A discussion on fee for service usual customary and reasonable and tax deductions

     There are many types of medical and dental health plans someone might seek.  This information is presented for general patient information.  Please note that The Center For Special Dentistry is NOT a member of any medical or dental health insurance plan network.  If you are seeking a New York dentist who participates and accepts some dental insurance plans then please call us for a local referral.  We are unable to refer you to an insurance dentist outside of the NYC area.

FEE FOR SERVICE – Medical or Dental Health Insurance Plans

     This is the upper end of medical or dental health insurance plans that may offer coverage to patients who choose their own out of network doctors or dentists.  In this type of coverage doctors or dentists are allowed to charge their prevailing fee but the insurer will only pay up to a fixed amount.  The difference between what the insurer pays and the doctors or dentist’s fee is usually paid out of pocket by the patient.

     Most doctors and dentists will either accept payment directly from a medical insurance company or will at least fill out the paperwork for patient reimbursement.  This type of plan will allow patients the freedom to see the greatest number of dentists and with the highest amount of dental benefits but this coverage comes at a much higher cost in premiums to the patient and/or employer.  Some patients may not be willing or able to pay the higher premium and the same is true for employers.

     Even with this type of premium medical or dental health insurance plan patients may find that their covered benefits and annual maximum still keep their overall reimbursement lower than hoped.  This is because the benefits patients receive, including the nonsensical UCR (usual, customary & reasonable) rate, annual lifetime maximum and covered/excluded procedures is again directly related to the premium paid.  These other terms are discussed elsewhere in this series.

Flexible Spending Accounts (FSAs) – Medical Dental Health Savings Accounts (DSAs)

     These accounts allow patients to allocate future medical and dental expenses from their pre-tax income in the calendar year – usually December – before it is needed.  In other words, the employee will allocate $2,500 in FSAs in December 2007 knowing that they will need to use it in 2008.  Patients cannot allocate and use the money in the same calendar year.  In addition, whatever money is not spent during the calendar year remains with the employer plan and is lost by the patient.

     A significant benefit of flexible spending accounts and dental savings accounts is that they give patients complete control over their dentistry and it can be used for most costs that are not covered by a dental insurance plan.  There is typically an annual maximum for these kinds of accounts of around $5,000.  When added to a high end Fee For Service dental insurance plan of $2,500 per year, a patient can get a significant total of $7,500 per year in benefits.

Tax Deductions For Medical and Dental Health Expenses – this section by Jay D. Edelman, CPA

     An individual is entitled to an itemized deduction for medical and dental health expenses paid during the tax year, to the extent the expenses exceed 7.5% of adjusted gross income.  If your medical and dental health expenses do exceed 7.5% of adjusted gross income, only the portion of the expenses that exceed the threshold will be deductible.

     Proper planning and timing can help to increase your potential deduction: For example, if you know you must undergo a series of medical and/or dental procedures, by planning them, and paying for them, in a single tax year, you may incur enough expenses in that tax year to generate a tax deduction. On the other hand, by splitting the procedures between two years, you may be under the 7.5% threshold in both years, thereby forsaking valuable deductions.

      Other planning opportunities may exist if your income fluctuates from year to year, or if you have some control your income. For example, can you delay a bonus from December 31 to January 1, keeping income lower in a year when you might have greater medical and dental expenses?  The combination of lower income and higher medical expenses in a given year maximizes the tax deductibility of the expenses, saving you the greater amount of taxes.

      Medical and dental health expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease. Other allowable expenses include such items as transportation to and from medical/dental appointments and the cost of eyeglasses. Medical and dental expenses paid on behalf of a spouse or dependent may also be included. Insurance premiums may also be included.

UCR – Usual, Reasonable & Customary Fees with a Medical or Dental Health Insurance Plans.

     This term is intentionally misleading by the insurance industry.  It is common to see on a patient’s dental insurance plan Explanation of Benefits (EOB) that accompanies the dental reimbursement check a statement saying, “The fee charged exceeds the Usual, Reasonable & Customary Fee.”    This is misleading because there is no such thing as a UCR fee!  The UCR varies, within the same insurance company, proportionally to the amount of insurance premium paid. 

     For example, Aetna may pay $200 for one patient’s dental cleaning but $150 for another patient’s dental cleaning at the same office if they have a different dental insurance plan from different employers.  The “UCR” rate is determined by the amount of premium paid.

     The amount of reimbursement an insurance company will pay for any dental procedure is determined by the premiums paid by the patient and/or employer. 

     But insurance companies don’t want to say that since they get their business from employers who buy their insurance.  It is this gracious deference to employers that makes insurance companies want to avoid the suggestion that a reimbursement is low because the employer has cheap coverage.  Instead they give the appearance that the coverage is low because the dentist is too expensive.  It should be illegal.

Gift Giving And Your Medical Dental Health Expenses – this section by Jay D. Edelman, CPA

     If your parents directly pay your medical or dental health expenses, any potential tax deduction may be lost: You cannot take the deduction if you do not actually pay the bills; your parents cannot take the deduction if you are not their dependent.

