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Dental Savings Plan vs. Insurance: Pros and Cons – SmartAsset

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Health insurance doesn’t cover your teeth. Your teeth can cause pain, get infected and need treatment, just like any other part of the body. But when it comes to actually getting treatment the standard health insurance doesn’t cover it. Instead, you need specialized coverage to pay for a trip to the dentist’s office.

The specialized coverage comes in two main forms. The first is dental insurance. This is standard insurance that covers most of the cost of treatment in exchange for a monthly premium and co-payments. The second is a dental savings plan. This is a discount program that gives you a percent off your bill in exchange for an annual membership fee. We’ll discuss how it works.

A financial advisor can help you plan for future healthcare expenses. 

What Is Dental Insurance?

Dental insurance works like standard health insurance. It is accepted at dentists’ offices, including specialists like orthodontists and endodontists, although depending on their range of services, some medical practices might accept it as well if they have dentists on staff. It pays for care that involves your teeth and gums.

With dental insurance, the insurance provider pays for a portion of each treatment. The exact amounts range based on the nature of the treatment and the nature of your insurance plan. For example, many if not most plans will pay for 100% of preventative treatment like routine cleanings and checkups, while the same plans might not pay for any part of a cosmetic procedure like teeth whitening.

What Do You Have to Pay?

You have to pay any amount that your insurance doesn’t cover, which are out-of-pocket expenses. For example, if your insurance covers 50% of a $700 treatment, that means the plan would pay $350 and you would pay the remaining $350.

Like other forms of health insurance, dental insurance is structured around three main forms of payment from the customer:

  • Premiums – Monthly payments that you make for the plan
  • Co-payments – Payments that you make when receiving any given service
  • Deductibles – The amount you pay before your insurance covers costs

Premiums are fixed. You pay the same amount each month for a given plan. Co-payments and deductibles will change based on the nature of the treatment that you get. Your insurance plan will have different co-payments for any given treatment and will apply different rules about deductibles.

Types of Dental Insurance 

Like with other forms of medical insurance, there are different major categories of dental insurance. The three main types of dental insurance are:

  • Dental Health Maintenance Organizations – this offers lower premiums. But it has more restricted coverage options.
  • Dental Preferred Provider Organizations – Midrange premiums and more treatment options, but fewer providers.
  • Dental Indemnity Insurance – Higher premiums, but more options and coverage.

Pros and Cons of Dental Insurance

Pros

The main advantage to dental insurance is coverage. This works the same way as all other forms of medical insurance, in that your insurance company pays for a portion of your treatments. They will pay for dental services in whole or part, and your spending for covered services is capped each year.

That doesn’t mean your out of pocket expenses wont’ be high. Dental insurance isn’t subject to many of the same rules as health insurance, so if you need specialty services like braces, a retainer or a root canal you can still expect to spend thousands of dollars out of pocket. That’s still far less than you would spend without insurance or with a dental savings plan though. It’s also far more likely that any given dentist will accept your insurance, as fewer providers accept dental savings plans compared with insurance.

Cons

The main disadvantage to dental insurance is the costs involved when you don’t need treatment. Dental insurance isn’t nearly as expensive as health insurance, but this will still cost a lot more than something like a dental savings plan. Depending on how much coverage you need and how many people are in your household, you can expect to spend anywhere from $20 to $200 per month on dental insurance.

An individual looking for decent, but not comprehensive, coverage should expect to spend at least $50 per month.

Another way of looking at it is this: Dental insurance is better if and when you need treatment. You will spend less money and find care more easily. A dental savings plan is better when you don’t need treatment because it will cost you less.

What Are Dental Savings Plans?

A dental savings plan, otherwise known as a “dental discount plan” is different than health insurance. Instead, it could be thought of as a membership. With a dental savings plan, you pay an annual fee, typically $150 or less for a family, to enroll. In exchange, you receive a discount on services at participating dental providers.

For example, you might receive 40% off a routine cleaning or 25% off the cost of filling a cavity. Unlike insurance, the savings plan doesn’t pay for these costs. Instead, they are negotiated discounts for plan members.

You are responsible for paying for the rest of the costs of any given service. For example, if you have a $1,000 procedure and your dental savings plan gives you a 20% discount, you will pay the remaining $800.

The details of a dental savings plan can vary widely. Every program will have different dentists who participate, different costs for membership and will offer different discounts for services. Generally, fewer dentists accept a savings plan membership than insurance, so you will usually have a smaller provider network to choose from.

Who Should Consider a Dental Savings Plan

There are several situations in which it makes sense to consider a dental savings plan.

