Guardian Life exits Massachusetts’ small-plan dental market after referendum

Guardian Life Insurance, one of the nation’s largest mutual insurance companies, has notified small businesses in Massachusetts that it will no longer provide dental insurance as a result of a statewide ballot question that requires at least 83% of revenue from premiums be spent on patient care.

Insurers had warned consumers during the run-up to the November referendum that companies might flee the state if the provision passed. That didn’t deter voters, however. Backed by the American Dental Association and local dentists, the ballot question won handily bringing dental insurers in line with health care insurers that are required by Obamacare to allocate 83% from premiums to patient care.

Guardian is the first in Massachusetts to announce its withdrawal from the small business market. In a memo to more than 1,500 small businesses in the state, Guardian said it will no longer sell dental insurance to businesses with fewer than 25 employees after Dec. 31.

It said the new voter-backed law, which takes effect in January, would require Guardian to cut back on product innovation and other expenses, to the point that the small group insurance market would no longer be profitable. Guardian said it would continue group dental plans for companies with 25 or more enrolled workers.

Guardian Life just the first?

Healthcare executives think the move by Guardian is a harbinger of other insurance company withdrawals, not just in Massachusetts but in other states where the medical loss ratio initiative is gaining steam.

MLRs have been a part of medical plans for more than a decade with passage of the Affordable Care Act. They require health insurers to spend no more than 10%-15% on administrative costs, with the bulk of revenues explicitly dedicated to medical care. Plan members would receive premium rebates if their plan exceeded the administration expenditure requirements.

Dental plans, which are typically structured more like gift cards than traditional health insurance, were exempt from the ACA provision. But they have since been targeted by advocates and dentist associations for inclusion for MLRs, especially when it was revealed that some plans dedicated very little expenses to actual dental care and spent huge amounts on administrative costs, including high salaries for top executives.

The American Dental Association applauded the ballot victory and said the move to bring dental plans in line with health care plans with MLRs and policyholder rebates would likely sweep the nation. MLR bills for dental plans have been introduced in13 states, three have passed into law. The ADA expects to keep the issue on its front burner and anticipates increasing the number of states with MLR bills next year.

The National Association of Dental Plans, however, is fighting to ward off more MLR incursions, contending dental insurers would be forced to cut administrative costs, close member and provider call centers, and slow claims processing.

“Nobody, not even dentists, benefit from diminished plan services,” the NADP wrote in a position paper on its website. “An 80%+ MLR for dental plans is not pro-consumer. It raises cost sharing and limits provider choice.”

But advocates for MLR adoption say insurers are relying on outdated loss ratio formulas and P&L calculations.

“This is quite simple,” said Chad Olson, director of government affairs for the ADA. “Establishing how much premium collected must be paid out in care is an existential threat to the way traditional dental insurance companies have always done business.”

'Not a threat'

Olson called Guardian and “old guard insurer” (it was founded in 1860) that would like to continue business as usual.

“It is not a threat to the companies willing to innovate, which can thrive in a new environment where updated plan designs, abiding by a medical loss ratio, give more purchasing power to patients,” he said. “Innovative dental insurers willing to step to the plate to make their plans better for the patients they serve…will fill the void in Massachusetts and any other states that take up this timely reform.”

Olson pointed to Philadelphia’s-based Benecare Dental Plans, founded in 1979, which is expanding in the northeast and doesn’t appear fazed by the new MLR regulations.

“Benecare, is willing to step in,” he said. “In a tight labor market, employers of all sizes are going to want to keep offering dental benefits to attract employees.”

BeneCare executives said it submitted an application to the Massachusetts Division of Insurance more than a year ago to enter the state, it’s seventh, anticipating the MLR referendum would succeed.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].