      A solution to this problem is for your parents to give you a monetary gift, and then you can pay the expenses yourself. Then, since your income level is lower than your parents are, and thus the deduction threshold is lower, you may be able to deduct a portion of the medical/dental expenses. The gift itself would not be taxed as long as you have not received total gifts in a single year from the donor in excess of $10,000.

     Gift giving along with proper planning can help convert your medical and dental expenses into tax savings.

PPO – Preferred Provider Organization – Medical or Dental Health Insurance Plans

     This is an intermediate medical or dental health insurance plan, which offers mid-level medical or dental health care through a panel (or network) of doctors or dentists.  These doctors or dentists agree to charge PPO patients a discounted rate in exchange for the hope of receiving a high volume of referrals from the insurance company.  The difference between the doctor or dentist’s usual fee and the PPO fee is given up by the doctor or dentist.

     Does the dentist usually get enough referrals from a dental insurance plan to compensate him/her for the loss from discounted fees?  Sometimes.  If not, an intelligent dentist will recognize the need to cut costs somewhere to make up for the loss.  Patients may feel they have less time to learn about their diagnosis and/or discuss multiple treatment options. 

     Frequently, the seemingly smallest details can be more expensive to provide than the dental insurance plan will reimburse.  Patients may find that a general dentist, not a specialist, performs their root canal therapy and it hurts afterwards.  Or the color of a front tooth crown (cap) may not match the surrounding teeth as much as they had hoped.  PPOs can be a reasonable compromise for many patients who need to carefully balance dental cost and care.

DMO – HMO – Medical Dental Health Maintenance Organization – Medical Dental Insurance Plans

     This is the lowest type of medical dental health insurance plan because it usually is a capitation plan.  This type of plan is commonly found with union dental plans.  After a patient picks a dentist on the DMO plan the insurance company then pays the dentist a pre-arranged monthly rate regardless of the amount of work performed on the patient.  This is called capitation.  This pre-arranged rate can be as low as $10 per month.  This is usually found in high volume practices where the focus is on providing minimal diagnosis and treatment.

      How much dentistry can a dental office really provide if they are only receiving $10 per month or $120 per year per patient from the dental insurance plan?  Very little.  I have read that it costs $15 just to cover the cost of disinfection and sterilization of a treatment room between patients.

      Patients will also find that they will have very limited treatment time with the dentist and perhaps little or no time for discussion.  This can increase fears in phobic patients.  Dental cleaning visits will typically be for twenty minutes instead of one hour in our office.  A visit with an orthodontist will typically be for 5-10 minutes instead of one hour in our office.

      Ironically, I suggest that these practices that charge the lowest fees are in fact most concerned with money and not dentistry.  It is not an unreasonable assumption that those dentists who take the most pride in their work will not belong to DMOs or HMOs.  I think they should be avoided.

ANNUAL MAXIMUM – LIFETIME MAXIMUM with a Dental Health Insurance Plan

     Nearly all dental health insurance plans have an annual maximum benefit in contrast to medical insurance plans that do not.  In addition some dental insurance plans may have a separate lifetime maximum specifically for orthodontics (braces).  When an insured procedure is covered under a lifetime maximum it is not counted towards an annual maximum.

     Dental health insurance plans have a low annual maximum (proportional to the potential cost of dentistry) that really haven’t increased in the nearly 25 years I have practiced dentistry.  Regardless, a higher premium dental insurance policy will provide a higher annual maximum. 

DENTAL “INSURANCE” IS REALLY DENTAL “FINANCIAL ASSISTANCE”

     The concept of insurance is to provide the insured against catastrophic loss.  Fire insurance or medical insurance will ideally pay for the complete loss of your home or quadruple heart bypass surgery.  Dental insurance is not like that because it does not pay for a catastrophic loss.  Instead, dental insurance plans have a very low annual maximum that really haven’t increased in the nearly 25 years I have practiced dentistry.  Dental insurance will not even cover close to the cost of even one tooth needing root canal therapy and a crown in my office.  So what is it?  It is really financial assistance not
insurance.

     Dental insurance plans, and particularly usage of dental benefits by employees, is very statistically predictable.  Insurance companies can profit on the difference between premium dollars paid in and “dental loss”, dental claims paid out.  It is a relatively inexpensive perk that can be offered to employees — if the coverage is limited.  That is why it is limited.  The only situation where coverage may not have a maximum is within a DMO (dental maintenance organization) discussed elsewhere, because in this special case it is the dentist, not the insurance company, that has an interest in limiting the benefits provided.    

–Dr. Jeffrey Dorfman, Director
The Center for Special Dentistry

The Center For Special Dentistry is NOT a member of any dental insurance plan network.   If you are seeking a New York dentist who participates and accepts some dental insurance plans then please visit Artista Dental Studio. We are unable to refer you to an insurance dentist outside of the NYC area.