Economics

Favorable Dental Economics Could Belie Coming Crisis

H. Barry Waldman, BA, DDS, MPH, PhD

Copyright 2001 Journal of the California Dental Association.

In the 1990s, the general economy, as well as the economics of dental practice, were favorable. Should there be a future period of economic downturn, three factors could be cause for economic concern: the wide ranges in spending for dental services in different parts of the country, the reliance on out-of-pocket spending for dental care, and the minimal level government contribution for these services.

The "bullish" stock market of the 1990s fueled employment, optimism, and consumption of just about everything from homes to jewelry and, yes, even dental care. The combination of decreasing numbers of dental school graduates, an increasing resident population, and increased coverage of dental services by private health insurance arrangements (private insurance covered 48 percent of dental expenses in the 1990s, compared to 28 percent in the 1980s¹) ensured favorable prospects for most dental practices. But the stock market debacles in the second half of 2000 may portend difficult times for the dental profession as underlying limitations in the substructure of dental economics are exposed and potential patients reconsider expensive elective procedures.

The Health Care Financing Administration recently reported that in 1998, $53.8 billion was spent for dental services in the United States.² This is but the latest in a long list of favorable financial accounts during the past 30 years that recorded current dollar and constant dollar (removing the effects of inflation) increases in expenditures at the national level for dental care. However, these positive overall economic reports do not reflect uniform developments throughout the country and mask potential economic weaknesses in the economics of dental practice. For example:

* Spending for dental care represents a progressively smaller percent of the overall spending for health services;

* Out-of-pocket spending continues to represent a greater share of dental expenditures than spending for many other health services;

* Contrary to developments in other health service sectors, government spending for dental services continues to represent an exceptionally limited component of overall dental expenditures; and

* In some states, there have been decreases in constant dollar expenditures for dental services.^1,2

A series of recent tabular reports from the Health Care Financing Administration provides historic and projection data that can be used to develop an awareness of the vulnerability of the economics of dental practice at a time of potential contraction of the general national economy.

Spending Changes for Health Care Services

Spending for personal health services from 1970 to 2000 is projected to increase from $63.8 billion to more than $1.1 trillion (in terms of constant dollars, an increase from approximately $197 billion to $440 billion³). During the past three decades, advances in health care services, the evolution of third-party systems, and changes in delivery arrangements have dramatically altered the pattern of expenditures for health services. For example, the hospital-care share of spending decreased from almost 44 percent to 34 percent of all personal health care spending. By contrast, prescription drug spending increased from 8.6 percent to 12.6 percent of health care expenditures. During the same period, while spending for dental care increased from $4.7 billion to a projected $60 billion in 2000, the dental-expenditure share of personal health spending will decrease from 7.3 percent of 4.5 percent (Table 1).

Spending for Dental Services

Although dental expenditures increased almost 1,200 percent during the past three decades, in terms of constant dollars, spending actually increased by 90 percent, but with limited increases during the final years of the 1990s. Similarly, per capita expenditures for dental care increased 800 percent from $22 to $199 during the past 30 years. In terms of constant dollars, per capita dental expenditures increased 50 percent. Expenditure projections through 2008 forecast dental care spending at $93 billion (4.8 percent of overall personal health services) and a $307 per capita rate (Tables 1 and 2).

Distribution of Dental Spending

But dental care expenditures are "felt" to greater extent by the patient than other major health services. By the end of the 1990s, out-of-pocket spending represented less than 20 percent of all personal health services: 3 percent of hospital care, 15 percent of physician services, but 47 percent of dental services.

Private health insurance covered approximately one-third of all personal health services, including almost one-third of hospital care, and almost one-half of physician and dental services.² In addition, a major component of health care services is covered by federal, state, and local government agencies, including 44 percent of all personal health services, 61 percent of hospital care, 32 percent of physician services, but less than 5 percent of dental services (Table 3).

It is projected that in 2000, more than $28 billion will be spent out of pocket for dental services ($99 per capita out-of-pocket spending out of a total $211 per capita dental expenditure) (Table 4).

