June 2020 | Signature Research

Convergence of Dental and Health Insurance Accelerates

As competition from health insurers heats up, standalone dental payers must improve efficiency and find their unique value proposition

The shift away from standalone is inevitable. Although dental payers feel less threatened by health plans than they did in 2018, health insurers are far more interested in offering dental benefits than they were two years ago. 

What’s next for dental plans? Positioning themselves strategically by optimizing internal processes and identifying a unique value proposition—such as reimbursement speed or portal quality—that will contribute to success under convergence. 

There’s a new urgency to act, and we believe that the trend toward convergence has enough momentum to continue and should remain a strategic priority as the nation and world begin to recover. 

Introduction 

Our 2018 survey served as a wake-up call for dental insurers, showing that health insurance executives were moving aggressively onto the profitable turf that dental payers had all to themselves for decades. 

Now we’ve updated the research, and it’s clear that health insurers’ incursion into dental is accelerating—and competition is getting more intense. With health plans aggressively moving to bundle dental coverage in their plans, it’s becoming apparent that the two industries are on the verge of convergence, threatening to upend the standalone-dental business model . 
 
The portion of health plans offering adult dental benefits has more than doubled since 2018. And dental insurers are acknowledging and preparing for the coming change. Many more see convergence as an opportunity to partner with new entrants, “embedding” their benefits in health plans. In two short years, even the business model for convergence has shifted to one that is more viable in the near term. 

But even for dental insurers taking the change seriously, the survey depicts a call to action. Those that seize the moment will prosper, while the rest will be left to fight for eroding market share as new competition moves in and more business goes out to bid.

Chapter 1: Convergence is coming, putting standalone dental market share in jeopardy

Insurers are conservative by nature—and for good reason given the complex web of risks, regulatory constraints, government contracts, antiquated systems, and competitive pressures they face. It stands to reason, then, that the dental and health insurance industries will not merge overnight. Yet the survey found evidence that convergence is picking up real momentum. 

Of executives who believe convergence is already happening, 89% say it is accelerating, compared to 21% in 2018.  

A consensus of insurance executives considers convergence a durable trend. Nearly 9 in 10 respondents say that it is either already happening (43%) or that it will happen eventually (44%). Of executives who believe convergence is already happening, 89% say it is accelerating, compared to 21% in 2018. In 2020, 71% call the increase in momentum “slight,” while 18% say it is significant. 

Perhaps surprisingly, dental insurers are more convinced than health insurers that they are losing ground in the contest for market share. Only 31% of dental insurers see the market for standalone dental remaining stable or growing, compared to 56% of health insurers.

And while dental insurance is purchased almost exclusively on a standalone basis today, most respondents expect its market share to slip. By 2025, about one-third predict that standalone dental’s share will fall to 90%, from around 97% today, and one in five believe it will fall below 85%. The predicted pace of change may seem modest, but no industry prospers when newcomers steal its customers. Standalone dental won’t be an exception.

Health plans are bringing more competitive heat—and they’re not the only ones

For dental insurers who continue operating under the status quo, the shift in purchasing behavior poses a real threat. The vast majority of respondents (73%) believe that health plans hold a slight (39%) or significant (34%) advantage over dental carriers in competing for oral care business. In verbatim responses, executives note that health insurers wield “deeper pockets” and have “more premium to play with,” and that they can “offer a one-stop shop” convenience for their customers. Only 18% of dental insurers believe they enjoy a competitive advantage in the market they currently dominate.

 

Executives note that health insurers wield deeper pockets and have “more premium to play with,” and that they can offer a one-stop shop convenience for their customers.   

Moreover, health plans are not the only ones interested in competing in a market dominated by traditional standalone plans. Half of the executives surveyed believe that non-medical, ancillary insurers are also exerting significant pressure on oral benefits. 

We also found a disconnect between dental and health insurers over the value that oral care brings to market. Over three-quarters of dental insurers (82% ) believe consumers value dental benefits at least as much as they did 15 years ago, while 38% of health plan respondents feel otherwise. These numbers may point to a growing belief that millennials devalue dental insurance based on a lower susceptibility to dental disease (as a result of better oral health products, fluoridation, and other factors impacting oral health)—or they could suggest a blind spot in the dental community regarding their ability to deliver value.

