Goodyear Tire saved 6% on their benefit costs without a single plan change – Here’s how you can do it too

With health care costs continuing to rise at a pace that far exceeds inflation, firms are looking for additional ways to reduce benefit costs.  One option is a dependent eligibility audit.  This is a systematic approach to making sure that your health plan covers only those who are eligible.  This can be a significant cost saver.  Goodyear Tire & Rubber reported reducing their dependant rolls by 13% and overall costs by 6% by implementing a dependant audit.  These audits are really important for self-insured plans but also benefit fully-insured plans as well.

The purpose of the audit is to identify dependents that should no longer be covered such as children that have met the maximum age limit, divorced spouses or children impacted by a change in custody arrangements.  In addition to the cost savings, not doing an audit may risk noncompliance with ERISA from failure to comply with plan eligibility rules as specified in plan documents.

The firm can do the audit internally or hire a third-party. As with anything related to benefits there are certain things to be considered in the planning and rollout of the employee communications. The audit is usually done in a two step process: an amnesty phase and then the documentation review phase. While disenrollment is not a COBRA qualifying event, the employer may decide to offer it provided that your insurer will permit it.

We are all looking for ways to make our benefit dollars go further.  Eliminating the ineligible dependants makes sense.

Oops one of your lawyers isn’t really a lawyer! It just happened again to another firm. What should you do?

There is a new fraudster exposed who was posing as a lawyer.  While it’s early in the investigation, it seems as if Mark Pastuszak has worked at two prestigious NY law firms claiming to be a lawyer admitted inNew YorkandNew Jersey.  In truth, he was admitted in neither.  At blog press time, his law school graduation and claimed clerkship is being confirmed.  Both firms are investigating and likely contacting clients and others to see how to proceed.

The previous case a few years back was an actual Partner in an AMLAW 250 firm.  The fact pattern is a bit different as unlike the current example of a lateral hire, the fraudster progressed in the firm from being hired as a paralegal claiming to go to law school at night.  In reality, he did not even go to law school (and obviously did not pass the bar).  It was reported at the time, that the firm made amends to their clients by reviewing his billing records while posing as a lawyer (Associate and Partner) and refunded the difference between the lawyer rate and the paralegal rate to all client work for his tenure at the firm.

The fallout from both of these cases is terrible for the firm.  The firms suffer great reputational harm as well as a very large financial loss.  The differential paid in the previous case (lawyer vs. paralegal) was probably hundreds of thousands per year worked.

So what can management do to avoid these problems?  As part of the due diligence process in both promoting paralegals who become lawyers (and former clerks) AND laterals, you must check with each states’ licensing authorities to confirm the admissions.  Put it on your new hire checklist and eliminate the risk.

Out of Network Doctors – Four Strategies That Work

In our last post, we described this year’s significant changes to Out of Network coverage.  Insurance companies are reducing their out of network reimbursements from usual, customary and reasonable (UCR) to a percentage of Medicare.  If you will be continuing to use out of network doctors, here are four strategies to minimize the impact of using out of network providers:

1)      First the obvious.  Make sure that the plan you select will base their out of network reimbursements on UCR (not Medicare).  There are a few companies and plans in the market that still provide this.

2)      Consider a Health Savings Account (HSA) plan. These plans allow all individuals even partners to pay for the high deductible with pre-tax dollars through a bank account.  HSA’s are most likely to still use UCR as a basis for out of network reimbursement.

3)      If you must be on a plan that reimburses out of network claims at a percentage of Medicare, supplement it with an insured Executive Medical Reimbursement plan for select individuals.  If set up correctly, this can escape the nondiscrimination rules slated for Health Care Reform.

4)      Check out the website  It is a healthcare marketplace where you can shop for doctors and services.  It gives access to ratings, fair prices and reviews.  Even if you already have an out of network doctor, you can use this information to negotiate pricing based on knowing what other doctors charge.

