Premium Rate Locks Squeeze Dental Plan Profits.
Premium rate locks are an easy and effective strategy for carriers to lure groups into purchasing dental plans. But, anytime you lock rates for multiple years you take on additional risks. In a low inflation environment where the cost of care and plan administration are steady and predictable, rate locks in moderation can be a powerful tool to pump up growth. However, the perfect storm is brewing for dental plans who have offered rate locks in excess over the past year.
The cost of dental care services in July of 2022 rose by 2.3% from .02% a year prior*. As a comparison over the past 10 years, this size of an increase only occurred once in April of 2018 when dental care services rose by 2.5%*. Adding to the problem is the cost of plan administration has heated up. Wages have increased by 5.7% in June of 2022 and the overall CPI for services is up 8.5%*.
The result of rate locks with higher inflation is a squeeze on dental plan profits. Is this a blip or a longer-term trend? Regardless, one thing is true, locking premiums for multiple years while the cost of care and administrative expenses increase, eats into profits. Furthermore, once these groups unlock, they will bear the brunt of a substantial rate increase, and in response likely leave the incumbent carrier.
At Strategic Dental we work with carriers to improve administrative efficiency, lower administration expenses, reset plan pricing strategies, and evaluate any looming rate crises. After all, getting groups on the books is great, but holding them into longer durations and keeping them profitable is even better.
Contact us today for a free consultation at info@strategicdental.com, or learn more at www.strategicdental.com.
* U.S. Bureau of Labor Statistics - Dental Services, Employment Cost Index, and Consumer Price Index.