By offering a single decision and buying experience, could insurers help get individuals to the dentist?  

While scientific evidence suggests a strong link between oral and overall health, the frequency of dental office visits by young people has been declining. Only 37% of adults visited the dentist last year. The fact that nearly four in five dental insurers believe consumers still value their product raises a question: Would including dental in a healthcare plan drive an increase in dentist visits? By offering a single decision and buying experience, could insurers help get individuals to the dentist? In the view of Kristin Irving, a senior director in West Monroe’s Healthcare & Life Sciences practice: “As evidence increases that overall health and oral health are interconnected and the shift toward value-based dentistry continues, we believe consumers will find increasing value in visiting the dentist, leading to greater volumes of visits.” 

These findings and trends, along with the mounting threat from ancillary and healthcare insurers, point to intensifying pressure on standalone dental. To thrive, dental plans will need to be proactive and strategic. They will need to look for effective partnerships, offer the right product and premium structures, and find ways to operationalize plan administration.

Plans for bundling accelerate, setting the stage for change 

This year’s survey found clear evidence that “bundling”—when a distinct, separate dental insurance policy is sold in a package with a health plan—is already accelerating. The portion of health insurers offering dental insurance products has risen substantially, from 68% in 2018 to 80% today.

 

Health plans are determined to compete in the dental marketplace, and they are developing the capacity to do so.  

Among the 20% of health insurers who do not offer dental benefits, 58 % are either likely to offer them in the future (25%) or undecided (33%). This contrasts sharply with 2018, when health insurers that didn’t offer dental essentially had no plans to add it. The type of coverage bundled with health plans has also evolved. Most significantly, the portion offering embedded adult benefits has more than doubled since 2018, from 22% to 48%.

Clearly, convergence is accelerating. Health plans are determined to compete in the dental marketplace, and they are developing the capacity to do so. While more than 95% of consumers may still rely on standalone dental, health plans in many states now offer real alternatives, heating up competition and setting the stage for change. 

A threat to a thriving business model—like the one standalone dental has profited from for decades—will inevitably feel like a crisis. But in crisis lies opportunity for those who are strategic and prepared. As disruptive as the changes may be, dental insurers who embrace the trend and get in front of it aggressively will be the winners. 


Most dental insurers embrace convergence, but holdouts remain 

A visionary insurer leveraging health and dental data can offer a more holistic patient view and deliver better health outcomes.  

We have long believed that dental payers can benefit by looking outside the traditional product suite. On the clinical side, dental-health plan partnerships can offer meaningful insights into patients. A visionary insurer leveraging health and dental data can offer a more holistic patient view and deliver better health outcomes. Such arrangements can work well for both payers. They can also inoculate dental firms from the threat that health payers could capture their revenues by developing competitive dental benefits of their own.

The survey found that dental insurers are increasingly recognizing these competitive realities. Over the past two years, there has been a dramatic shift in the portion of executives who embrace the bundling of dental benefits in health plans. More than three-quarters (77%) of dental respondents now see it either as an opportunity (28%) or both an opportunity and a threat (49%). In 2018, this cohort represented only 6 in 10 respondents (61%). The portion of dental executives who view bundling purely as an opportunity has fallen from 48% in 2018 to 28% today. Those who see bundling as an outright threat has risen from 2% in 2018 to 23% today.

Many dental insurers are now busy laying the operational and strategic groundwork to seize this opportunity. By 2025, most foresee partnering with (54%) or bundling benefits with (46%) a health insurer. Currently, only one-third offer bundled products. Many dental insurers are also looking to ancillary products to shore up their future. Forty-four percent say they will add ancillary multiline products, and 36% foresee bundling their benefits with multiline insurers’ vision, hearing, life, or other products.

Chapter 2: Executives expect strong consumer demand

Dental plans can expect competitive pressures to rise as convergence accelerates. But if executives are correct, stability or even modest growth in the dental insurance marketplace may offset other competitive pressures and even buffer some lost revenues. Nearly half of survey respondents (48%) say they expect the market for employer-sponsored dental plan membership will grow slightly (40%) or significantly (8%) in the next five years. Only 14% believe it will shrink. (The survey was conducted before COVID-19; in the near term, high unemployment is likely to drive a market contraction as well as a shift from employer-sponsored to individual membership). 

