More law firms find savings, stability through self-insurance
Karen Sargent. Photograph by Randy Piland.
The firm now self-insures through the North Carolina Bar Association Health Benefit Trust. “We took a baby step,” Sargent says, adding that self-insuring through a larger group—Brooks Pierce has about 100 attorneys—helps level spikes in claims utilization. And over the past four years, premiums have risen just 1.8 percent overall, she says.
Like Brooks Pierce, a growing number of law firms are trying to rein in health care costs and customize their plans through self-funding or self-insurance.
The firms assume financial responsibility for the medical claims of employees enrolled in the plans. Many also purchase stop-loss coverage “to protect against larger, unexpected claims,” says Lauren Stoddard, marketing product manager with Cigna in Bloomfield, Connecticut.
Most self-insured firms use third parties to process claims and administer their plans, says Mary Bauman, chair of the employee benefits practice with Miller Johnson, a law firm in Grand Rapids and Kalamazoo, Michigan, that self-insures. These administrators can process claims, issue identification cards, and arrange for networks of hospitals and providers at favorable rates, among other responsibilities.
Historically, fewer than 50 percent of law firms nationally are self-funded, says Adam Okun, executive vice president with Frenkel Benefits in New York City. “Recent data suggests nearly 65 percent of national law firms [self-fund], with the percentage steadily increasing.”
(In September the American Bar Association confirmed plans to offer “a wide range of insurance products to its more than 400,000 members. … Under a plan approved by the ABA’s Board of Governors, the ABA will sell up to 20 different insurance products to ABA members and their families.”)
CONTROLLING COSTS
Cost is one driver. Self-funding can trim the administrative expenses, reinsurance fees, taxes and profits in most fully insured plans. For instance, each state levies an insurance premium tax, generally ranging from 1 to 4 percent, Stoddard says. Self-insured firms pay this tax only on any stop-loss premiums.
The Affordable Care Act also imposes a sales tax on many health insurance plans, but not on self-funded plans. An analysis by management consulting firm Oliver Wyman projected this would increase premiums between 2.8 percent and 3.7 percent by 2023.
Together, fees, profits and taxes can range from about 15 to 20 percent of premiums on fully insured products, Okun says. Under self-funding, that can drop to about 8 to 10 percent. Self-insurance also allows firms more leeway in designing their plans. “You’re not subject to the mandates of state insurance law,” Bauman says, “so you have a little more flexibility on plan design.”
Self-insured plans generally are governed by the Employee Retirement Income Security Act. Each self-insurance plan is different because firms have different preferences, Okun says, so they’re individually negotiated.
Although most law firms want to offer competitive benefits packages, their plans may depart from specific state regulations. For instance, New York requires many companies to offer outgoing employees health care coverage via the federal COBRA plan for 36 months, while the federal minimum is 18 months, Okun says. Some firms opt for the shorter period.
The firms may then enhance benefits for, say, out-of-network reimbursements for ordinary costs. “It gives you more power to design a benefit package relevant to your workforce,” Okun says.
Self-funded firms also have greater access to information showing how plan dollars are spent, Stoddard says. “You can use the data to design a plan” that fits your firm.
While self-funding health care coverage can offer compelling benefits, it requires an investment of time and attention. For instance, firms need to ensure their procedures comply with the privacy provisions of the Health Insurance Portability and Accountability Act.
Another key step is reviewing stop-loss contracts to ensure they align with the plans, Bauman says. For example, transplant coverage may differ between the plan itself and the stop-loss contract. “I typically advise that the stop-loss has to honor the plan documents and honor coverage required by law,” she says.
Self-funding also requires a certain level of risk tolerance. Most firms will experience higher-than-expected claims every few years, Bauman says. “It’s a philosophy of ‘I’m willing to bear that risk.’ “
Doing so can pay off. Between 2010 and 2015, health insurance premiums rose about 65 percent, according to the 2015 Employer Health Benefits Survey by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust. Miller Johnson’s health care costs increased less than half that amount during that period.
Law firms interested in setting up their own self-insurance programs can get information from the Self-Insurance Institute of America, the Self-Insurance Educational Foundation or the National Association of Insurance Commissioners.
This article originally appeared in the March 2016 issue of the ABA Journal with this headline: “Covered: More law firms find savings, stability through self-insurance.”