If you’re on Medicare. Such plans don’t cover most dental care (including procedures and supplies like cleanings, fillings, tooth extractions, dentures, dental plates or other dental devices). Original Medicare may pay for some dental services that are closely related to other covered medical services. Medicare Part A will also pay for certain dental services that you get when you’re in a hospital.

If you’re unemployed. These plans are relatively inexpensive and, unlike many dental insurance plans, you can access the benefits in two or three days.

If your teeth are in great shape. People who consistently floss, brush and gargle several times a day and have a history of zero cavities, may not need coverage.

Pros and Cons of a Dental Savings Plan

Pros

The main advantage of a dental savings plan is the up-front cost. Typically one of these programs will cost several hundred dollars per year in membership fees. By contrast, dental insurance can cost several hundred dollars per month (if not more) in premiums.

You also have no coverage caps with a standard dental savings plan, meaning you don’t have maximums or deductibles. And you simply receive the set discounts for any given service.

Cons

However, the downside here is that you will almost always pay more for the actual services. Despite co-pays and deductibles, insurance will typically cover more costs when it comes to receiving treatment, so you can expect a savings plan to cost more out of pocket.

The result is that a dental savings plan can often fill a role similar to catastrophic insurance. If you are healthy enough that you only need the occasional cleaning and checkup, this might be a good option. If you will need real treatment, this may end up costing you more in the long run.

Bottom Line

Dental insurance is health insurance that applies to your teeth. In exchange for premiums and a co-pay, the insurance plan pays for the rest of your treatment. A dental savings plan is a discount program, in exchange for an annual payment, that gets you a negotiated percentage off your treatment at the dentist’s office.

Tips for Managing Your Healthcare Costs

  • Just as you would consult a healthcare professional to assess your well-being, be sure to consult a financial professional to assess your fiscal well-being. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with three vetted financial advisors who serve your area. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Considering alternatives to health insurance is important for maintaining a healthy budget. A comprehensive budget calculator can help you understand which option is the best for you.

Photo credit: ©iStock.com/mihailomilovanovic, ©iStock.com/bymuratdeniz, ©iStock.com/LightFieldStudios

Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.

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Health Care Cost Basics: What They Are and Ways to Save

Putting aside money for emergencies, like replacing a roof or a major car repair, is one of the age-old mantras of personal finance.

But today there’s one major potential expense that, until relatively recently, few working people rarely thought about: Paying for out-of-pocket medical costs.

Why? Because until the past decade or so, most employer health care plans covered the majority of employees’ medical costs.

Not anymore.

The spiraling cost of health care has resulted in many employers shifting more of these expenses to employees. Monthly premiums for traditional health care plans that used to be fairly reasonable now may cost $600 per month or more. And most of these plans have annual deductibles — money you must pay out of pocket for medical expenses before the plan takes over most of the costs.

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Since most employees can’t afford these plans, many companies now also offer high-deductible health plans (HDHPs). How pervasive are these plans? In 2019 51% of all U.S. employees were enrolled in HDHPs.

And for those who aren’t covered at work and have to purchase their own health insurance, HDHPs generally offer the lowest premiums of plans available in state and Affordable Care Act insurance marketplaces.

However, someday — maybe a few years from now, maybe next week — you will need medical treatment for an injury or a major illness. If you’re not financially prepared, you may discover the hard way what “high-deductible” really means.

Three kinds of expenses

Deductibles

Your HDHP may state that it has a $4,000 annual deductible. That means you’ll have to use $4,000 of your own money to pay for medical treatments before the plan starts covering some of the costs. If you don’t believe you’ll have to pay that much, think again. In 2018, the average cost for a knee replacement was $35,000. For spinal fusion, $110,000. Thinking of having a child? It could cost you $4,500 or more once all pre-natal care, delivery and post-partum expenses are tabulated.

As a participant in an HDHP, I’ve personally experienced the painful price of health care. Last year I was healthy for most of the year, but the costs for one visit to an out-of-state emergency room and follow-up appointments ate up my entire $2,800 deductible.

Thankfully, my deductible was relatively reasonable, considering that in 2020 the average deductible for individual subscribers was $4,364 and $8,439 for those with family coverage, according to research conducted by eHealth.

But your expenses may not end when you hit your deductible limit. Many HDHPs require to you to continue to pay partial costs through co-payments and co-insurance.

Co-payments

Co-payments are fixed amounts you pay out of pocket for health care expenses. How much you pay depends on whether you’ve hit the deductible or not. For example, if a procedure costs $500 and your co-payment for such a procedure is $20, you’ll pay $20 only if you’ve paid the maximum deductible. Otherwise, you’ll pay the full $500 out of pocket.

