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As law firms gird up to battle double-digit increases in health costs, some believe they can find strength in numbers. By pooling workforces, they are gunning for the market clout of big business. The goal: more favorable premiums, a wider array of plan choices, and lower administrative costs. Firms from coast to coast are creating health-care consortia to purchase and administer health, dental and vision coverage. Already in place: groups in Washington, D.C., Atlanta and Chicago. In San Francisco, five firms are studying the feasibility of creating a consortium. In Boston and Richmond, Va., firms met with consultants in May to consider alliances. However, an attempt two years ago in New York to put a group together failed to jell. The concept seems borne out by statistics. A 2001 survey by the Kaiser Family Foundation indicated that larger purchasers negotiated more favorable health insurance rates. The nation’s smallest companies, with three to nine workers, saw the largest rate increases, an average of 16.5 percent. Larger entities saw hikes averaging 10.2 percent. “This may be the magic bullet,” said Michelle Egan, chief human resources officer at 1,500-employee Orrick, Herrington & Sutcliffe, one of the San Francisco firms studying the concept. MORE IS MORE The first law firm health-care consortium was formed by five Washington, D.C., firms in 1994 and continues to operate. Its members are: Dow, Lohnes & Albertson; Finnegan, Henderson, Farabow, Garrett & Dunner; Patton Boggs; Steptoe & Johnson; and Wiley Rein & Fielding. In 1998, four firms allied in Chicago. Three members remain: Mayer, Brown, Rowe & Maw; Neal, Gerber & Eisenberg; and Ungaretti & Harris. The most recent consortium was formed in Atlanta in 2002. Its members are: Arnall Golden Gregory, McKenna Long & Aldridge, and Smith Gambrell & Russell. In San Francisco, Orrick is studying the concept along with 1,600-employee Heller Ehrman White & McAuliffe and three other firms that sources declined to name. Behind these consortia is William Stanton, managing director of Palmer & Cay, a Savannah, Ga.-based insurance brokerage and benefits consulting firm. “The consortium is a way in which you allow a law firm with 700 to 2,000 employees to join with other firms and therefore replicate the market position of a larger organization,” Stanton said. The leverage they obtain helps the firms obtain lower costs — not just for insurance premiums, but also for pooling charges, stop-loss coverage, network access and administration, he said. The larger group also results in elimination of the margin insurers charge to cover claims volatility, which can be as high as 11 percent of insurance cost, Stanton said. The proof of the concept is in the numbers, Stanton continued. The D.C. group has seen an average cost increase of 9 percent since its inception; the market average for the same period was 13 percent. Chicago has seen a 9.7 percent average increase, compared to 15.2 percent for the market. In just a year, Atlanta has seen 13 percent compared to 16 percent for the market. Promising as this sounds, Orrick’s Egan is cautious. “We will continue to look at new benefits offerings,” Egan said. “Benefits are a big deal at Orrick. Our chairman really wants this to be the best place to work.” The soaring cost of health insurance has law firms everywhere searching for their own magic bullets. But as they do, they are careful not to shoot themselves in the foot. Hewitt Associates, of Lincolnshire, Ill., projects that health care costs will increase 15.4 percent this year, following an average rate hike last year of 13.7 percent. If this trend continues, Hewitt estimates, health coverage cost will double over the next five years. Firms see a strong benefits package as critical to retaining and recruiting employees, and take a largely conservative approach to managing health-care costs — trying to maintain generous levels of coverage while minimizing the financial blow to employees. Not everyone believes there is a magic bullet. Bernard Schaeffer, benefits director at New York’s Shearman & Sterling, sees rising health-care costs as an unsolvable issue for law firms. “I don’t see a solution to escalating health-care costs,” he said. “An employer’s options are limited.” The only real answer is to pass the costs on to employees, but employers run a risk in doing that, he said. “To adopt a defined contribution approach would be a dramatic change, and would not be well received.” FORK IN THE ROAD It was this very issue that led Heller Ehrman to consider the health care consortium, said David Sanders, its chief human resources officer. “The first thing we did was to make a decision that we would assume more of the cost increase than our employees,” Sanders said. “That is a fork in the road for all companies — to decide whether you’ll pass along the costs to employees or bear them.” Having taken that route, Heller Ehrman opted not to increase deductibles and co-payments. “We decided last year that it wasn’t worth it. Our deductibles and co-payments were high enough. People were going to have large enough increases in their premiums.” Instead, the firm started looking at different plan designs, and, in particular, at the consortium. This was not the first time. Four years earlier, the firm took steps to form a consortium, but found insufficient interest among northern California neighbors. Health care was not the burning issue that it is today, he said. “We’ve found a much keener interest now.” RADICAL RESTRUCTURING In Denver, escalating costs provided Holland & Hart, a firm with 260 lawyers in 12 offices, the incentive it needed to radically restructure its health benefits. A rarity among firms in that it structures and funds its health plans entirely on its own, the firm had been lucky. In 1999 and 2000, it saw virtually no increase in its health costs. But then in 2001, it was hit with a 30 percent increase, followed by 15 percent in 2002. “We could not allow this to continue to spiral,” said J. Andrew Keller, the firm’s executive director. The firm made a difficult decision: it would put its health coverage out to bid and move away from its self-crafted plans. While it will remain self-insured, it will move its employees to plans managed through one of the large network providers and scale back benefits to be more in line with the market. “Our health plans were drawn up in-house,” Keller said. “We found that we had been too generous with ourselves.” Employees used their health benefits excessively, Keller said. “The deductibles were so low, they weren’t thinking about what it cost.” The firm is looking at