Dental plans are multi-faceted. There are various types of plans such as PPOs, DHMOs, indemnity plans, or point of service plans, to name a few. Plans can be financed in different ways, such as by an insurance company or an employer group.
Another dimension to dental plans is their design — which can be traditional, dollar-based, preventive only/limited benefit, or cafeteria plans/section 125 plans.
Traditional plan designs are commonly used in indemnity and PPO plans. Dollar-based plans are plans in which benefits are stated as a maximum dollar limit per year per eligible individual, or a percentage thereof. Direct Reimbursement is a type of dollar-based dental plan.
A cafeteria plan is an employee benefit program established by an employer for employees that meet the specific requirements of, and regulations of, section 125 of the Internal Revenue Code. A cafeteria plan allows employees to pay for certain qualified expenses (such as health insurance premiums) on a pre-tax basis, thereby reducing the employee’s taxable income and increasing the employee’s take-home pay. The funds that are placed in these accounts are not subject to federal, state or Social Security taxes.
Health savings accounts were created to provide tax-advantaged alternatives to traditional medical plans. In essence, a health savings account is a savings account that permits employees to pay for necessary medical care and expenses with tax-free dollars. Employees must obtain coverage through a high deductible health plan (HDHP) in order to participate in an HSA.
A health reimbursement arrangement is an employer-funded account set up for employees. The money in an HRA can be used to pay for qualified medical expenses not covered by a healthcare plan.
A flexible spending account is one of several tax-advantaged financial accounts that can be established through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as determined by the cafeteria plan, most often for health care expenses, but also for dependent care or other expenses. The money deducted from an employee's pay into an FSA is not subject to payroll taxes, which could also create a huge savings in payroll taxes for the employer.
Learn more about the various dental plan designs by downloading the entire publication, Dental Benefits: An Introduction, which also includes information about the management of dental plans, communicating with third-party payers, handling coordination of benefits and more.