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What is Better: Indemnity or HMO Dental Plans?

By Susan Braden

The easy answer is: It depends. First, some definitions.

  • Indemnity A sum paid by A (an insurance carrier for example) to B (you or me) for a loss suffered by B. This describes a traditional dental insurance plan in which the patient chooses the dentist, and the carrier covers all or a portion of the bill.
  • HMO – Health Maintenance Organization – A group which collects a premium from members and provides a defined set of the dental services which are available. Members must use a particular panel of dental providers, and providers are paid based on the number of patients they treat, not based on services rendered.
  • Provider – A dental professional providing services to patients; could be a dentist, or a specialist such as an orthodontist, endodontist, etc.
  • Policyholder – A patient who is a member of the plan.

Indemnity Plans

Indemnity plans, also known as traditional insurance, are dental insurance plans in which the policyholder chooses any dentist he or she wishes. The patient pays the dentist directly for services, and is then reimbursed by the insurance carrier by means of a claims process. (You fill out paperwork and send it in to the carrier for processing, then they send you a check.) Typically these plans cover 50%-80% of the cost of dental work, and the remaining amount is paid by the patient.  

"Cost" can be a tricky term, however. Indemnity plans determine cost in two ways:

  1. Usual, Customary and Reasonable (UCR) – This means the carrier has a formula it uses to calculate the "normal" cost of a procedure.

     Ex: If your carrier determines the average cost of a filling is $100, and 80% of the cost is covered under the plan, but your dentist's fee is $120 for the filling, your carrier will only pay $80.  You will have to pay the remaining $40.

  2. Table of Allowances – This is a list of covered procedures with a set cost the carrier will pay for each. Again, you pay the difference between what is and what is not covered.

Deductibles and Maximums

Dental indemnity plans require a set deductible. The patient pays this amount, usually around $50-$100 per year before the carrier begins paying. Indemnity plans may also limit the amount of services covered in a given year.

Pros:

  • Use the dentist you want to use, no exclusive "network."
  • See a specialist without a referral.
  • Your dentist is paid based on work completed, so no need to fear that he or she will minimize your treatment in order to save time or resources.

Cons:

  • If UCR is used, it is difficult to know if the calculation is accurate or overweighted in your carrier's favor. You can guarantee it’s not weighted in yours.
  • You have to pay out-of-pocket and wait for reimbursement.
  • Claims paperwork takes time and energy.
  • Indenmity plans have more expensive premiums and higher deductibles in most cases than some other forms of dental insurance.

Dental HMO (DHMO) Plans

This type of plan falls under the category of managed care plans: programs which have adopted a slew of tactics intended to lower the cost of healthcare, such as incentives for providers and patients to choose less costly forms of care, cost sharing, controls on admissions and lengths of stay, etc.

Features Include:

  • An exclusive network of providers. The carrier will only pay an in-network dentist. The two have a negotiated contract for services and fees.
  • Providers paid on a per capita (per head) basis, which means that they receive a fixed monthly fee based on the number of patients assigned to the office rather than upon the actual treatment given.
  • A monthly premium paid to the carrier by the patient.
  • Co-payments, in some cases.

Pros:

  • Less expensive than indemnity plans.
  • Basic services such as regular exams, cleaning and dental X-rays often provided without a co-pay.
  • The idea of the plan is that it is in the provider’s best interest to help the patient maintain solid dental health; otherwise he may return time and time again, absorbing the provider’s limited time while the provider is paid no more. Depending on the provider, this could be a pro or con.

Cons:

  • Individual needs vary, and certain treatments are not fully covered, or not at all.
  • It is at least feasible that a provider could be influenced by the per capita compensation to focus more on efficiency than the most appropriate treatment.
  • Dentist selection is limited to the network, and in some cases there may be very few providers to choose from.

Suggestions

If you are an individual, a DHMO might be feasible due to the lower monthly premiums. Be cautious though: Find out who your provider choices are ahead of time and do some reconnaissance. Get references if you can, and check online review sites to see what others have to say about this person before you commit. Remember, it is difficult and in some cases impossible to change providers with a DHMO. Groups or businesses might want to consider an indemnity plan. However, seek out intel on coverage rates or UCR allowances. Are they reasonable? If a carrier uses tables, call your dentist to compare numbers. These plans are costly, however, and typically only cover up to $1500 per year or so in expenses.

Another Option: Discount Dental Plans

Discount dental plans are alternatives to traditional insurance. There are no carriers and there are no claims, reimbursements or annual limits. With a discount plan, patients pay the dental provider directly for the treatment given. That’s it, there is no other payment made. Dental providers have contracted with discount plan companies to provide treatment for a set fee, agreed to in advance. In return, they get access to more potential patients by affiliating with the plan’s large network.

Features Include:

  • Discounts up to 60% on standard preventative work and major dental work such as bridges and root canals.
  • Discounts on specialist work such as orthodontics.
  • A large selection of qualified dentists and specialists to choose from.
  • Can be used with insurance, for example if you are in a long waiting period and need work done, or if you have reached your annual limit.
  • No annual limits.
  • Low monthly or annual rates.
  • No claims paperwork or out-of-pocket funding.
  • Available for immediate use.

Learn about Affordable Dental Plans


For many, discount dental plans make the best financial sense. Rather than paying expensive premiums only to gain partial coverage, it may make sense to pay much lower monthly fees and gain steep discounts on all of your dental work by leveraging this power of collective bargaining.

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