several large network providers, including United Healthcare and Cigna, and plans to select one by September. Keller believes that the advantage of contracting with a large provider will come from its having a broad network of health professionals who agree to more favorable pricing. “The discounts available to them are superior to discounts available to the network providers that we use.” For Minneapolis-based Dorsey & Whitney, the rising cost of health insurance was exacerbated by the patchwork of policies it maintained. After years of growth through mergers and acquisitions, the firm found itself with a dozen different insurance contracts across the U.S. With so many smaller bundles of insurance, the firm faced premium increases in some cases of 30 percent to 40 percent. Last year, it decided the time had come to find one plan for all its U.S. employees. “We wanted to find a way to leverage the size and scope of our firm, and also get more consistency in benefits across the firm,” said Patrick Lutter, human resources director. Another goal was to move from being self-insured to being fully insured. After putting its insurance out to bid, the firm settled on a single, three-tiered plan administered by Blue Cross and Blue Shield of Minnesota. It took effect Jan. 1. “We put a lot of time and energy into reworking our plans, but it’s paid off,” Lutter said. “It’s one of those success stories you don’t always get.” SOFTENING THE BLOW Orrick saw some of its providers come in this year with percentage increases in the high 20s. It was able to negotiate those numbers down, but still faced significant increases, a portion of which it passed on to its employees in the form of higher premiums and higher co-payments. The average co-payment for an office visit went from $10 to $20. For hospital admissions, it added a co-payment of $100. The firm also introduced a more structured prescription drug plan, with higher co-payments for brand-name drugs. And, in a move that may seem counter-intuitive, the firm added a new, more expensive PPO plan — what Egan described as “the Cadillac of plans.” While premiums for all its plans went up, Orrick, wanting to encourage employees to elect lower-end plans, raised the cost of those plans by a lower percentage than higher end plans. “We made it more attractive to go into the HMO. If they went into the HMO, the percentage increase was far less than for other plans.” In all, Orrick offers six plans, including a free, high-deductible plan that carries a maximum deductible of $1,500 and a maximum out of pocket of $3,000. To help soften the blow to its employees of these increased costs, Orrick added non-health benefits. One, which has been a big hit, Egan said, is called “Financial Engines.” It offers all employees access to individual investment and financial planning advice. The firm also wanted to address post-Sept. 11 unease, so it increased life insurance and business travel accident coverage. For associates and staff, travel insurance rose from $100,000 to $200,000. Partners’ coverage doubled from $250,000 to $500,000. When Egan arrived in 2000, the firm made a strong push to enhance its benefits package overall, investing $2.3 million in the upgrade. Among the features: a new in-house concierge who buys gifts and runs errands. Orrick is also preparing to launch a communications campaign to educate employees about becoming more informed health-care consumers. “Benefits help create the firm culture,” Egan said. “The richness of our package supports the culture we want to have.” Smaller firms also face rising health costs. One that looks at health insurance from a unique perspective is New York’s Martin Clearwater & Bell. “We’re a little unusual,” explained Catherine Reilly, the firm’s executive director, and member of the LFI Editorial Advisory Board. “We’re a medical-malpractice defense firm. Our partners are concerned about what kind of medical care their people receive.” The firm, with 140 employees, strives to offer high-end plans. Still, it continues each year to shop for the best deal and to consider cost-cutting options. Five years ago, the firm changed providers and dropped the indemnity plan it offered in favor of PPO and HMO options. These changes brought the firm annual savings in the six figures, Reilly said. More recently, it raised employee co-payment amounts. The firm pays 100 percent of employee premiums for individual coverage. It pays nothing towards the additional cost of family coverage. “If you need to cover your family, the difference between family coverage and employee coverage is out of your pocket,” said Reilly. “We’ve been very lucky,” she continued. While the firm had projected rate increases of between 20 and 30 percent the last few years, its actual increases have been below 10 percent. “Every year we look at it, see how we can tweak it. We play with the riders. We play with the co-pay. But we try to make sure the base coverage is good quality.” SCALING PREMIUMS TO PAY With more than 7,500 employees worldwide, Clifford Chance continually reconsiders its benefits and tweaks it plans. “We try to balance what’s beneficial to both the employee and the firm,” said Gail Losak, U.S. benefits manager. Over the past few years, it raised its deductibles, changed its prescription drug program, and took steps to encourage staff to purchase drugs through mail order, which is cheaper. It also considered changing carriers, but decided to stay with its current plans. To make the cost of coverage easier to bear for its employees, Clifford Chance determines the amount of their contributions based on a sliding scale tied to income. “The amount you pay is predicated on where your salary lies,” Losak explained. The scale uses 11 salary bands. The band on which an employee falls determines what he or she will pay for a given type of coverage. Employees can choose either a PPO or an HMO plan, and then elect whether to take individual coverage, individual plus one dependant coverage, or family coverage. After the employee chooses which plan and level of coverage, the premium is determined using the sliding scale. With no relief in sight from rising health-care costs, law firms continue to examine their options. “We’ve fastened our seatbelts,” said Holland & Hart’s Keller, “not knowing were the next increase will incur.” Seattle’s Lindsay Thompson is a shareholder in Thompson Gipe and is president of the Washington Lesbian & Gay Law Society. E-mail: [email protected] . Robert J. Ambrogi is managing editor ofLaw Firm Inc. andLaw Technology News , and an attorney in Rockport, Mass. E-mail: [email protected] .

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