Why do group dental plans frequently limit annual benefits?

Group dental plans often limit annual benefits primarily to manage the financial risk associated with adverse selection. Adverse selection occurs when individuals who expect to utilize dental services more often are more likely to enroll in a plan. This can lead to a situation where the insurance pool consists predominantly of high-risk members, thereby increasing the overall costs of the plan.

By imposing annual limits on benefits, insurers can mitigate the impact of adverse selection. These limits ensure that the insurance provider can maintain control over its total expenditures and encourage members to seek preventive care rather than waiting until they need extensive, expensive procedures. This balance of financial risk helps to stabilize the plan and keep premiums manageable for all members, regardless of their individual health care needs.

In this context, other elements such as enrollment processes, coinsurance, and administrative costs play roles in the operation of dental insurance plans, but the central concern driving the limitation of annual benefits is the prevention of adverse selection and the promotion of sustainable financial practices within the insurance pool.