Pearls and Irritations

Rather, it is the underfunded and overworked public dental services that have expertise in delivering services to vulnerable people, says health policy analyst Charles Maskell-Knight.

“If the Government is serious about improving access to dental services for this group, it should work with the states and territories to develop a robust mechanism that links funding levels to service volumes, and allows public dental services to expand to meet demand,” he writes.

Charles Maskell-Knight writes:

Last week the Senate committee inquiring into dental services released another tranche of submissions to the inquiry, including one from Private Healthcare Australia (PHA). PHA is actually the lobby group representing about two-thirds of private health insurers, not care providers as its name might imply.

In a media release accompanying its submission, PHA suggests that:

“Australian health funds are ideally placed to deliver a future government scheme to increase access to dental services for the most vulnerable in the community, given health funds are the major funding source for dental care and have an unequalled track record keeping out of pockets costs under control.”

There are several issues with this proposition.

Firstly, according to the Australian Institute of Health and Welfare’s latest health expenditure publication, health insurers in 2020-21 spent $2,242 million on dental services. This is less than governments ($2,293 million), and only a third of what individuals spent from their own pockets ($6,489 million).

These figures are net of the private health insurance premium rebate of $775 million paid by the Commonwealth government. However, even after adding that to the insurers’ spending, their total dental expenditure of $3,017 million is still less than half of the amount contributed by individuals.

It is simply not true to say that insurers are “the major funding source for dental care”.

Secondly, insurers may have stopped out-of-pockets from increasing over time – but the dental benefit paid by insurers for an average dental service is only about half the cost of the service, as numerous graphs in the PHA submission to the Senate demonstrate.

The $3 billion paid by insurers for dental services is matched by $3 billion in out-of-pocket costs paid by insured people for those services.

A police force that claimed credit for limiting average road speeds to twice the speed limit would rightly be derided – yet that is what insurers are doing.

How do insurers control their exposure to dental costs?

Insurers use a number of mechanisms to constrain their expenditure on dental services.

Some insurers have chosen to operate in-house dental clinics, and others have entered into some sort of preferred provider arrangement with participating dentists under which higher benefits are paid in return for some limitation on out-of-pocket costs.

Many insurers pay higher proportionate benefits for preventative treatment, in the hope that this will reduce the need for subsequent, more expensive, restorative treatment. All these initiatives are to be commended.

However, outside these measures, insurers control their dental spending by simply imposing limits on the benefits they will pay. As noted above, their benefit schedules cover on average half of the fees charged by dentists.

On top of that, policies usually have a limit on total dental benefits payable. The most expensive singles extras cover currently on the market in NSW has an annual premium of $2,400, and annual benefit limits of $1,500 on general dental treatment and $1,500 on major dental and endodontic treatment (with a waiting period of 12 months). While $1,500 may cover a single crown, it certainly won’t cover two.

Cheaper policies have lower benefit limits, or simply exclude all major dental treatment or all endodontic services.

(Insurers apply similar mechanisms to other services covered under “general treatment” policies such as physiotherapy, psychology and optometry. As a result, only 75 percent of premium revenue for general treatment policies is returned to policy holders as benefits.)

According to the PHA media release, “Commonwealth-funded dental schemes have been plagued with criticisms including that services are restricted.”

Yet that is exactly the effect of insurers’ limits on total benefits payable, and exclusions of major dental treatment or endodontics.

Could these mechanisms apply to a dental scheme for vulnerable groups?

Any scheme to improve dental access for vulnerable groups needs to ensure that costs are not a barrier.

This means that arrangements resulting in gaps equal to benefits, or limits on annual spending would not be acceptable. This is not to say that there should be universal cover for every dental service – limits on what is covered, such as some prosthodontic services, might be appropriate. But arbitrary limits on the total cost of services that are within scope are not appropriate.

Preferred provider arrangements may well play a useful role in a dental scheme for vulnerable groups.

However, it is not clear why health insurers negotiating separately with dentists would achieve better outcomes than the Commonwealth, with its superior purchasing power.

Insurer-by-insurer negotiations would also create a confusing range of different conditions, adding complexity as a further potential barrier to access.

Administration costs

Another important consideration is the issue of administration costs. Private health insurers are grossly inefficient, and their performance is declining.

While the sector funds (on a gross basis) just under 12 percent of total health recurrent expenditure, insurers’ administration costs make up almost half of total expenditure on health administration.

Insurers’ administration costs are about 10.5 percent of their total spending, compared with under two percent for government. Between 2014-15 and 2021-22 their administration costs increased by an average 4.9 percent per year, compared with CPI growth of 1.9 percent, and growth of only 1.1 percent in insurance benefits.

Why would the Government consider engaging such an inefficient sector to deliver a program on its behalf?

Dental access for the vulnerable

The PHA media release concludes by asserting that:

Health funds support a more targeted approach to assist the vulnerable and have the expertise to deliver a future Commonwealth-funded scheme that avoids the challenges faced by previous government dental programs.”

Under current arrangements it is the underfunded and overworked public dental services that have expertise in delivering services to vulnerable people.

If the Government is serious about improving access to dental services for this group, it should work with the states and territories to develop a robust mechanism that links funding levels to service volumes, and allows public dental services to expand to meet demand.

There is no rational basis for assisting the vulnerable by delivering programs through an inefficient insurance sector whose expertise is expenditure management achieved by inadequate fee schedules and arbitrary benefit limits.