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Legal Assistance Offers Prepaid Peace of Mind

October 1, 1996
Related Topics: Benefit Design and Communication, Miscellaneous Legal Issues, Featured Article
You and your employees have a 50% chance of running into a situation this year that a lawyer can be helpful in solving, according to the American Bar Association, based in Chicago. Life—the simple act of living—has always required its fair share of legal dalliance. Marriage, births, adoptions, deaths all bring with them their portion of attorney paperwork.

Recent years have only increased the chances of winding up in court. Does the phrase "litigious society" mean anything to you? Filing lawsuits seems to rival baseball as America's favorite pastime: You're three times more likely to go to court this year than to the hospital. Yet, while employers tinker endlessly with hefty medical plans, it's a relatively rare company that offers legal-services plans.

This situation is, however, beginning to change. According to a 600-company survey conducted late last year by Lincolnshire, Illinois-based Hewitt Associates LLC, only 4% of employers offered prepaid legal plans—but 10% planned to add them in the next three years. And why not? As employers snip and clip so many other areas of employee assistance, here's one that seems an HR dream: a low-cost, high-value benefit that employees will rave over. With a little bit of background information, a little bit of data-gathering and a few words of caution, you can install this benefit at your company. You'll gain a goodwill advantage and a bottom-line boost with limited investment on your part.

How they work.
You know how an HMO works? Then you're very close to understanding how prepaid legal services work. In these plans, employees pay a flat fee—generally $10 to $20 a month depending on the extent of coverage—in return for access to a network of lawyers that will handle a variety of legal issues. Enrollment can be voluntary, for which employees must sign up themselves—often as part of a flexible benefits program—with the premium deducted from their paychecks. However, enrollment also can be automatic, whereby a company covers all its employees, or refers them to legal services as part of an Employee Assistance Program (EAP) component.

Not surprisingly, the vast majority of employers go the voluntary route—their only cost is the time setting up the system and the small administrative expense of payroll deduction. The average cost to employees is $120 per year, according to Chicago-based American Prepaid Legal Services Institute (APLSI).

You know how an employee covered by group medical insurance receives better price-per-service than a patient off the street? So too do employees under prepaid legal services get a break because they're part of a group. In fact, many major legal-service providers won't even consider taking on firms with less than 500 eligible employees. If, for instance, a client firm had only 10 employees enroll, one or two costly legal actions would wipe out any profit the legal-services company was expecting.

Just as insurance firms offer different levels of coverage, so do legal-services companies. To begin with, the most basic of group plans isn't a true prepaid plan at all (prepaid meaning the service is funded in advance). At this level, a referral-and-discount plan points employees to an attorney who will provide free or inexpensive consulting according to a certain fee schedule.

On the next level, an access plan is prepaid and provides members with unlimited legal consultation over the phone in addition to reviewing papers and preparing simple legal documents, such as wills or cease-and-desist letters. More complex situations are handed over to an attorney who provides these extra services at a discount. The member generally pays for these expenses in addition to the monthly premium payment.

Finally, comprehensive plans provide all the services of an access plan in addition to in-office and trial work. This level is designed to cover 80% to 90% of an average person's legal needs in a given year. Most group prepaid plans fall under this category.

Once a company enrolls in a plan, its members gain access to a group of attorneys—a panel. Where do the panel lawyers come from? "Most are privately licensed, general practitioners," says Alec Schwartz, executive director of American Prepaid Legal Services Institute. "Many times the plans will have certain criteria with regard to experience, office location, telephone [accessibility] and malpractice insurance before a lawyer can be accepted as being a participating provider."

There are three types of panels. The most restrictive but easiest to administrate are closed panels, according to Brookfield, Wisconsin-based International Foundation of Employee Benefit Plans. Closed panels require the employee to choose from preselected attorneys. On the other end of the spectrum—in an open panel—an employee may choose any licensed attorney, and the plan then reimburses the employee or pays the attorney. Most employers try for a happy medium with a modified panel, in which employees are guided toward prepaid panel attorneys who provide most services at no cost. However, employees are also free to use their own attorneys, after which they're reimbursed partially or fully according to the type of work performed.

Why they're growing in popularity.
Prepaid legal services first gained Corporate America's attention in the late '70s, because of the favorable tax treatment they provided. In 1992 these tax benefits were axed, but by then the idea had caught on. (There are, in fact, several proposals in both houses of Congress to reinstate a tax break.) In 1995, 18.5 million Americans were enrolled in prepaid legal plans, according to the American Bar Association. The number includes spouses and children—common to most plans.

