADA Web sites, the ADA intends no endorsement of their content and implies no affiliation with the organizations that provide their content. Nor does the ADA make any representations or warranties about the information provided on those sites, which ADA does not control in any way.
Any tax information or written tax advice contained herein is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.