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Prepaid Dental Annuity for Retirement

	Abstract

Top Abstract

 
A number of different groups exist within those ages sixty-five and up. They have varying dental needs and resources with which to treat those needs. This program is targeted at those individuals who are moving toward age sixty-five, currently have dental insurance through their employer, and desire to prepay their dental insurance premiums for the remainder of their lives while preserving any unused portion of their prepaid amount for their heirs. It does so by creating a "dental annuity" instrument with minimal administrative burden.

One way of meeting those needs is to prepay their dental insurance premiums for the remainder of their lives. Several mechanisms can be crafted to meet that need. The solution presented here is a group-sponsored plan receiving discounted group rates. It is a voluntary product wherein a person electively prepays his or her dental premiums during the working years. Participants then incur no premium costs during the remainder of their lives for a standard dental benefits program.

This plan is configured as a true annuity program with a death benefit for any unspent accumulation. As such, there is no risk sharing. An alternative model, an insured product using standard mortality tables, allows risk sharing and, consequently, a lower premium rate or a shorter pay-in period, but would likely lack the annuity feature.

Some market research about this kind of product has been conducted. We have found that a price of $50 per month for ten years is acceptable in Washington State for an annuity product. For those in different markets with different projected price points, the variables used to calculate the acceptable price point include:

• contribution per month,
  
• assumed average interest rate during the input period,
  
• annual dental inflation rate,
  
• number of months paying in,
  
• administrative charges per year,
  
• anticipated premium rate per month for either the 100/100/50 or 100/80/50 program,
  
• assumed average interest rate during the payout period, and
  
• annual dental inflation rate during the payout period.
  

These variables can be set up in a spreadsheet to run projections on the number of months of coverage obtained for all variables.

In principle, there must be either a minimum time for payment into the annuity (e.g., ten years) or a prorated payment schedule that anticipates a percentage growth of funds over the pay-in period. That is, the schedules are calculated based on the input average interest rates. If a shorter time period for pay-in is selected, then additional fees are required to offset the lost interest income that would be achieved in the annuity.

There are other considerations that this model should address. It does accommodate increased dental fees based on increased needs for the annuitants. There is a clear potential for increased needs in this future population based on both their life expectancy and the retention of their natural and prosthetic teeth. This may cause increased costs in all areas of dental care. To date, and based on a statistically significant N, there is no demonstrated increase in utilization or mix of services for those greater than age sixty-five when compared to those forty to sixty-four years of age in any service category.

Market research has shown that approximately 18 percent of employers rate themselves "very likely" to consider group voluntary plans for retirees. The key in current populations is that the employee has existing dental benefits. It is interesting that the likelihood of adopting this type of plan in Washington State markets increases as group size decreases. Other facts are:

• 5 percent of seniors (>sixty-five years old) rate themselves "very likely" to sign up for group voluntary plans if offered.
  
• Likelihood to sign up decreases with age.
  
• Those most likely to sign up have had dental coverage in the past.
  
• Education is a barrier. Consumers do not know what their dental needs will be after age sixty-five. Many still believe they will be edentulous.
  
• Consumers do not have a clear understanding of dental treatment costs.
  
• Access to one’s own dentist is critical.
  

An insurer or other entity crafting this kind of annuity program would provide the following services:

• Invest the funds in secure instruments consistent with state and federal regulations for annuity instruments.
  
• Manage those funds.
  
• Provide quarterly and annual statements to annuity holders showing the accrued annuity value and the projected number of months (or years) of coverage achieved when rated against the current dental care costs.
  
• Purchase group voluntary dental insurance for the annuity holders at competitive rates.
  
• Keep the annuity holders beneficiary(ies) listing current during both the pay-in and pay-out periods and disburse remaining funds on notification of the death of the annuity holder.
  

In conclusion, this simple concept can address the needs of a specific segment of our society as it ages. It preserves wealth and potentially wellness for those who participate. It does not address numerous issues, like the issue of access to dental care as the annuity holder loses mobility. It does assume that markets will develop for these services and be available to the annuity holder on a basis equal to paying out-of-pocket for these services.

	Footnotes

 
At the time of the Elders’ Oral Health Summit, Dr. Anderson was the Vice President and Dental Director of Washington Dental Service, a Delta Dental Plan in Washington State, and a member of the DeltaUSA Dental Policy Committee, which recommends coverage policies and practices to the Delta Dental Plans Association Board of Directors. Direct correspondence and requests for reprints to him at 872 Three Crabs Road, Sequim, WA 98382; 206-499-7616 phone; maxscruiser{at}gmail.com.

This article has been cited by other articles:

				J. A. Jones and C. J. Wehler The Elders' Oral Health Summit: Introduction and Recommendations J Dent Educ., September 1, 2005; 69(9): 957 - 960. [Full Text] [PDF]

				J. A. Jones Financing and Reimbursement of Elders' Oral Health Care: Lessons from the Present, Opportunities for the Future J Dent Educ., September 1, 2005; 69(9): 1022 - 1031. [Abstract] [Full Text] [PDF]

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