Phil Castell
Castell Insurance
426 E. Washington St., Sequim, WA 98382
Phone: 360-683-9284 • Fax: 360-683-9026
Phil@CastellInsurance.com
www.CastellInsurance.com  

 

I have decided to write this month's column on the relationship between claims and premiums.

It doesn't take a rocket scientist to figure out that if an insurance program has high claims payout,

the premiums likewise will be quite high. This has been brought to my attention with the new health care regulations that will be taking effect in the near future.

One of the new provisions that insurance companies must meet is the 85-percent loss ratio. In very simple terms, that means that the insurance company must pay out 85 percent of every premium collected in claims and direct patient benefits.

This allows the company 15 percent to cover all other costs. These costs include home office administrative and marketing staff, building expenses, utilities and even agent compensation.

Oh, and let's not forget that all important element of business called profit. Even not-for-profit companies still need to make a net operating profit to put funds into reserves for a rainy day. Without those reserves a company could not sustain itself during a financial crisis.

One area of much discussion at the corporate level is what constitutes claims or direct patient benefits. Things like a 24-hour nurse hotline or a smoking cessation program are not claims but do have a direct benefit to patients and also have a chance of reducing claims either through unnecessary emergency room visits or smoking-related health issues.

I am glad I do not have to make determinations about such heady issues. I am sure that the final list of what constitutes claims and direct patient benefits will be negotiated between the health insurance industry and the government.

But that train of thought led me down two other avenues with totally different outcomes. I started thinking about the relationship between premiums and benefits of term life insurance and dental insurance.

Most people know that term life insurance is low cost at younger ages and provides pure insurance for a fixed period of years. After that initial term, people either have to reapply for a new term or if their health has deteriorated, they generally can keep the original policy, albeit at far higher premiums that will increase every year.

For example, I personally have a plan where the premiums remain level for 15 years. After that the premiums increase fivefold if I chose to keep that plan. Obviously if I still need the insurance, I will shop around to try to find other lower-cost coverage. But if my health had changed for the worse, that could be the only option available to me.

The reason the premiums are so low currently is that statistically the chances of a person between the ages of 40-55 dying are relatively low. So the chance of paying a claim is also low, hence the low premiums.

However the same can't be said for dental insurance.

Individual dental insurance is the most requested type of policy that we now offer. In the past I thought the premiums were far too high in relation to the potential benefits. The reason for the high premiums when compared to benefit maximums is that the plans get used. If a person has a dental insurance plan he is far, far, more likely to see a dentist than if 100 percent of the charges had to be paid by the person himself. This leads to a very high percentage of people filing claims each and every year.

Most plans had very low maximum benefits, for example Delta Dental from Washington Dental Service has a monthly premium of $50 ($600 year) and an annual maximum benefit of $1,000. So, the premium equaled 60 percent of the maximum benefit you would be eligible for if you jumped through all the hoops.

Regence BlueShield offers two individual dental plans and both start off in year one with a $750 maximum that increases until a maximum of $1,500 is reached in year four providing subscribers utilize the benefits with annual exams and cleanings.

I think it is highly commendable for Regence to offer increased benefits to those who use the plan, as they recognize the value of preventive care as well as good oral health preventing other serious conditions.

Isn't that a little different from your auto insurance? Generally speaking, if you have a fender bender and file a claim, your premiums will increase.

I have searched high and low to find a program that I think is worthy of consideration for individual dental insurance.

We have found only one program, that has a $2,000 annual maximum, which is available from Day 1 and not graduated over a number of years.

You can use any dentist, so traveling to Silverdale or Seattle is not necessary.

In addition, another nice option is that you either can purchase from a local agent or directly online 24/7 from the comfort and privacy of your own home.



Phil Castell is an independent insurance agent in Sequim. He can be reached at 683-9284 or PhilCastell@msn.com.