So why is this benefit booming now, after its tax incentive has been removed? For one thing, the workplace atmosphere is ripe. Thanks to HMOs and flexible benefits, employees are now accustomed to paying for services on their own under company-chaperoned plans. That's exactly how Sharon Bohlman, vice president benefits and employee services at McLean, Virginia-based PRC Inc., came across the idea for prepaid legal. PRC's flex-benefits program serves as an umbrella for myriad employee offerings, including prepaid legal from Cleveland-based Hyatt Legal Plans Inc. "We work very hard to offer our employees work/ family benefits and try to take care of their needs," she says. "Legal is one of those." It was well-received. Typical enrollment in an employee-paid plan hovers at 10%. The first year for the legal program at PRC saw a 21% enrollment, and continues to grow.

Colleen Carr-Blaxill, supervisor of employee benefits for New York City-based Salomon Brothers Inc., began offering employees legal services from Des Moines, Iowa-based Midwest Legal Services for much the same reason. "Our whole approach to benefits is to offer employees a multitude of plans to help them with different phases of their lives," she says. "We heard about legal services and thought that was an inexpensive plan to offer; and for employees going through certain phases in their lives, it can be really beneficial."

As odd as it may sound at first, legal benefits can find a nice niche under the work/life rubric. Consider, for instance, the employee who is having landlord woes. What if, instead of worrying about it on the job, she could pick up a phone and have her answer? If she were a Sears, Roebuck and Co. employee she could. Since 1995, 5,000 of the firm's employees have solved their legal problems through the company's alliance with Prudential LegalCare, a Louisville, Kentucky-based service that has seen a 75% growth rate since 1993. Both full-time and 1,000-hour part-timers are eligible, making a potential enrollment of 160,000 employees. "These are the kinds of issues that our associates would be standing around on the sales floor talking about, worrying about, making phone calls to handle," says Renee Tehi, manager of benefits planning and administration (Tehi has since left the company). "We think we offer them a way to deal with those issues so they don't have to worry about them all day on the job."

It's true that most employees, particularly those in the middle to lower levels, have had little experience with the legal system and are intimidated by it. If they think they can handle a problem themselves, they will. By the time they figure out what they're up against, their procrastination may have allowed a small legal nuisance to swell into a big legal nightmare. According to a Hyatt survey, more than 60% of Americans have legal needs that go ignored because they're wary or unsure of how to access the legal system. "There's still somewhat of a reluctance for people to consult a lawyer," admits Schwartz of APLSI. "I mean, you only consult lawyers if you're a weak person, an evil person or not able to take care of your own stuff. But having the employer sponsor [a service], and having legal advice accessible by the phone—that goes a long way to help people get over the idea that they don't use lawyers except in dire circumstances."

In fact, the majority of problems are simple ones that truly can be handled by phone. In a survey by APLSI, for 80% of respondents a phone call alone solved the problem. Just as important, for 78% the consultation "reduced stress that otherwise might have affected performance or resulted in time off work."

Bohlman also emphasizes the helpfulness of unlimited phone advice. "Every time you have what might look like a legal situation, you can pick up the phone and be assured that it either will or won't be," she says. "If it will, you can rest that much easier by talking to a lawyer, which typically you wouldn't do for two reasons. One: It's very costly. Two: Most of us can't pick up the phone and call an attorney because we don't know an attorney." Bohlman used the service herself last year when a person she sold a car to wanted to return it, claiming the state had a three-day "buyers' remorse" right to return. Bohlman didn't know if that was true, but a quick call to a lawyer assured her it wasn't. He offered to explain the situation in writing to the mistaken buyer. "It was just so nice not to have to worry about it," she says.

Aside from employees focused on work instead of legal conundrums, employers gain a lot of simple goodwill for very little expense. Most employees are more than happy to fork over their $120 to $200 a year just for the peace of mind. But if, for instance, they access the service even twice in a year, they've generally saved money on the deal. "If you're in a legal plan that covers the advice for the purchase or sale of your home, and then you [write] a will later that year, you'd get a few years of your annual enrollment right there," says Joel Hyatt, president and CEO of Hyatt Legal Plans, whose business is growing annually by 20%.

