Reining in Health Care

SAN FRANCISCO — Like many companies, Wendel, Rosen, Black & Dean has been battered by double-digit increases in insurance premiums for at least four years. Switching carriers didn’t stop the rising costs, so now the firm is trying another tactic. In addition to its traditional HMO and PPO plans, the Oakland firm will for the first time offer health savings accounts, starting in January.

The hope, for firm management, is that the new choice will appeal to a number of its 65 lawyers and 60 staff, and save the firm and employees on monthly premiums. Time will tell. But brokers say that — perhaps because of the plans’ complexity, or perhaps because they tend to be more attractive for higher earners in good health — low participation can limit the impact on a firm’s savings at the outset.

“Our hope is that it gives people one more option to reduce their overall health care costs,” said Wendel, Rosen Executive Director Gina Maciula. “For each employee or partner with family that signs up for a health savings account, the firm and employees would save a combined $200 a month [in premiums]” over an HMO plan, she said.

As open enrollment season begins next month, law firms across the Bay Area say they are inviting benefits consultants to explain alternatives to offer in addition to the standard HMO and PPO plans. Along with compensation and rent, benefits — of which health care is a material component — are the biggest expenses weighing on law firms’ bottom lines. And in recent years, health insurance has at many firms been the fastest growing cost, said benefits consultant Roger Arlen of ArlenGroup, who works with law firms statewide.

Lawyers at 11-lawyer Edrington, Schirmer & Murphy in Pleasant Hill are taking a hard look at health savings accounts for the first time this fall, too. Billing rates in insurance defense litigation, the firm’s focus, are not keeping up with the double-digit increases in premiums that the firm has seen in the past three or four years, partner Timothy Murphy said. Plus, Edrington, Schirmer has shouldered the full cost of health coverage for its attorneys and their dependents, and for staff. “We haven’t rolled anything out yet,” Murphy said, “but the health savings account is attractive.”

Health savings accounts first became available about four years ago, part of a 2003 bill passed by Congress in a push for “consumer-driven” health care. Insureds take on a higher deductible in return for lower premiums and some federal tax advantages (see chart here).

To qualify for an HSA, an employee has to be covered by a high-deductible health plan, also known as a catastrophic plan, in which premiums are low, but deductibles and out-of-pocket expenses can be relatively high. The two go hand-in-hand so much, in fact, that they’re often spoken of interchangeably.

In 2009 the minimum qualifying deductible will be $1,150 for an individual and $2,300 for a family.

Contributions to a health savings account come from pre-tax earnings, and are capped. In 2009, they’ll top out at $3,000 for an individual and $5,950 for a family. Withdrawals are tax-free if they’re used for certain medical expenses.

“This should be enormously popular with young, healthy people who can sock away money and let it grow,” said Donald Oppenheim, chief operating officer of Meyers Nave Riback Silver & Wilson.

Barring serious illness, the stashed-away money can grow until retirement. Money taken out for nonqualified expenses is generally taxed, and there is an additional 10 percent penalty unless you’re 65 or older.

Oakland’s Meyers Nave has offered high-deductible plans that can be paired with HSAs for the past two years. In that time, rate increases for its HMO and PPO plans put “tremendous pressure on the law firm and employees at all levels,” Oppenheim said. “It’s becoming unaffordable for some people.”

Health and welfare costs add up to about 2.5 percent of the firm’s gross revenue, Oppenheim said. “It is a line item out of control.”

Because so few at the roughly 85-lawyer firm joined the high-deductible/HSA plan initially — one associate and one staff member signed on, according to Oppenheim — this year firm leaders are considering ways to sweeten the incentives for lawyers and staff.

“I think many people are going to see the light,” Oppenheim said. “When they see the employee participation share of costs from these much higher quotes we’re getting, they’re going to realize something has to change.”

At Keker & Van Nest, out of 145 lawyers and staff covered through the firm’s plans, 17 have selected the high-deductible, HSA-qualifying plan since it was introduced three years ago. Ten of them are partners, according to office administrator Joy Scharton.

Scharton reports that enrollment in the HSA plan at Keker has increased steadily, and predicts that it will continue to go up — but probably won’t surpass 25 percent any time soon.

“The major drawback to a high-deductible HSA plan is the increased exposure for out-of-pocket costs before you have saved enough money in the account,” she noted in an e-mail. “The plan can also seem complicated to people more familiar with an HMO/flex spending system.”

In a 2008 survey, the San Francisco-based ArlenGroup found that nearly 50 percent of California law firms with 50 or more attorneys are offering high-deductible plans.

“It’s a plan that historically has made sense almost exclusively for partners,” who generally pay 100 percent of their premiums, Arlen said.

As self-employed individuals, he added, partners haven’t been able to participate in flexible spending accounts. “Health savings accounts are the first time that the partners have had the ability to get tax leveraging on out-of-pocket costs.”

But it’s becoming more mainstream for associates and staff as well. Arlen predicts that more and more firms will contribute into health savings accounts — much like some employers do for 401(k)s — for associates and staff in 2009 to boost participation. Keker & Van Nest is one firm that already does.

The upside for a firm can vary, depending on how generous it is in contributing to employees’ health savings accounts.

Victoria Mahoney, vice president of consulting services at Oakland-based insurance advisory firm Sitzmann Morris & Lavis, said that the monthly premium cost of a common PPO plan at a law firm is about $500 per employee. If instead the law firm offered a $1,500-deductible plan, it would probably save about 20 percent on premiums, she said.

The trend of double-digit increases in premiums for more traditional plans is likely to continue for a while, Mahoney said. With inflation rates for high-deductible plans about half those of standard plans, the savings could add up over time. A high-deductible plan typically has a trend of 6 or 7 percent in annual increases, she said.

In 2007, Wendel, Rosen’s then-insurance carrier raised rates for the firm’s HMO and PPO health coverage by 17 percent each, Maciula said. So the firm switched carriers. This year, the new carrier raised rates by 15 percent for each plan.

For the upcoming year, the monthly premium for the firm’s HMO will be about $45 more than for its HSA option for individual coverage, and about $200 more for family coverage, Maciula said.

“I doubt that the employee [without dependents] would be motivated to join the health savings program in our type of plan, since he or she won’t see a financial difference — except larger deductibles and out-of-pocket expenses,” Maciula said. In contrast, an employee who insures a whole family shares the cost of the premium with the firm.

The more people sign up, the larger the savings in premiums for the firm and its workers, she said. But she acknowledges not everyone is likely to jump on it. “I think some partners will do it, and maybe some of the management staff will do it who are healthy, but it’s going to be a fairly lengthy education process for everyone.”

Mahoney, the insurance consultant, advises firms to offer health savings plans as one of several options. “If for that employee, the HMO is the best option, let them have that option,” she said. “If the HMO gets too expensive, maybe you need to start charging that employee more.”