Spending for Health Care at the State Level

Total health care as a percent of state gross product: In 1997, total personal health care represented 11.9 percent of the national gross product, with some wide variations among regions and states.

* Total spending for health services as a percent of state gross product ranged from 10.3 percent for the Rocky Mountain and Far West Regions, to 13.1 percent in the Southwest Region. The greatest difference within a single region was reported between Wyoming (7.5 percent) and Montana (14 percent).

* The variations at the state level ranged from less than 10 percent in Alaska, Delaware, District of Columbia, Nevada, and Wyoming, to 16.1 percent in Nevada and 17.5 percent in West Virginia (Table 5).

Per capita dental care spending: In 1998, the use of the national average per capita expenditure datum for dental services ($199 per person) masked the wide range of spending in the various regions and states. For example:

* Per capita spending for dental care ranged from $164 in the Southwest Region to $253 in the Far West Region.

* The variations at the state level ranged from $115 in Mississippi and $122 in West Virginia to $288 in the District of Columbia and $302 in Washington (Table 5).

But despite increases in per capita spending for dental services from 1990 to 1998, constant dollar per capita spending:

* Decreased in the Mideast Region;

* Decreased in Connecticut, Hawaii, Iowa, New Jersey, New York, Pennsylvania, Rhode Island, and Wyoming;

* Remained unchanged in California (Table 5).

In 1998 (a year of favorable economics, decreasing rates of unemployment and rising stock markets), spending for dental care represented 5.2 percent of total health expenditures, with a range from 3.1 percent in West Virginia, to more than 8 percent in Oregon and Washington. But during the 1990s:

* 15 states reported decreases in the proportion of total health care expenditures that was spent for dental care; and

* Kentucky, Mississippi, West Virginia, and the District of Columbia reported that the proportion of total health care expenditures spent for dental care was between 3.1 percent and 3.6 percent (Table 5).

Summary

Even in the "high flying" 1990s, there were indications that there should be some concern regarding the infrastructure of dental economics.

Previous Reviews

There have been reports (for the 1990s) in the Journal of the California Dental Association regarding national dental economics.^4,5 Results from studies by the Internal Revenue Service, the Health Care Financing Administration, the Bureau of the Census, and the American Dental Association emphasized the favorable combination of:

* Improving general economics;

* An annual decline in the 1990s of more than 1,500 dental school graduates (since the greatest number of graduates in 1983);

* Increase per capita expenditures for dental services; and

* Increases in gross practice receipts and practitioner net income.

Commentary

The continued positive direction of dental economics in this new decade is dependent upon the ability and willingness of individuals (and their employers) to finance 95 percent of dental costs (a combination of out-of-pocket spending and private insurance). By contrast, out-of-pocket spending and private insurance accounts for 53 percent of overall personal health care spending, 35 percent of hospital services and 65 percent of physician care.¹ But all this probably is of limited concern -- as long as the economy hums along in continual expansion.

Almost all government support for dental services is within the boundaries of the Medicaid program ($8 of $9 per capita government spending for dental care in 2000 [Table 4]). Unlike the Medicare program, which sets no income limitations, the Medicaid program guidelines in each state enforce maximum income eligibility standards. Thus, for the most part, the "safety-net" support provided by this federal-state program is not available for the "near poor" and lower income families. In addition,

* The extent and type of Medicaid dental services for adults are elective options; and

* Limited numbers of dental practitioners are willing to participate in the Medicaid program as a result of inadequate reimbursement schedules, administrative red tape, and appointment no-show rates.

The absence of government support for dental care is complicated further by employment and benefit practices carried out in the 1990s. Great numbers of workers were added to part-time and full-time "lower end" service positions, which traditionally offer limited fringe benefits. Many of these new workers recently had left the welfare rolls as a result of the 1990s welfare legislation eligibility limitations and work requirements, and/or were underemployed minority group members. As the labor market tightened in the final years of the 1990s, in some instances health benefit packages were added as incentives -- but with increasing employee contributions.