Co-insurance

If deductibles and co-pays weren’t enough, co-insurance can add even more to your medical tab. It’s a percentage of covered health care services you may still have to pay on your own even when you’ve maxed out your deductible.

Let’s say your plan has a 25% co-insurance requirement. If you’ve already hit your deductible and then have another procedure that costs $1,000, you’ll still have to pay $250 out of pocket.

When does it end?

Fortunately, the IRS sets maximum annual limits for total out-of-pocket medical expenses for HDHPs. In 2022, this limit is $7,050 for individuals and $14,100 for families. Any expenses above that level will be fully covered by your HDHP.

But remember — these limits reset every plan year.

Health Savings Accounts to the rescue

If there’s one silver lining in this scenario, it’s that many employers that offer HDHPs also offer Health Savings Accounts (HSAs).

With an HSA, you make pre-tax contributions from your paycheck to an investment account that allows you to withdraw contributions and earnings tax-free to pay for qualified health care expenses.

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In addition to medical treatments, you can use your HSA to pay for prescription and over-the-counter drugs, medical equipment, dental expenses, physical therapy and even acupuncture and aromatherapy. You can also use your HSA to help pay for long-term-care insurance premiums.

For 2022, the maximum amount you can contribute is $3,650 per individual ($7,300 per family) with an additional $1,000 in “catch-up” contributions per person for those 55 and older. Some employers also make periodic contributions to their employees’ HSAs to help offset some of these out-of-pocket expenses.

Completely portable

The great thing about HSAs is that you never have to make withdrawals. For example, you may choose to pay your current medical bills from your savings and reserve your HSA money for health care costs during retirement. (Note that once you enroll in Medicare you can no longer contribute to an HSA.)

If you start a new job with an employer that has an HDHP and HSA, you can transfer the assets from your old HSA into the new HSA. If they don’t offer an HSA, you can move assets from your old HSA into one offered by a financial services company. Keep in mind that if you don’t enroll in your new employer’s HDHP (or they don’t have one) you can’t make additional contributions to your HSA.

Having an HSA can help take the sting out of out-of-pocket medical expenses when they occur — but only if you contribute to it.

This may be challenging if you’re also trying to save for retirement, your children’s higher education or a new home. But considering that the pre-tax contributions you make to your HSA have the same taxable-income-lowering benefits as contributing on a 401(k) account, there are advantages to contributing as much as you can to both accounts.

If you’re fortunate enough to receive a tax refund, consider contributing some of it to your HSA. Even though these contributions are after-tax, they may be deductible. If you’re planning on doing this, make sure that your combined pre-tax and after-tax contributions don’t exceed the annual limit.

Other ways to lower health care expenses

This may sound like a tough-love situation, but the fewer family members covered by your plan the lower your premiums and out-of-pocket expenses may be. If your adult children are covered by your HDHP but work for a company that offers its own health care plan, it might be time to encourage them to experience the “joys” of managing their own health care expenses. They’ll have to do it anyway, since at some point they’ll be too old to be covered by your plan (generally age 26, but higher in a few states).

If you and your spouse both have HDHPs at work, compare the monthly premiums, deductibles, co-pays, co-insurance and maximum out-of-pocket expenses for each option. If both options let your use your current primary care physicians and specialists, you may both want to switch to the more potentially affordable option.

And if you’re thinking of having a procedure done, you may also want to estimate total costs in your area. 

It’s unfortunate that people may need to add “future health care costs” to their list of savings goals, but this is a reality that many will have to plan for. If you need help figuring out how to balance these competing priorities, a qualified financial planner can provide guidance to help you make sure that staying healthy doesn’t significantly harm your financial well-being.

  • SEE MORE 3 Ways Early Retirees Can Minimize Their Health Insurance Costs

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Several types of special income trusts and other strategies can be helpful when trying to protect your family’s assets from the devastating costs of long-term care.

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Losing your job is stressful. Losing your health insurance on top of that is even worse. And whether you have health concerns now or want to safeguard yourself and family for the future, you might be worried about how to cover medical expenses if you’re out of work. Find out what to do when you… Read More

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Many health insurance shoppers will consider premium costs when purchasing health insurance. The full cost of a health planalso includes your out-of-pocket expenses, like the deductible, copays, and coinsurance. As important as it is that your health plan is affordableand that the monthly premiums fit into your budget, it’s also important to consider the value health insurance offers…. Read More

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