A New Factor to Likely Drive Dental Benefits Inflation and What Plan Sponsors Can Do

Since the beginning of the pandemic, we have seen dental benefits inflation at levels we had never seen before. Prior to the pandemic, dental inflation ran around 6% to 7% per year, driven by a combination of annual fee guide increases of 2.5% to 4%, plus higher utilization as dentists continued to promote services. Justifiably, dental fee guides likely needed to increase during the pandemic as running a dental practice became more expensive. We believe they should have now returned to historical levels. 

Rising dental benefits costs pose a significant challenge for employers striving to manage their overall benefits plan costs. Dental benefits typically comprise about 25% of total plan costs and annual dental inflation ranks amongst the highest of all components in a benefits plan. Simultaneously, dental benefits are also highly valued by employees, so cutting dental benefits to manage costs can adversely impact the ability to attract and retain key talent to run the business.   

Now we have another factor that is likely going to impact dental benefits inflation. Consolidation in the dental industry can directly lead to increased costs, which in turn translates into higher plan costs.  Like in so many other industries, the dental industry is ripe for buy-outs by industry consolidators, private equity firms and publicly traded companies. Sometimes referred to as “corporate dentistry”, these consolidators are attracted by reliable recurring revenue streams, steady demand for dental services, and growth prospects.  As well, the dental industry is widely regarded as being recession-proof, as routine and emergency dental care are necessary regardless of income or employment status.  Lastly, the new National Dental Care plan, launched in May 2024, aims to provide affordable dental care to millions that might not have historically visited a dentist on a regular basis. 

There does not appear to be any solid data on consolidation trends in the dental industry, but the industry appears to be highly fragmented at present. Some estimates show approximately $20 billion in annual revenues split amongst at least 15,000 dental practitioners. However, based on some simple research online, here are examples of some of the dental industry consolidators already operating in Canada: 

• Dentalcorp owns 550 dental practices with over 4,400 dental health professionals and over 5.4 million annual patient visits 
• 123Dentist indicates that it is Canada’s oldest and second largest network of dental practices with more than 425 locations nationwide and over 5,000 team members serving over 2 million patient visits annually 
• Newlook Capital Dental Fund currently consists of 33 clinics across Canada with over 75 dentists and 80,000 patients served 
• Dentalook comprises over 30 dental practices and over 500 dental practitioners nationwide, serving 100,000 patients 

This consolidation in the Canadian dental industry will likely come at a cost for all of us, based on what we have seen in other industries that have gone through consolidation. Naturally, these dental corporations have a fiduciary responsibility to maximize profits and/or dividends for investors.  As well, when buying-out dental practices, these consolidators often have to pay high prices, based on “multiples of earnings”, and these multiples go up when the competition intensifies. At some point, these high acquisition costs need to be repaid, typically by way of higher growth and profits or operating cost reductions.  Any efficiencies gained will almost always accrue to the investors of these consolidators and not to the employee benefits plan sponsors or their members. 

Pressure for higher revenue targets will mean pressure on dental fee guides and a push to sell more dental services, resulting in higher dental plan utilization. Benefits plan members will ultimately be caught in the middle, not realistically being able to know when to push back. Here is an example: fillings, if done correctly, should last a long time, or at least longer than the 5-year time period when dentists can generally be reimbursed for replacing them.   

We have been facing run-away fee guides, dental industry consolidation, heavier marketing of dental services, and often the provision of unnecessary procedures. All of these will adversely impact dental plan costs and annual inflation rates for the foreseeable future. What are employee benefits plan sponsors to do? Here are some examples  of plan design changes you may want to consider: 

• Decrease basic dental coverage to 80% to create employee interest and consumerism 
• Consider tiered coinsurance with 100% coverage for basic preventative dental but provide only 80% or 70% coverage for basic restorative dental 
• Amend dental recall exams (the regular check up and cleaning) to 9 months versus the more typical 6 months or 5 months 

We would be pleased to discuss your specific situation with you to identify the best strategy for your employee benefits plans. Should you have any questions on the above, please do not hesitate to contact any member of our team.    

ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value by leveraging one of the most skilled benefits teams – collectively over 450 years of experience within our team of 21 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for the past 40 years.