How are dental insurance benefits calculated?

What is a dental procedure UCR fee?

While reading through the explanatory booklet that has come with your dental insurance plan, you may run across the term “UCR” fee. These letters stand for the words “Usual, Customary, and Reasonable.”

Insurance companies implement “UCR fee” schedules/tables as a way of helping to control their expenses. These lists of dental procedures (frequently organized by industry-standard dental insurance codes) state how much the insurance company has determined each one should cost. In turn, the amount of benefits paid on your dental claim is determined with the involved procedures’ UCR fee in mind.

When do UCR fees come into play?

If stipulated by the policy, a company’s “Usual, Customary, and Reasonable” fee schedule is referenced every time a dental claim is submitted.

How it works.

The wording found in most policies is one where …

• The insurer will pay a set percentage of the cost of a procedure (such as 80% of the cost of a filling) …
• … based on the dentist’s actual charges or the insurance company’s UCR fee for that procedure …
• … whichever is less.

How are dental procedure UCR fees calculated?

They’re based on a tabulated percentile ranking of fees.

Insurance companies create a UCR fee for each individual type of dental procedure they cover by tallying up all of the claims that have been submitted to them for each specific dental service by dental offices that lie within a particular geographic area (like a city, zip code, or even a grouping of codes).

After aggregating the selected area’s data, a UCR value is set for each procedure at a certain percentile level (often 80% or 90%). For example, if the UCR level is set to 90%, the corresponding UCR fee encompasses 90% of all of the fees charged by dentists in that area (90% of all charged fees for the procedure lie at or below this level).

Criticisms.

There is nothing transparent about the way insurance company UCR tables (a listing of UCR fees for all covered dental procedures, typically organized by dental procedure code) are calculated. The methodology is both proprietary and arbitrary. And as discussed below, it has the potential to be implemented in a manner that places the dentist and patient at a distinct disadvantage.

How are patient benefits calculated when UCR fees are involved?

As an example of how all of this works, take the situation where you have a tooth that needs a dental crown and your plan states that it will pay 50% of its UCR fee.

The insurance company’s UCR fee.

Your insurance company will have on record information from dentists in your geographic area who have placed dental crowns for other plan members. And when analyzing this historical data, they’ll organize it into a percentile ranking of fees.

The company will then arbitrarily choose a percentile level within this range of fees. For example, they may choose to set their UCR fee at the 90th percentile, meaning that their allowed fee for crowns encompasses 90% of all of the fees charged by dentists for this procedure in the past.

They’ll then refer back to their tabulated percentile ranking of fees for dental crowns and see what price level corresponds to the 90th percentile. For our example, we’ll say that the corresponding fee is $1000 (90% of prior claims for crowns lay at $1000 or less). The company’s UCR fee for crowns is then set at $1000.

Example #1: Your dentist charges less than the UCR fee.

Now, take the example where the amount that your dentist charges for crowns is less than the UCR fee. Let’s say that they charge $800.

If so, when the insurance company determines your benefits for the placement of your crown, they will pay 50% of $800, which is $400. You would then pay your dentist the outstanding $400 out of your own pocket to pay off your bill.

Example #2: Your dentist charges more than the UCR fee.

But what if the fee that your dentist charges is higher than the UCR fee, say $1200? In this case, the dental insurance company will only pay 50% of their $1000 UCR fee, which is $500.

That means that your coverage will only pay $500 of your dentist’s bill and you will be responsible for the remaining $700. That’s a pretty big difference when compared to the first situation.

If your dentist charges more than your policy’s UCR fee, it doesn’t necessarily mean that they’re overcharging.

It’s important to understand that if your dentist’s fees are more than your insurance company’s UCR tables allow, it doesn’t necessarily mean that they’re charging too much. That’s because you don’t know how the insurance company’s UCR fees are calculated.

For example:

• What percentile level was chosen for the UCR fee (90%, 80%, or even lower)?

  Obviously, when the UCR percentile is set to a lower number, a larger number of dentists in your area will have fees that are above it. But that doesn’t necessarily mean that they aren’t charging a fair price.

• What geographic area was included in the UCR calculation and was this choice realistic?
• How up-to-date were the fees that were evaluated?

These are just a few of the factors that could create a bias and, in reality, there is wide fluctuation and no regulation in how a company calculates its numbers.

Since an insurance company doesn’t share its methodology, it would be impossible to know if its calculations did or did not accurately reflect those fees charged by dentists in a specific area.