In today’s changing health insurance market, you must strategize and custom design your health plan options to your healthcare spending.

Out of Network, Out of Line – What Happened Here?

Out of network, out of line – If you ever use out of network benefits on your medical plan, brace yourself for a huge shock when you get your bill.

One of the most significant coverage cutbacks that health insurers are making in 2011 is how they’ll treat medical expenses from out-of-network providers.  Insurers have now reinvented the term “usual, customary, & reasonable” or commonly known as “UCR” to be anything but that.  Historically, UCR levels were related to actual charges made by doctors in specified geographical areas.  Charges from all doctors, both those that participate with insurer networks and those that don’t, were put into a common data base that captured the full range of fees from the lowest charge to the highest and then insurers decided at what percentile cutoff to use as their maximum “UCR” level. For example, a 70th percentile would mean that charges from the top 30% pricier doctors would see some of their fees disallowed and a 90th percentile would mean that charges from the top 10% pricier doctors would see some of their fees disallowed.

Insurers have now quietly decided to instead use a percentage above Medicare fees – which have absolutely no relationship to what doctors really charge, as the basis of what is considered “usual, customary, & reasonable”.  Whether a company is using 110% of Medicare (Aetna) or 140% of Medicare (Oxford), the criteria is a downward moving target each year so the already large spread between what doctors really charge and the “UCR” levels will widen every year.

Why do you care?  The gap between what the doctor charges and what insurers now deem as acceptable charges (based on Medicare fee schedules) are 100% paid by the patient!  Especially on procedures, this gap can be thousands of dollars.  Ask your doctor what Medicare’s allowable charge for a particular procedure is and don’t be shocked to hear that it’s only about 20% of a typical 70th percentile fee. You’ll soon see that insurers will now blame their UCR cutbacks on Medicare. Out-of-network plan users who can’t use network providers will see their uncovered medical expenses soar and will need to find alternate ways to cover it.

In our next post, we’ll outline the various methods of dealing with this and other uncovered medical costs.

The 10 Point Professional Liability Insurance Comparison Checklist (Part 2)

The 10 Point Professional Liability Insurance Comparison Checklist:  The fine print that you need to know in buying professional liability insurance.  When competitively bid, renewal premiums continue to be at their historic low points.  But comparing quotes is more complex then just comparing the premiums and deductibles.  You have to rely on your broker to explore all of the insurance companies and analyze the offers to your needs.

Our 10 Point Professional Liability Insurance Comparison Checklist (Part 2)

1-5) First 5 listed here: : Prior Acts Coverage, Limit, Deductible, Defense costs, and Territory

6)  Exclusion for claims where you sued for fees.  If you would EVER sue for fees, be aware and do not have this in your policy.

7)  Exclusion for SEC / Banking claims.  If you would EVER do work that touches the exclusion, be aware and do not have this in your policy.

8)  Exclusion for Investment Advice claims.  Beware.  We have seen some very broadly written exclusions that might exclude Trusts and Estates work.

9)  Fraud Exclusion.  To varying degrees, policy languages differ on the presumptions of innocence or guilt when determining if insurers will cover the defense of fraud claims.  Since fraud allegations are often thrown in with regular malpractice cases, take this into consideration in your purchase matrix.

10)  The definition of Personal Injury in the exclusions is sometimes broadly written and should also be in your purchase matrix.

Bonus Tip:  Fully understand how changes in your firm size will be treated by your insurance companies.  With changes, some insurance companies place notice requirements on you and some may charge additional premiums.

Lawyers are known as the experts in the fine print.  Make sure you understand your own policy fine print that determines if your premiums are being well spent or wasted.

The 10 Point Professional Liability Insurance Comparison Checklist

The 10 Point Professional Liability Insurance Comparison Checklist:  The fine print that you need to know in buying professional liability insurance.  Part 1.

When competitively bid, premiums were down another 10-15% for most law firms on their renewals.  But comparing quotes is more complex then just the premiums and deductibles.  You have to rely on your broker to explore all of the insurance companies and analyze the offers to your needs.

