Dental Benefits for Startups: Skip the Insurance Carrier

You are a 15-person startup. You want to offer dental benefits to attract and retain talent. Your broker quotes you $40-60 per month per employee for a group dental plan with a $1,500 annual maximum, a network your employees may or may not use, and a list of exclusions that takes three pages to explain. You are about to sign up for a system that was designed for a 10,000-person corporation in 1985. There is a better way.

Traditional group dental insurance was built for large employers with dedicated HR departments, benefits consultants, and the administrative capacity to manage carrier relationships, open enrollment periods, and plan compliance. Startups do not operate this way. They are lean, they move fast, and every dollar in the budget has to justify itself. The traditional dental benefits model does not just fail to serve startups well. It actively works against how they operate.

The Traditional Dental Benefits Problem

Here is what most startups encounter when they try to offer dental benefits through a traditional insurance carrier. First, there are minimum participation requirements. Many group dental plans require that 70-75% of eligible employees enroll. For a 15-person company, that means if four employees opt out, you may not qualify for the plan at all. This forces companies into awkward conversations about mandatory enrollment or into selecting plans that are less competitive to ensure participation thresholds are met.

Second, the plan options are limited and rigid. You get to choose between a DPPO and maybe a DHMO. The annual maximum is $1,500, a figure that has not changed meaningfully since 1973.^[1] Waiting periods for major procedures can be 6-12 months. Orthodontic coverage, if included, comes with a separate lifetime maximum. The plan is designed around actuarial tables, not around what your specific employees need.

Third, administrative overhead is real, even for small employers. Someone has to manage enrollment, handle carrier communications, process qualifying life events, and answer employee questions about what is and is not covered. For a startup without a dedicated HR team, this falls on a founder, an office manager, or whoever drew the short straw. The National Association of Dental Plans (NADP) estimates that 25-40% of dental plan spending goes to administrative costs rather than clinical care.^[2]

Fourth, and perhaps most importantly, employees do not understand or use the benefit. Research from the ADA shows that 46% of Americans skip dental care due to cost concerns, even many of those who have dental insurance.^[3] The complexity of deductibles, co-pays, in-network versus out-of-network rates, annual maximums, and coverage tiers creates confusion that leads to underutilization. You are paying for a benefit that a significant portion of your team does not fully use.

Why Startups Are Different

Startups operate on different principles than the enterprises that traditional dental insurance was designed for. Lean operations mean that every process needs to be efficient and every expense needs to deliver measurable value. Employees at startups tend to be younger, more health-conscious, and more accustomed to consumer-grade digital experiences. They expect their benefits to work the way everything else in their life works: simply, transparently, and on their terms.

A dental stipend or wallet is far more aligned with startup culture than a traditional group insurance plan. It respects the employee's autonomy to choose their own provider, spend their benefit on the care they actually need, and understand exactly what they have available at any point. It reflects the same philosophy that drives the best startup compensation strategies: trust your people, give them flexibility, and get out of the way.

"We give you $1,200 a year to spend on any dental care, any dentist, and it rolls over. That is a conversation your recruiter can have in one sentence. Try explaining a DPPO in one sentence."

The Dental Wallet Approach

A dental wallet is straightforward. The employer sets a contribution amount per employee, anywhere from $500 to $3,000 or more per year. Those funds are allocated to each employee's dental wallet, which they can use to pay for dental care at any provider. There is no carrier, no broker commission, no network restriction, and no minimum participation requirement.

Employees visit whatever dentist they prefer. When they receive care, they pay using their dental wallet funds. The provider is paid directly. There are no claims to file, no pre-authorizations to wait for, and no denials to appeal. If the employee has funds remaining at the end of the year, those funds can roll over, creating a growing balance that provides real financial security for future dental needs.

For the employer, administration is minimal. There is no open enrollment period to manage, no carrier relationship to maintain, and no plan documents to distribute. You set the contribution, employees use it, and you have full visibility into how your benefit dollars are being utilized, without seeing individual health information.

Cost Comparison

The economics strongly favor the dental wallet model for startups. Here is a side-by-side comparison for a 15-person company.

Yes, the headline number per employee is higher with a dental wallet at $1,200 per year versus $480-720 for traditional insurance. But consider where the money goes. With traditional insurance, a substantial portion of that premium goes to carrier administrative costs, broker commissions, and insurer profit. The amount that actually reaches the employee in the form of paid claims is significantly less than the total premium. With a dental wallet, every dollar the employer contributes is available for the employee to spend on care. More money reaches the point of service.

And if you want to match the traditional insurance spend, you can. Set the wallet at $600 per employee per year. Your employees still get more flexibility, no network restrictions, no waiting periods, and rollover. Even at the same price point, the dental wallet delivers more value.

Tax Advantages

Dental wallets structured as 213(d) Health Reimbursement Arrangements carry meaningful tax advantages. Employer contributions to a properly structured HRA are tax-deductible business expenses. They are not subject to payroll taxes, which means the employer saves the 7.65% FICA match on every dollar contributed. For a 15-person company contributing $1,200 per employee, that is roughly $1,377 in payroll tax savings annually.^[4]

For the employee, HRA reimbursements are not taxable income. The employee receives the full benefit of the contribution without it inflating their W-2 or increasing their tax liability. This tax efficiency means that both the employer and the employee get more value per dollar than they would from equivalent cash compensation.

As Dr. Ponnusamy has discussed in depth on Substack, the tax structure of dental benefits is one of the most underappreciated levers available to small businesses. Most startup founders are unaware that they can deliver dental benefits more tax-efficiently than adding the equivalent amount to salary. His LinkedIn posts on this topic have resonated particularly with early-stage founders navigating benefits decisions for the first time.

The Recruiting Advantage

"We offer dental benefits" is table stakes. Every company of any size says this. It does not differentiate you in a competitive hiring market. But "We give you $1,200 a year to spend on any dental care you need, at any dentist you choose, and whatever you do not use rolls over to next year" is a fundamentally different value proposition. It communicates trust, flexibility, and a modern approach to employee wellbeing.

Dental benefits consistently rank in the top three most desired employee benefits after medical insurance and vision coverage. For many candidates, especially those with families or ongoing dental needs, the quality and structure of dental benefits can influence their decision between competing offers. A dental wallet that gives them real spending power and real choice is a more compelling offer than a traditional plan with its network restrictions, waiting periods, and coverage gaps.

"Every benefits dollar should either attract talent, retain talent, or improve outcomes. If it is doing none of those things, it is waste."

How to Get Started

Setting up dental wallets for your team through Toothsome takes less than 30 minutes. There is no broker to engage, no carrier to negotiate with, and no minimum participation to meet. The process is straightforward.

1. Set your contribution amount. Choose how much you want to allocate per employee per year. You can set different tiers for different employee classes if needed.
2. Add your employees. Upload your roster or connect your HRIS. Employees receive an invitation to activate their dental wallet.
3. Employees use any dentist. There is no network to check, no referral to obtain. Employees visit the provider of their choice and use their wallet to pay.
4. Track utilization. See aggregate spending data and wallet utilization rates. No individual health data is visible to the employer.

That is it. No 60-page plan document. No benefits consultant required. No annual renewal negotiation with a carrier. You fund wallets, employees use them, and everyone has visibility into where the money goes.

Ready to offer dental benefits that actually make sense for your team? Visit our employers page to learn more, or get in touch to set up your company in under 30 minutes.