Law Firms See the Value of Individual Health Insurance, Defined Contribution

Written by: Christina Merhar
Originally published on March 3, 2014. Last updated October 26, 2020.

In The Tennessean, Alex Tolbert recently wrote about how law firms are quick to see the value of individual health insurance and have been early adopters of "pure" defined contribution healthcare.Law Firms See Value of Individual Health Insurance

According to Tolbert, "New health care reform rules have caused many industry insiders to predict that employers will drop their group health plans in favor of helping their employees get and pay for individual coverage. Instead of focusing their health benefit on a particular plan or carrier, these employers will focus on the money and support they give employees to help them get individual health insurance."

6 Reasons Law Firms are Quickly Adopting Individual Health Insurance, Defined Contribution 

Tolbert outlines six reasons why law firms are one of the quickest adopters of individual health insurance and defined contribution plans.

  1. Lawyers (as an industry group) can’t be discriminated against with defined contribution

  2. Tax incentives

  3. Lower-wage staff can receive subsidies

  4. Custom health plan for each employee

  5. Control of health care budget

  6. Comfort with adjusting behavior to take advantage of new tax rules and savings

Click here to read Tolbert's article.

4 More Reasons Law Firms are Quickly Adopting Defined Contribution 

We also recently wrote about how law firms were one of the early-adopters of defined contribution solutions (see that article here). The benefits we outlined closely parallel the benefits Tolbert outlined in his article.

  1. Controllable Costs – The law firm fixes their costs because they decide how much to contribute. The firm is not tied to minimum contribution requirements, which can rise unpredictably year to year.

  2. Employee Classes - The defined contribution allowance can vary by employee class. The firm can provide a different contribution amount by job criteria or family status.

  3. More Time with Clients – Defined contribution healthcare allows law firms to provide a health benefits program in less than 5 minute per month. Administering the health benefits program becomes a payroll function and requires minimal involvement from the firm. There are no annual renewals, and employees maintain the direct relationship with the insurance company. Many small law firms are operationally lean, focused on spending the most time with clients. Defined contribution aligns with these lean goals. 

  4. Compliance - Law firms have been quick to adopt defined contribution healthcare because they understand the compliance reasons for using a formal defined contribution plan (such as a Section 105 plan) and the importance of complying with ACA, ERISA, HIPAA, and IRS.

Other early adopters for defined contribution include small to medium veterinarian clinics, technology companies, and medical offices.

How Defined Contribution Healthcare Works 

Defined contribution healthcare allows any firm to name its price for health benefits. Rather than paying the costs to provide a specific small business health plan (a "defined benefit"), the firm instead fixes their costs by establishing a monthly dollar amount (a “defined contribution”) that employees may spend on qualified health insurance. With the purest form of defined contribution, the firm offers employees a health insurance allowance as the benefits package. Employees purchase an individual policy of their choice, often with the help of a health insurance broker, and are reimbursed as the plan allows.

Read more about the ideal companies for defined contribution solutions.

Originally published on March 3, 2014. Last updated October 26, 2020.


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