Why do group dental plans often place limits on annual benefits?

Group dental plans typically place limits on annual benefits primarily to minimize adverse selection. Adverse selection refers to the phenomenon where individuals who anticipate high dental care costs are more likely to enroll in a plan, while those who expect to incur lower costs may opt out. By capping the benefits available each year, insurers can protect themselves from the financial risk posed by individuals who might otherwise claim significantly more in dental expenses than they pay in premiums.

This limit encourages a balance in the risk pool, requiring participants to share in the costs of their dental care. It discourages high-risk individuals from over-utilizing benefits, ensuring that the insurance model remains sustainable for all enrollees. Consequently, implementing annual benefit caps can help maintain stable premiums and ensure that the plan remains viable for the entire group.