It seems like a win-win for the insurance companies.

The use of a UCR table seems like a rigged advantage for insurance companies and maybe it is, maybe it isn’t.

It’s easy to see how imposing a low UCR fee schedule would create a financial advantage for them. But at the same time, it’s obvious why a company would need to utilize some type of mechanism that can help to control/regulate their expenses.

Effects on dental fees.

Especially in the case where a single insurance company tends to be the predominant coverage provider in an area, their use of a UCR fee schedule could affect area prices for dental services:

• In the sense that a dentist probably wouldn’t want to be known for charging far more than anyone else in their immediate area (a factor that would be revealed as their patients file for benefits), the use of UCR fees likely has the effect of helping to keep the prices charged by all dentists somewhat grouped.
• At the same time, any dentist who discovers that their fees fall well short of the UCR fee set for their area may decide to raise them. (Discovery could come via a dentist mentioning to a neighboring colleague that their comparatively higher fees are never limited by the insurer’s UCR restriction when dental claims are filed.)

Minimizing your out-of-pocket costs.

As explained in the examples above, if there’s a big mismatch between your dentist’s charges and your policy’s UCR fees, it can end up costing you a fair amount of money.

Evaluating your dentist’s fees.

It’s easy enough to find out how your dentist’s fees compare. For example:

• You might ask other plan members who go to your dentist what they’ve experienced. Did they end up paying more than expected?
• Or ask your dentist’s front-desk staff. They’ll know from filing claims exactly how their patients end up faring.

Evaluating your plan’s UCR fees.

If you do find there is a considerable discrepancy between what your dentist charges and what your policy’s UCR fees allow, you might ask other plan members who go to different dentists what their experiences have been. You may find that having an unrealistically low fee schedule is a problem with your policy in general.

If your dentist charges more, they may be worth it.

If it seems that it’s your dentist’s fees that are out of line, then you might ask yourself what’s unique or special about them that they should charge a higher amount.

Does their training, chairside manner, experience, or their expenses associated with providing their services justify their higher fees? If so, then the cost is well worth it. If not, then possibly it’s time to shop around for another dentist.

How to avoid unexpected out-of-pocket costs.

Especially when a costly treatment plan is involved, you can ask your dentist’s front office staff for help in determining what your actual out-of-pocket expenses should be.

Pre-certification.

They will start with pre-certification, which is simply confirmation from the insurer that you are a covered member of the plan.

Pre-authorization.

This is a process where your proposed treatment plan is submitted to the insurance company so they can confirm that the procedures it contains are covered under the terms of your policy. (Some companies mandate pre-authorization before treatment is begun.)

Pre-determination (benefits verification).

This process is used to determine the level of benefits that can be expected to be paid for the dental services planned. It’s not unlike filing a claim before your dental work has been performed.

It’s important to state that a pre-determination of benefits is not a guarantee. Insurance companies leave themselves various “fine print” outs that may affect the actual amount paid. However, this is the most definitive type of pre-treatment estimate available to plan members and is typically an accurate representation of what you can expect.

Additional factors that will affect your dental costs.

a) Policy deductibles.

Beyond determining your treatment plan’s expense as related to UCR fees, don’t overlook the fact that your policy may also have a deductible. This is the dollar amount that you will have to pay out-of-pocket before your insurance company will provide any benefits for any dental services.

You’ll need to understand how it’s calculated.

If a deductible is involved, there are a few questions you should investigate.

• Is it calculated just on a per-member basis or is there some type of cumulative per-family deductible?
• Will any portion of a deductible paid late in one policy year apply to the next year’s?
• Does the deductible apply to all types of dental treatments or are some services (such as Preventive ones) exempt?

b) Maximum annual benefits.

You will also need to evaluate your insurance plan’s maximum benefit. This is typically stated in terms of a yearly maximum. For some dental procedures (frequently orthodontic treatment), there may be a lifetime dollar limitation also.

(Note: You’ll need to determine what kind of “year” is used. Is it a calendar year, or else a year’s time frame that starts on the day your participation in the plan becomes effective?)

You’ll need to understand how this limit is calculated.

Remember, this number represents the maximum number of dollars that the insurance company will pay, not the total cost of the dental work received.

Benefits for some procedures, like Basic and Major services, may only be covered at 80 to 50%. And then, of course, calculating the amount actually paid by the insurance company will also be affected by their UCR fee calculations (explained above).