While you might not worry too much about an exclusion for SEC claims in a quote if you only do plaintiff personal injury work, you should worry about the SEC exclusion if you do Trusts and Estates work.  We have seen very broad SEC exclusions so that the client could be without coverage should a claim arise in a tangential practice area.  Your broker has to read the entire exclusion (not just the summary) and discuss it with you.

Here are the first 5 categories of points of differentiation that are relevant to your law firm:

1) Prior Acts Coverage – the most important part of your policy is coverage for legal work that you have done in the past.  Some policies are firm wide dates and some have specific attorney dates.  Get this wrong and your policy is worthless.

2) Limit – Per claim or Aggregate.  Depending on your practice and risk profile, structure accordingly.

3) Deductible – Per claim or Annual Aggregate.   Again, depending on your practice area, this can be important.

4) Defense costs – Do these expenses erode your limit and deductible available for settlement or judgment against you?  This item is critical for your appropriate limit selection in your purchase.

5) Territory – If you have any parts of your firm internationally, review this carefully.

In our next post, we’ll discuss the next 5 important points of comparison that emanate from the policy definitions and exclusions. This is the really small fine print that determines if your premiums are being well spent or wasted.

The 35% Healthcare tax you never heard about!

The 35% Healthcare tax you never heard about and why your next health insurance renewal will remind you of 1985 – read what you need to do now to prepare. 

To start orienting yourself to this NEW health insurance era, think 1985.

Yes, think back to your health insurance from 25 years ago. Remember, you had a $500 deductible and 80% of the next $5,000? Welcome to the new world of buying health insurance in 2011. New policies will have cost sharing components to them like the old days regardless of who you’re seeing – no more $50 copay open heart surgeries! In Network coverage, will look like Out of Network coverage with deductibles and coinsurance, i.e. $1,000 – $2,000 deductibles and 80% coinsurance after that. Since partners trend towards plans with both In / Out of Network coverage, even $5,000+ cost sharing plan designs will be in the discussion.

The game changer point here:

The new plans for 2011 will be shifting more of your health care costs from PRE-TAX health insurance premiums to POST-TAX user costs (deductibles, and coinsurance) and for partners this is a critical point, that you need to think about from a tax perspective.

For every dollar that you shift from premiums to user costs, you pay $1.35 (your $1 in claims plus the loss of the tax advantage of being able to deduct your premium costs). You will be literally trading pre-tax dollars (premium) for more expensive post tax dollars (user costs) – Not a good deal!

Why this matters and what do you need to do now?

Bring your broker and tax advisor together with you to discuss your strategy for 2011.  Usage and tax analysis of your plans will yield the best solution. Plan models that need to be considered and reviewed include HSA compatible plans, as well as non-HSA plans that are customized to minimize user costs for services you will tend to use. Last year’s strategies won’t work for your future health insurance planning.

The Big Lie II in Professional Liability Insurance

The Big Lie II in Professional Liability Insurance – Debunking the excuses to get better premiums and terms.  In my previous blog The Big Lie in Professional Liability Insurance, I urged you to ignore the naysayers and instruct your broker to shop your professional liability insurance aggressively every year.  In this post, I will address the three most common excuses why people erroneously don’t take my advice.

1) “But won’t the insurance companies not look favorably to our application when we really need them?”

This argument is flawed for two reasons: First, you never know which year you will “really” need themInsurance underwriters are unpredictable and inconsistent in their business appetites, often switching the personnel reviewing your account from year to yearSecond, insurance companies are not sensitive beings – they are all business – all the time, and will not prejudice your application in future years due to past not accepting their offers.

2) “But won’t our current insurance company become hostile when they are told in the negotiation that we are entertaining other offers?”

Not at all.  Insurance companies have demonstrated to me for 15 years, how their best terms are given when we present them with viable alternative insurance companies. Consistently, they lower premiums and give better terms (like deductible and defense cost options) only after being presented with viable alternatives for their insureds.

