Law Firm Benefit Trends Paint Conflicted Picture

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Frenkel Benefits recently released our 2013 biennial Law Firm Survey analyzing key trends emerging in the benefit programs of large law firms. In all, 51 firms participated, accounting for nearly 25,000 law firm employees and $330 million of healthcare spend. The results paint a somewhat conflicted picture as law firms race to manage plan expenses while continuing to lag the broader market’s adaptation of consumerism as a prominent cost-mitigation strategy. In fact, most of the design changes can be categorized as “stealth cost shifting” – changes that preserve the more visible features of the health plans but reduce the plans’ cost in less recognizable ways.

  • Healthcare inflation at law firms was 7%, exceeding national employer-sponsored healthcare plan inflation by 2%, which reflects the industry’s reluctance to dilute benefit levels—contrary to other employers. Nationally, healthcare inflation reached its lowest levels in over 50 years and, for the first time in 15 years, grew at a slower pace than GDP. Similarly, dental plan costs for law firms have increased 4%, far in excess of the 1% increase nationally for middle market employers
  • Associates and staff have shared the burden of runaway plan costs, as the majority of firms tether the employee cost to a percentage of the total plan rate (varied by salary and tier). However, 35% of law firms surveyed actually increased the employee share of monthly premium as one of their primary cost control strategies – resulting in contribution increases greater than the plan’s underlying medical trend
  • PPO/POS plans continue to be the plan of choice, enrolling over 50% of law firm employees. In-network only HMO/EPO-style plans saw an increase in enrollment to 22% from 13%. High Deductible Health Plans (HDHPs) have seen little traction outside the Partnership class, whose members enroll in these programs because of their favorable tax treatment. This remains in stark contrast to the broader market, which increasingly embraces these more efficient designs that reduce healthcare consumption by 10-15% while maintaining actuarially neutral benefits
  • Though median in-network PPO plan deductibles and coinsurance have remained at $500 and 90%, respectively, out-of-pocket maximums have increased nearly 50% to $2,500 in-network and $6,000 out-of-network, which will be apparent only to high users
  • While more firms have embraced self-funding, many law firms remain resistant. Only two-thirds of firms with more than 1,000 employees self-fund their medical claims (compared to over 80% of employers nationally). After considering the additional taxes introduced by the Affordable Care Act, expected savings from self-funding have widened to 7-10% of gross premium rates. It is now commonplace to see employers as small as 50 employees self-insure their programs, although quite infrequently in the law firm sector
  • Wellness offerings from law firm survey participants have scaled back, with fewer providing newsletters, gym discounts and on-site screenings, but there was an increase in firms offering on-site exercise facilities. Participants offering programs listed the desire to improve the health of employees as the primary driver – nearly double those who said their main reason was reducing healthcare costs. Over 80% of law firms did not know or had not considered the expected ROI on their wellness initiatives – about 15% higher than our non-law firm survey results
  • PTO allocations have increased approximately 2 days across all classes of employees, with median new hires now receiving a bank of 17 days and veteran employees (more than 10 years of service) receiving 27 days

Other key trends include a gradual but noticeable movement away from blanket coverage of post-retiree medical for Partners and an increasing number of firms offering transgender surgery coverage, infertility benefits and domestic partner coverage.

Given the ongoing contraction in demand for legal services and the consequential imperative to examine the underlying cost/expense structure of big law firms, it will be interesting to see when the industry will pivot from traditionally paternalistic, high-cost benefits plans to consumer-directed, employee-activating models. While much remains uncertain regarding the 2018 “Cadillac Tax”, its introduction may trigger a harsh and sudden shift in the nature of law firm benefit program offerings.

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