South Carolina Code of Regulations
Chapter 69 - DEPARTMENT OF INSURANCE
69-41 - Prepaid Dental Service.
69-41. Prepaid Dental Service.
(Statutory Authority: 1976 Code §§ 38-3-110, 38-1-20(1), 1-23-10)
In Act No. 40 of 1979, the South Carolina General Assembly amended S. C. Code § 38-5-20(b)(1976) [recodified as § 38-1-20(1)], so as to add "prepaid dental service" to the definition of "accident and health insurance." The effect of this amendment was to require any person or entity which offers, sells, delivers or issues for delivery prepaid dental service contracts in this State to be licensed as an insurance company to transact an accident and health insurance business. The Act further amended S. C. Code § 38-57-190(2) (1976), so as to permit the granting of preferences or distinctions to particular groups under prepaid dental service plans.
Unfortunately, the Act did not define the phrase "prepaid dental service." Over the years, it has become increasingly clear that a definition of what constitutes "prepaid dental service" must be established. Under the broadest reading of the phrase, even the most informal retainer-type of arrangement between an individual dentist and an individual patient could be deemed to be "prepaid dental service," if there was any payment of fees prior to the rendering of dental services. In such a case, the individual dentist would be required to be licensed as an accident and health insurance company and subjected to the full range of regulatory and tax laws applicable to insurance companies. The Chief Insurance Commissioner simply does not believe that this was the result intended by the General Assembly.
One of the primary purposes of the insurance regulatory laws is the assurance of the solvency and soundness of insurance companies. To the extent that a person or entity contractually promises to arrange for the provision of, or reimbursement for, dental services to be performed by another person who is a licensed dentist, and further collects money from the public in consideration of such promises, the solvency concerns of the insurance regulatory laws are implicated. Under this scenario, the person collecting the money and making the promises (i.e., the promisor) is not the same person who is performing the dental services. In order for the promisor to fulfill his contractual obligations, it is imperative that he at all times have sufficient funds available to compensate dentists performing the services and/or reimburse contractholders for dental expenses they incur. The assurance that those funds will be available to fulfill contractual obligations goes to the very heart of solvency regulation under the insurance laws.
By contrast, where the promisor is the dentist performing the services, the solvency concerns expressed above are not present. So long as the dentist has the requisite knowledge, skill and competence to practice dentistry, as well as a valid license to do so, the dentist can fulfill his contractual obligations to his contractholder/patient, regardless of what his financial condition is. Consequently, the State does not have the same interest in solvency protection that it does in the circumstances previously described.
It is therefore the purpose of this regulation to define the phrase "prepaid dental service" as used in § 38-1-20(1), so as to clearly identify those plans and their sponsors which are subject to licensing and regulation by the Chief Insurance Commissioner.
B. "Prepaid dental service" defined.
"Prepaid dental service" means a contract, plan or agreement whereby one undertakes, in consideration of a specified payment, to provide for the rendering of, or reimbursement for, dental services during a specified interval of time, where such dental services are performed by a person duly licensed to practice dentistry in the jurisdiction in which such services are performed. "Prepaid dental service" specifically includes subscriber contracts issued by dental service associations and dental service corporations as contemplated in Subarticle 3, Article 3, Chapter 71 of Title 38 of the 1976 Code and Insurance Department Regulation 69-34.
The phrase "prepaid dental service" does not include a direct contractual agreement between an individual licensed dentist and an individual patient, under which the individual dentist is personally obligated to perform the dental services specified in the agreement. To qualify for the exemption under the paragraph, the agreement cannot exist between the patient and some third party, such as a marketing firm, a service corporation, or even the dentist's own professional association (P.A.). Instead, the agreement must be exclusively between the individual licensed dentist and the patient, such that the dentist is at all times contractually bound under the agreement to personally provide the promised dental services directly to the patient.
In addition, the phrase "prepaid dental service" shall not include dental benefits provided by a health maintenance organization licensed and regulated under Chapter 33 of Title 38 of the 1976 Code, nor does it include dental benefits provided by a multiple employer self-insured health plan licensed and regulated under Chapter 41 of Title 38 of the 1976 Code.
C. License required.
Every person, firm or entity which offers, sells, delivers or issues for delivery in this State prepaid dental service contracts, as defined in paragraph B above, shall be deemed to be transacting an accident and health insurance business under S. C. Code § 38-1-20(1), shall be deemed to be an insurance company under S. C. Code § 38-1-20(4)(1976), and must be licensed and regulated by the Chief Insurance Commissioner as an insurance company in accordance with S. C. Code §§ 38-5-10 and 38-25-110 (1976). All South Carolina insurance laws and regulations applicable to accident and health insurance companies and accident and health insurance policies shall be fully applicable to prepaid dental service plans and to persons, firms or entities offering, selling, delivering or issuing for delivery such plans in this State.
This regulation was adopted May 22, 1987.