3) “But isn’t the shopping process a lot of work for a low probability of actually moving?”

Yes, it is a lot of work for a low probability of actually moving – FOR YOUR BROKER. The shopping process should be a minimal amount of work (less than 1 hour) extra beyond the regular process for you, but a lot of work for your broker.  That is their job.  If you feel your broker isn’t aggressively doing this every year, fire them immediately.

Given the uncertainty and constant changing in the professional liability insurance market, you must have your broker shop your insurance zealously each year.

The Big Lie in Professional Liability Insurance

There is a big lie that continues to be so frequently repeated that I feel compelled to call it out.  The latest iteration is, “In today’s economy, you don’t want to be cutting costs on your professional liability insurance”, implying that in today’s tough economic climate, shopping or switching your insurance company is dangerous to your firm’s financial risk. 

Most common perpetrators of the myth?  Insurance brokers and other supposed expert risk managers.  Why?  Some brokers don’t know how or have the capabilities to shop the range of insurance companies and many brokers realize that it is more work for them (and likely less commission dollars too). 

Law firm Managing Partners are usually risk averse, so the myth is believed and opportunities are missed at firms.  Your administrative staff may also be too happy to accept this as they sometimes bear the brunt of the work needed for the shopping process.

Why should you do it?

Insurance companies’ underwriting guidelines are inconsistent year to year.  What was a “perfect fit” for them last year is no longer a good fit for their new philosophy.  There are currently more solid top rated, admitted insurance companies competing for your business today than in the past 15 years.

In a follow up post, I will answer the typical questions challenging my position on this.

But won’t the insurance companies not look favorably to our application when we really need them?

But won’t our current insurance company become hostile when they are told in the negotiation that we are entertaining other offers?

But isn’t the shopping process a lot of work for a low probability of actually moving?

Property & Casualty mistakes must be fixed!

4 Property and Casualty mistakes that 90% of all law firms make and how to fix them.

In our reviews of property and casualty of law firms, we uncover all kinds of errors:  some large, some small.  The following items are the most frequent mistakes and how to fix them.

1.  Employee Benefit Liability – This coverage should be included in your office package policy.  It is basically an error and omission policy that covers the firm for mistakes in how you manage your employee benefit programs (401k, health, life, etc.).   For example, there might be certain coverage penalties if a new employee is not added to the health insurance in a timely fashion.  The cost is very inexpensive for $1 million in coverage.

2. Hired / non owned auto endorsement – This endorsement is added to your office package policy too.  It is coverage for the firm when employees of the firm while on firm business are either driving a personal auto or taxi (i.e. all autos non-owned but used by the firm).  This coverage is inexpensive and should be added especially when there is a large amount of driving on firm business.   You can also add a separate policy that includes coverage for physical damage to car rentals.

3. Valuable Papers Coverage.  The minimum amount of coverage that is automatic in most policies is not sufficient for a law firm in most cases.  This coverage is reimbursement for the firm to recreate your needed active client file.  Following a covered event like a fire, there is a huge expense to quickly recreate all of the relevant paperwork like expert reports, transcripts, papers from related litigations, etc.  Clients will not pay to recreate these items (they paid the first time) so it is important that insurance be in place to avoid this exposure.  The cost for this coverage is usually $1,000 per million in coverage.  If your firm scans ALL incoming file items, minimal coverage might be adequate.

4. Contents Coverage.  While this is the most basic part of the package policy, it remains a frequent source of errors in law firms’ insurance programs.  It is critical to do an annual check up of the value of your contents so that the insurance can make you whole when you most need it.  The most prone error in this category is coverage for the improvements and betterments of your space.  Improvements and betterments are the internal walls and any other built out space that you have.  Regardless, if you paid for the build out or the landlord did when installed, most leases hold you responsible to rebuild it, should they be destroyed.