Now consider the impact of an economic downturn -- unemployment, pessimism, decreased consumption of just about everything from homes to jewelry and, yes, even dental care. The lack of a government safety net as well as limited industry interest in expansive health benefits, could become significant factors in the continued economic health of dental practices.

No doubt, the extended 1990s period of financial "irrational exuberance," combined with the downturn in the numbers of dental graduates (resulting in fewer numbers of young practitioners to replace the projected number of dentists leaving practice⁶) led the profession to fiscal complacency.

Given the histories of Medicaid dentistry and Medicare HMOs (e.g., as of January 1, hundreds of thousands of senior citizens were dropped from their rolls because of claimed inadequacy of capitation rates), the dental profession may (should?) be concerned with further government intrusion into the economics of dental practice. If this is the case, then increased efforts are essential for the profession to work closely with employers and unions to ensure continued and ever increased insurance coverage for dental services during all economic periods.

As reluctant as we may be for increased third-party involvement, we must consider support for innovative programs that place dental care on a par with other health services. At the same time, however, we must support efforts to increase public awareness of the extreme limitations of third-party support for dental services. Guidelines that the profession might adopt include dentistry within the Medicare program,⁷ increased action to provide dental services to people with mental retardation and developmental and other disabilities who increasingly reside in our communities,⁸ and focused lobbying on the shortcomings of managed care programs that seek to limit spending for dental services -- particularly now that the media is increasingly exploring their deficiencies.^9,10

Or are we willing to continue to be lulled into complacency despite, the stock market performance in 2000 (and 2001):

* The worst annual performance of the Nasdaq Stock Market.

* The Standard & Poor’s index’s greatest loss since 1977.

* The Dow Jones Industrial Average’s greatest percent loss since 1981.¹¹

And, headlines that tell us: "Cuts in health benefits squeeze retirees’ nest eggs"?¹²

Author

H. Barry Waldman, BA, DDS, MPH, PhD, is a professor of dental health services in the Department of General Dentistry at the School of Dental Medicine, State University of New York at Stony Brook.

References

1. Health Care Financing Administration, National health expenditures projections. Web address: http://www.hcfa.gov/stats/NHE-Porj/proj1998/tables -- accessed, July7, 2000.

2. Health Care Financing Administration, 1998 state estimates -- all payers -- dental services. Web address: http://www.hcfa.gov/stats/nhe-oact/stateestimates/Tables98/us/is40.htm – accessed, December 21, 2000.

3. Department of Health and Human Services, Health, United States, 2000. Hyattsville, MD: National Center for Health Statistics, 2000.

4. Waldman HB, What about dental economics for the 1990s? J Cal Dent Assoc 21(5):20-3, 1993.

5. Waldman HB, Economics of dental practice improve in the 1990s. J Cal Dent Assoc 26(4):295-301, 1998.

6. Beazoglou T, Bailit H et al, Selling your practice at retirement. J Am Dent Assoc 131(6):1693-8, 2000.

7. Waldman HB, Perlman SP, Political power of age: Medicare eventually may cover dental costs -- but what about children. J Dent Child in press.

8. Waldman HB, Perlman, SP, Deinstitutionalization of children with mental retardation: What of dental services? J Dent Child 67:413-7, 2000.

9. Waldman HB, Perlman, SP, Swerdloff M, Managed (not to) care: Medicaid and children with disabilities. J Dent Child 66:59-65 1999.

10. The growing pains of managed care (editorial). NY Times, Aug 5, 2001, p WK12.

11. Hershey Jr RD, Wall Street bids farewell to a bad year. NY Times, Dec 31, 2000, p BU13.

12. Freudenheim M, Cuts in health benefits squeeze retirees’ net eggs. NY Times, Dec 31, 2000, p BU8.

To request a printed copy of this article, please contact/ H. Barry Waldman, BA, DDS, MPH, PhD, Department of General Dentistry, School of Dental Medicine, SUNY at Stony Brook, NY 11794-8706, or hwaldman@notes.cc.sunysb.edu