In the near term, demand for new individual products is poised to expand as COVID-19 triggers job losses and individuals seek options beyond their COBRA plans.  

Executives are even more bullish about the individual dental plan market; 63% foresee it growing either significantly (15%) or slightly (48%), while 12% see it shrinking. Dental respondents were more optimistic on the individual market, with 92% expecting growth, compared to 44% of health respondents. If the survey had been conducted after the wave of job losses triggered by the pandemic, we expect that respondents may have been even more bullish about the individual market. In the near term, demand for new individual products is poised to expand as COVID-19 triggers job losses and individuals seek options beyond their COBRA plans.

The bottom line: There’s a widespread perception that dental insurance is a growing market with modest competition, and that outsiders (notably health insurers) enjoy advantages over standalone dental carriers. The outlook amounts to a green light for new entrants in the dental market.

 

Marketing-bundled dental: A strategic shift

Looking ahead, a key strategic question is how insurers will sell and administer bundled health and dental benefits. The administration of the two plans will be critical to convergence, as executives grapple with how to operationalize the two. Respondents in 2018 envisioned that health and dental insurers would enter partnerships aligning their benefits from a consumer perspective but continue to operate separately in a two-product, two-premium model. This year, that scenario is seen as the least likely to be pursued, suggesting that bundling will require more than just marketing the partnership, but truly pursing a bundled model.

It’s clear that the trend is moving towards a single purchase incented by discounting for purchasing more than one product from a single insurer.

Instead, respondents say health insurers will bundle dental benefits with health insurance but administer dental separately, similar to the standalone model, in a one-product, two-premium model. In our 2020 research, it’s clear that the trend is moving toward a single purchase incented by discounting for purchasing more than one product from a single insurer. Even if the administration takes place separately behind the scenes, the bundled plan looks singular in nature to the consumer.

Based on the complexity of underwriting a single product that includes health and dental coverage, our view is that a two-premium model is the most likely to come to market. In this scenario, the consumer would make a single buying decision (whether via a portal or their employer-based plan), and the insurer would independently administer these products.

This single-product model carries three key advantages: it appears bundled and cheaper (as a discount is offered when combining products) to the consumer, while the underlying operations require limited administrative changes. “Insurers are not waiting for a single admin system,” says West Monroe director Ben Baenen. “While a single system that ties products and procedure codes together will significantly improve outcomes, we haven’t seen a platform handle that gracefully. The two-premium model is far easier, administratively, and we see this as the quickest way to market —and the time to act is now."

Chapter 3: Drivers and impediments to convergence

Respondents say the biggest factor driving the shift away from standalone dental is the integration of overall health and oral health. This integration is a win-win. It facilitates significant gains on the medical side by properly managing oral health. As one respondent said in 2018: “It’s not like the mouth isn’t connected to the body.” 

Moreover, new technology enables insurers to analyze claims data for both medical and dental conditions. This 360-degree member view can significantly improve outcomes and care coordination, offering considerable consumer benefits. At the same time, it delivers greater simplicity for the consumer—a powerful selling point for individuals navigating a complex health system. 

Interestingly, executives see profitability as a far greater motivator than they did in 2018. Half (50%) believe that bending the cost curve is a key driver, compared to only 23% two years ago. 

Barriers to convergence

As for what stands in the way of convergence, executives’ most common answer is that employers prefer a best-of-breed approach to health and dental insurance, in which consumers can select the best plans for themselves and their families, rather than having benefits bundled. The portion choosing this response (42%) has changed little since 2018 (39%).

We believe that the focus on convenience provides opportunities for those offering a single purchasing decision.

Traditionally, consumers have gravitated toward best-of-breed because they want more product options. But millennials have another motivation: convenience. “We believe that the focus on convenience provides opportunities for those offering a single purchasing decision,” Baenen says. As other insurance markets converge, there may even be opportunities for enabling a consumer to bundle medical, dental, vision, and pet insurance into a single purchasing decision.

