Accounting Office Management & Administration Report

All professional services firms are struggling with soaring health-care costs, and AOMAR believes that good ideas for coping should be shared among these firms whenever possible. We recently learned about an initiative developed by law firms that were desperate for a better deal from health-care providers. The lessons learned could be used by CPA firms for similar savings.

The law firm story. Law firms have always been challenged with health-care coverage, even before double-digit health-care rate increases became a way of life. Health-care vendors were reluctant to underwrite law firm business, and rate increases were hard to negotiate. Moreover, with a large number of health insurers available, the common solution was to bid programs frequently to obtain the best cost structure—a concept that became more difficult as network access/disruption emerged as a critical component and the delivery system became more complex.

The current market is just as challenging for law firms, explained William Stanton of law firm Palmer & Cay (Savannah, Ga.) during a recent IOMA audio conference.

In the mid-1980s, Stanton, who handles issue relating to compensation, benefits, and retirement services, began working with Phyllis Gardner, then the executive director of the law firm Steptoe & Johnson (Washington, D.C.), on a way to gain leverage by working with a carrier or carriers who would focus more on law firms’ needs, and would be willing to price more competitively, provide higher levels of service, and the like. After a feasibility study of law firms in Washington D.C, they implemented what was then the first law firm health-care consortium in January 1994.

Today, the five-member D.C. Consortium offers services including health care, dental, prescription drug coverage, employee assistance plans (EAPs), and vision coverage. The five member law firms are Dow Lernes & Albertson; Finnegan Henderson; Patton Boggs; Steptoe & Johnson; and Wiley Rein & Fielding. Each firm has at least 250 covered participants, including partners, associates, and staff. Four law firms in Chicago formed a similar group, the Chicago Consortium, on July 1, 1998.

Benefits to the consortium model. Although there’s a tendency to talk a lot about the financial benefits, Stanton believes the main plusses for firms are enhanced service, plan design, and the ability to pick from a menu of plans to obtain one that meets each firm’s individual and cultural objectives.

"That was one of the biggest draws for us; we, as a firm, would have the option to select from different menu plans [with] different deductibles and different out-of-pockets. We certainly have much more flexibility than we would have had as an individual firm," Tonya Poole, director of human resources for law firm Arnall Golden Gregory (Atlanta) told audio conference listeners. Her firm is a participant in the Atlanta Consortium, which was launched in January of 2000.

The consortium model is especially appealing to law firms, since most are greater consumers of benefits than other industries. This generosity distinguishes firms, Stanton asserts. Indeed, there are common denominators that transcend firm size and geographic location that may make consortiums appealing to law firms. Because CPA firms are increasingly trying to hire and retain by providing better benefits, these reasons for a consortium model make just as much sense. Issues include:

• The need for no or low-hassle benefits plans. "Law firms don’t want a lot of noise," says Palmer & Cay partner Pennie Hinds. "Firms want contracts that are pretty inclusive of services without a lot of internal limits, exclusions, and pre-certifications. They want control over health-care expenses, but they don’t want to have [members of the firm] fighting with their physician about treatment protocols. Firms would rather pay more or have a higher cost-sharing in terms of deductibles or co-insurance than have the managed care battles where people can’t get the care they need."

CPA firms are also far more interested in providing the service—and then putting administration muscle into other issues such as retention, training, scheduling for engagements, and the like, rather than having the firm administrator chasing down benefits representatives or third-party administrators about plan disputes. As a result, a low-hassle plan is a very appealing option for CPA firms.

• Sensitivity to affordability issues. According to Hinds, some of the firms in the consortium have initiated programs that have lower deductibles for staff employees, midsize deductibles for associates, and higher deductibles for partners. "There is awareness that there are different levels of income within the law firms and that staff need to be protected while the associates and partners may have more of an ability to pay for services."

While this is not a widespread practice at CPA firms, it is a concept that firms might wish to consider. Even if you don’t want a multi-tier system of deductibles and copays by staff level, a more affordable program for everyone that the firm obtains by participating in a group with more leverage would certainly be a welcome item in any CPA firm’s budget.

How the consortiums work. Stanton drives home the point that a consortium is neither an association nor a multiple-employer welfare plan. How it works:

Plan assessment. Palmer & Cay looks at the various plans offered to arrive at a final menu of plans. "There can be as many as seven different plans or as low as four different plans, but the [point] is to create enough plans to satisfy the majority of the needs of firms represented in the consortium," Stanton told attendees.

• All participating law firms share in the savings generated from reduced expenses and large group underwriting.
• Participating firms select their own benefit choices from an agreed-to-benefits menu.
• Each participating firm maintains its own specific eligibility and contribution strategies.
• Each firm participates in the consortium through an approved participation agreement that satisfies insurance department requirements.
• The consortium, because of its size, typically can include performance guarantees and penalties applied to the consortium carriers and service providers.
• An acceptable participation agreement for the law firms, insurance companies, and partners is created by the law firms in each city.
• Fully insured medical, dental, and vision programs are available. In addition, a national purchasing alliance for prescription drugs is available as a choice on a self-funded basis.
• The program is sensitive to anti-trust issues; firms do not subsidize each other’s claim experiences.
• Cost is allocated to each firm based on their firm’s prior claims experience, plus total consortium fixed expenses.
• The consortium’s total size produces reduced costs for each firm in the area of risk charges, administration, pooling, and network fees (savings ranges from 3% to 5% per year). In addition, the margin is eliminated (5% to 7% reduction).
• Participating law firms must be large enough to have credible experience (200 or more partners, associates, and staff).
• Rates are renewed annually. Plan design modification coincides with renewal and benefits issues identified during the course of the plan year.
• Each firm is allowed separate eligibility rules, waiting periods, and contribution schedules tailored to their organizational considerations.
• Each firm maintains a direct relationship with the carriers for service and claim problems.
• Group consensus is needed on the number of plan options and benefits design as it pertains to medical, dental, vision, and prescription drug programs. Group consensus is also needed on carrier selection, service providers, and managed care networks.
• Each law firm within the consortium has equal voting power.
• Programs for the consortium are developed to provide national network access and coverage for firms with multiple locations.
• Performance agreements with penalties and incentives are commonly part of the consortium agreement.

For more information on the law firm health care consortium model, contact Palmer & Cay’s William Stanton at 888-335-0931.

To learn more about the audio conference, "Law Firm Health Care Consortium: How to Reduce Rising Insurance Costs," log onto www.ioma.com/audioconferences/index-past.html. To order a copy, contact IOMA subscriber services at 212-244-
0360; subserve@ioma.com; or the IOMA Web site. Request product code 5A006C for a CD or 5A006T for a tape. Cost: $275 each.