So when these limitations apply, only a portion of each procedure’s cost (the part the insurance company actually pays) will be applied to the calculation of the patient’s maximum benefit limitation.

c) Creative treatment planning.

You may find that the maximum benefits limitation of the policy you have is relatively small compared to your dental needs. If so, here are some possible solutions:

• Check to see if your policy allows that (some or all) of your previous year’s unused annual maximum can be rolled over into your next year’s. If this option is available, it alone may solve your dilemma.
• As another alternative, ask your dentist if your treatment plan can be broken up into two parts, one of which is initiated at the end of one benefits year and the other a few days later in the next.

  Doing so can help to keep your total costs low, while your dental work is still started and completed within a relatively normal and convenient time frame. (Your dentist will need to check to see what’s allowed but claims paid are typically based on the date on which the procedure was initiated, not completed.)

What kind of dental plans usually make use of UCR fees?

There are two types of policies where you’re most likely to encounter the use of “Usual, Customary, and Reasonable” fees in calculating your benefits. They are:

1. Traditional dental insurance plans (Indemnity policies).
2. Preferred-Provider Organizations (PPO) (A type of managed-care plan).

1) Traditional dental plans (Indemnity policies).

With this kind of coverage, benefits are provided on a fee-for-service basis for dental treatment you receive from your own dentist.

This is referred to as an “open panel” of providers. (You can go to any dentist you want, including your current one. There are no issues associated with in-network or out-of-network providers.) The “fee for service” term means expenses are incurred each time you have a dental procedure performed.

Why using a UCR table with an open panel plan makes sense.

With Preferred Provider plans (PPOs, see below), the insurance company negotiates with a group of dentists (a “closed panel” or “in-network” group of providers) who agree to charge a specific amount for covered dental procedures.

And since plan members can only go to in-network dentists for their dental work, the insurance company never gets any surprises about how much was charged when a claim is filed.

With an “open panel” plan …

You can go to any dentist you want. And they will bill out their services at their regular fee, which may be more than the insurance company might consider fair (meaning “usual, customary, and reasonable” in the sense that it is similar to what most dentists in your area charge).

So, by imposing UCR restrictions, the insurance company can protect itself from having to pay benefits based on a dental claim that involves an extraordinarily high (at least in its mind) procedure fee.

Additional ways an insurance company will protect itself.

Beyond the use of UCR tables, companies also limit their financial exposure by grouping procedures into categories (Major, Basic, and Preventive dental services) and limiting the level of coverage associated with each.

• For some categories, such as Preventive dental care, the level of coverage might be 100% (of the UCR fee).
• For other types of services (Basic and Major dental services), coverage might only run on the order of 50 to 80% (of the UCR fee).
• In those situations where the cost of the patient’s treatment is not fully covered by the plan, the patient pays the difference to their dentist out of pocket.

Additionally, the total amount of benefits (dollars) provided by a policy is typically limited by both a deductible and a yearly maximum.

2) Managed Care dental insurance plans.

Managed-care policies take the following forms.

• Capitation Dental Plans (Dental Health Maintenance Organizations, “HMO”).
• Preferred Provider Organization (“PPO”) programs.
• Exclusive Provider Organization (“EPO”) programs.

How they differ.

HMO and EPO plans are “closed panel” programs. The “in-network” dentists who provide the patients’ treatment have a negotiated agreement with the insurance company stating how much will be charged for the dental care of the plan’s members.

PPOs.

In comparison, Preferred Provider Organization insurance plans (PPOs) are technically a “closed panel” type of arrangement (has associated “in-network” dentists). But as a variant, some PPO plans do allow members to receive fee-for-service dental work from dentists who are not a member of their network (termed “non-participating” or “out-of-network” dentists). This is often the member’s current dentist.

How UCR fees protect a PPO when an out-of-network (non-participating) dentist is the provider.

Just like explained above, a dentist who has no negotiated contract with an insurance company (is “out-of-network”) will simply charge their usual fee when providing a member’s dental work. And this leaves the insurance company at risk of experiencing unexpected, high-dollar claims.

Implementing a UCR fee restriction in this situation helps to protect the insurance company from financial surprises. It’s also common that the member is penalized with higher deductibles and lower Preventive, Basic, and Major dental services coverage rates (discussed above) when they receive treatment from an “out-of-network” dentist.