Respondents say the second most common barrier is a lack of appropriate technology, although the portion citing this response dropped by 10% since 2018 (46% to 36%). “Without a doubt,” says Will Hinde, managing director of West Monroe’s Healthcare and Life Sciences practice, “traditional claims systems are antiquated, so introducing new product lines takes time. The drive toward convergence would greatly benefit from technology facilitating a holistic view of covered lives and enabling payers to easily integrate dental and medical claims.” 

We believe the fact that so many fewer respondents cited technology as a barrier reflects a mindset shift: Insurers are increasingly implementing a multiline experience without a seamless technology solution. More insurers accept that a single benefit administration system for medical and dental (and other multiline offerings) may not be available soon, due to the complexity of auto-adjudication. Instead, the two-product, one-premium model suffices until technology companies solve the single-product model. 

Dental respondents in particular are seeking to improve their technology. Two-thirds (67%) identified technology debt as their biggest area of investment (from either a budget or time perspective). Investment in technology dominates investment in product diversification (18%) and strategic partnerships (15%).

Regarding barriers to convergence, the most dramatic change since 2018 concerns the interest of health insurers. In 2018 “a lack of interest from health insurers” was the top barrier, cited by more than half of respondents (54%), including two-thirds (68%) of health insurers. This year, only about one-quarter (28%) said health insurers remained uninterested; health payers were marginally less likely to say this than their dental counterparts. “We believe this reflects a rapidly expanding recognition of the opportunities presented by convergence,” says Irving. 

We believe this reflects a rapidly expanding recognition of the opportunities presented by convergence.

Multiline insurance: A threat or opportunity for standalone dental?   

Multiline insurance is poised to play an important role for dental insurers. On the one hand, it poses a threat as multiline firms eye dental plans’ healthy margins. Half of the executives surveyed believe that non-medical, ancillary insurers are exerting significant pressure on dental benefits.

On the other hand, many dental insurers are looking to expand into new lines of insurance. Forty-four percent say they will add ancillary products by 2025, and 36% foresee bundling their benefits with multiline insurers’ vision, hearing, life, or other products. The types of ancillary insurance attracting the most attention include Medicare supplements (18%), hearing (16%), and short-term disability (16%). In addition to the options shown in the chart, respondents told us they are also considering expanding into pet insurance.

Conclusion: The next steps for dental plans: Embracing convergence

While insurers aren’t typically built for rapid change, the shifts in the dental market over the last two years prove they should be thinking—and acting—faster. The momentum for bundling with health plans is growing, and competition from health and ancillary insurers is intensifying. The dental plans that hold their own in this competitive landscape must ensure that they have strong foundations and capitalize on their strategic opportunities.

Specifically, plans must:  

Fine-tune operations

Start by optimizing processes, eliminating long-ignored administrative inefficiencies, and getting more insight into operations with new data management strategies.

Harness operating metrics

Start with claims systems. After spending a lot of time with these old legacy systems, we believe that there are tactical ways of looking at operating metrics and systems to determine where efficiencies can be gained.

Tackle technology debt

As we learned from this survey, most dental plans are at least beginning to tackle the deep technology debt that affects their performance and competitiveness. Those that aren’t, or that aren’t addressing it quickly enough, need to do it before they fall hopelessly behind.

Innovate aggressively

”Now is the time to ‘fail fast,’” according to Hinde, with alternate payment models, exploring mergers and acquisitions (both within payer and clinical models), sharing data with health plans (PMS integration with EMR), implementing valuebased models, delivering tele-dentistry, and bringing dental insurance into the modern age.

Capitalize on strategic differentiators

Plans need to understand their unique value propositions, and then focus their energies on being the best they can be at whatever they are.

Explore options for diversification

Does it makes sense to become a third-party administrator, or to offer ancillary products such as vision, hearing, life, and disability? A dental plan could also acquire or merge with other companies.

Standalone dental plans should remain focused on the challenges they face, and on positioning themselves for the coming evolution. As the survey found, dental insurers increasingly see convergence as an opportunity rather than merely a threat. The winners will be those that take a proactive approach, explore their options and pursue strategic opportunities, without letting near-term challenges distract them. 

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Contributors: Will Hinde, Kristin Irving, Ben Baenen, Tim Nicholson

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