Health Care / Medicine, Insurance, Perks / Fringe Benefits

Reversed Perk Watch: Kirkland Claws Back Health Care Costs

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Law firms are dealing with the Great Recession in many different ways. As we’ve chronicled in these pages, layoffs and salary cuts are commonplace, practically clichéd.
Some firms are cutting costs more creatively. From a source at Kirkland & Ellis:

We just got a memo from K&E about a massive increase in our health care premiums. I’m not happy at all…. By my rough math, my deductible tripled, but the cost increased $100/month. So they’re screwing us two ways. Again, if my math is right.

From a second tipster:

This change effectively reduces associate salaries by approximately $1,000-$2,000 per year, although made under the guise of a change in the health care plan (perhaps in attempt to avoid blog coverage of salary cuts?).

K&E’s health care coverage was already pretty poor compared to other biglaw firms. This change makes their health care for associates (and other employees earning more than $90K) even worse. Also disturbing is that part of the justification for the change is to “bring the amount paid for health care coverage for associates closer to the amount paid by partners of the Firm…..”

My (albeit limited) understanding of health care coverage for partners in partnerships is that by its nature it is always different from the partnerships’ actual employees (i.e., associates)…. Additionally, we all know K&E partners make a ton of money (as evidenced by their high ppp, which have not been reduced). While associates at Kirkland are definitely well compensated, they work brutal hours for that money, and enacting a salary cut in the guise of bringing partners health care cost “in line” with associates seems greedy and ill-advised.

Full memo, in all of its hyper-technical glory, after the jump.


KIRKLAND & ELLIS — MEMORANDUM — IMPORTANT CHANGES TO YOUR HEALTH INSURANCE
TO: Associates and Employees Participating in the Kirkland & Ellis LLP Health Plan
FROM: Benefits Committee
RE: Important Changes to Your Health Insurance
This memorandum describes important changes in
the Firm’s health care benefit program for associates
and certain employees that will go into effect on July
1, 2009. Please read this memorandum and the attached
Schedule A carefully, as it may affect your medical
coverage and your contribution levels. If you are
affected by these changes, you may find it beneficial
to switch your health coverage from one plan to
another. It is therefore important that you read and
consider carefully the alternatives available to you
between now and July 1.
The changes described in this memorandum will
affect associates and employees in “Level Two” (i.e.,
employees whose base salaries equal or are greater than
$90,000 per year) of the Firm’s Health care benefit
program. These changes are intended to simplify the
current health care system, create a more equitable
allocation of costs between the Firm and participants,
as well as reduce the Firm’s overall health care costs.
In general, these changes will result in an
increase in the health care premiums paid by
associates. Higher-paid employees will also generally
see increases, but those increases will be much more
modest, and may in fact be avoidable altogether if the
employee opts to change his or her health care plan.
No changes will be made at this time in the
health care program for employees at income levels
below $90,000 per year. Beginning in January 2010, it
is likely that additional changes will be made in the
health care program for all employees, with the
expectation that the magnitude of those changes will be
less substantial than the current changes affecting
associates and employees in Level Two.
Changes Effective July 1, 2009
Effective July 1, 2009, the following specific
changes will occur:
1. For all associates and employees with base
pay equal to or greater than $90,000, the $500
Deductible PPO and the $1,000 Deductible PPO option
will be eliminated.
2. The methodology used to determine monthly
premiums will be adjusted to reflect an amount paid by
the Firm for each person that will be based on a
specific percentage of the total cost for a particular
health plan option (the “base” plan) for that class of
employee. If the associate or employee chooses a
different option than the base plan, the associate or
employee will receive either all of the cost savings,
or all of the cost increases, of that decision. To
explain and summarize:
Cost Share: Associate (Pay Level 1) – The Firm will
pay 50% of the total monthly cost for the High
Deductible PPO. If the associate would like a lower
deductible or would prefer an HMO option, the associate
will pay any incremental cost.
One reason for this change is to bring the amount paid
for health care coverage for associates closer to the
amount paid by partners of the Firm. All partners,
both nonshare and share partners, currently pay 100% of
the costs of their own health care coverage.
Cost Share: Employees with Base Pay Equal to or
Greater than $90,000 (Pay Level 2) – The Firm will pay
a monthly amount equal to 65% of the total monthly
premium for the $1,500 Deductible PPO. The employee
will pay 35% of the total monthly premium. If the
employee chooses a higher deductible than the $1,500
deductible or chooses an HMO option, the Firm will
still pay the same dollar amount, meaning that the
employee will receive all of the economic benefit of
choosing a higher deductible, or will bear all of the
cost above that amount for choosing a more expensive
HMO.
Attached hereto as Schedule A is a schedule that
summarizes the monthly premium that the Firm will pay
(and the amount that the employee will pay) under each
option.
Your Action Items
Participants currently enrolled in medical
benefits will have the opportunity to change their
medical plan elections. Please prepare as follows:
· Watch for a personalized summary of your current
medical coverage which will be provided to you (via
email) by the Benefit Services Department.
· Familiarize yourself with the new benefit
structure and related costs referenced on Exhibit A
(attached hereto). Information also is available in
K&EConnect.
Associates and Employees:
As explained above, it is very important that you
carefully analyze your options. In particular, you
should consider the following:
· The $1500 Deductible PPO provides a co-payment
for network doctor office visits and for prescriptions.
The deductible does not apply to these services. The
deductible also does not apply to wellness visits.
· Employees who are switching from a lower
deductible plan to a higher deductible plan will
generally see no significant increase in their monthly
premium, and may in fact see a meaningful decrease.
For example, employees in Level Two with family
coverage who now have the $500 deductible pay a monthly
premium of $325 per month. If such employees switch to
the $1,500 deductible, the monthly premium will be $327
per month, an increase of $2. If such employees switch
to the $5,650 high-deductible family plan, the monthly
premium will drop by more than $200 per month.
· Health insurance premiums are pre-tax, meaning
that you effectively receive a tax deduction for the
premiums you pay. However, please be aware that
President Obama and Congress are considering major
changes to the U.S. health care system which includes
potential changes to the taxation of premiums. The
possibility of these changes is one reason why no
changes are being made at this time for employees
earning less than $90,000 per year.
· If you switch to the high-deductible PPO plan,
you may be eligible to make tax-deductible
contributions each year to a health savings account (if
applicable). In effect, this permits you to claim a
tax deduction for the amount you deposit into the
account.
· For individuals who currently participate in
certain HMOs in New York and California, these changes
will result in a significant increase in monthly
premiums. While no one is happy about this, the simple
fact is that some of those HMOs are incredibly
expensive (in some cases approaching $2,000 per month
for family coverage). Individuals who have these HMOs
may need to consider switching to a PPO, or will need
to understand that they will need to bear a higher
share of the costs if they wish to continue using these
very expensive health insurance programs.
IMPORTANT: If you are currently participating in a plan
for which you will no longer be eligible and you do not
submit an enrollment change, you will be automatically
enrolled in the $1,500 Deductible PPO.

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