Bohlman tells the story of one PRC employee, a single mother who'd been struggling for years to buy her own house. While pulling together the last of her resources, she got socked with a lawyer's estimate of $750 to help with the legalities of real-estate purchasing. Fortunately, she'd enrolled in the legal plan, and Bohlman promptly referred her to the program. Under PRC's coverage, the real-estate service was free. "To her it was just the icing on the cake," says Bohlman. "She was so thrilled. It was like a gift—it made her house even better. We've actually had a number of really dear stories like that, and a lot of wonderful experiences."

Is a prepaid legal service for your company?
Before you start comparison shopping for prepaid legal services, a few words of caution. To begin with, again, there's company size. If your company is a smaller one, consider this statistic before deciding. According to APLSI's Schwartz, anywhere from 5% to 25% of employees will enroll in a prepaid legal plan. If you're a company of 100 with 15 employees who sign up, do the math for your return on investment after setting up the service and administrating it. It may not be worth the expense. (Check into this before giving up, though. Some plans' major selling points are that they handle all the administration themselves.)

Next, you should know that some critics of prepaid legal services claim that plan-sponsored lawyers may not be the best-qualified—or may even try to steer naive employees into costly legal work not covered by the plan. Hyatt called the idea "uninformed criticism. I'd say the proof is in the pudding. You couldn't keep an account unless employees were being very well-served and very well-satisfied. You couldn't build this concept unless you were really delivering on it." The companies Personnel Journal spoke with also scoffed at the idea. They basically had nothing but praise for their plans—and boasted approving employee surveys to back that up.

Finally, an HR professional considering legal plans may worry the service will come back to haunt the company. Will the employer be liable for legal advice gone astray? Will employees generate more lawsuits against their employer if they have round-the-clock access to free legal advice? Unlikely, on both counts. That's because every good plan contains a hold-harmless agreement, in which employers are completely removed from liability. Plans should also have a condition barring any action against employers. But, warns Schwartz, the actual advice and consulting aspect can't be regulated. An employee can ask any employment-related question and receive any kind of legal advice. Again, however, the companies Personnel Journal spoke with had neither any problems nor worries on this front.

So, if you're still interested, where should you go from there?

Find a plan that fits your company.
When beginning the hunt for a service, the first thing to decide is how big the network of lawyers in the plan needs to be. If your company is nationwide, you'll need a network of attorneys across the nation. "We have associates in 2,000 units across the country," says Tehi of Sears, based in Hoffman Estates, Illinois. "We have associates in every zip code. So for us it was real important how many attorneys [a service] had." That's one of the reasons Sears went with Prudential LegalCare—it has legal offices in each state, with an attorney's office in individual states contracted to handle all phone advice.

Once you've found a service that's the right size for your company, the next most crucial issue is accessibility and user-friendliness. The plan should be very customer-service oriented. Again, we're dealing with employees who are a little jittery about the legal system, so if the service is convoluted, confusing or difficult to navigate, it will be of no use.

Tehi demanded unlimited phone advice with easy employee access. So before committing to any service, she phoned up all finalists' toll-free numbers. "I wanted to see how each feels," she says. "Do I really get through to an attorney or do I get a customer-service person who gives me the run around? If [my situation] is something that can be handled over the phone, do I immediately get connected to an attorney's office? If I need an office visit, am I sent a list of attorneys and a claim form?" Tehi says one service she nixed early on had a panel of attorneys, but the toll-free number was managed by a completely different organization. "I knew right away that wasn't going to look seamless to our associates," she says.

In this vein, Hyatt suggests checking the usage rate of each service: "You want to look at usage rates very carefully, because they're a good indicator as to how easy the program is to use." Most old-hands also recommend ensuring that a firm gives constant feedback on the user rate of your own employee population.

Finally, you must decide how extensive a service you want, because they come in all cost ranges. Sears employees pay $8 a month singly, $11.75 for the family. PRC's program is $10 a month, single or family. Salomon Brothers' plan costs approximately $15.50 a month for an employee, $19.50 to include the family. The question to consider is how much disposable income your employees have. If your company has a lot of employees who are in lower-paid categories, then you don't want to develop a plan that costs $16 a month, because the people you really want in the program, and who would benefit the most, essentially can't afford it.

Remember, it's your plan. So your final screening should be to ensure the legal service is willing to take its plan out of the cookie cutter and work with you to mold it to your company. "Can the provider come in and include services and exclude services based on our need?" says Tehi. "We had a vendor who just said, 'Here's the benefit, take it or leave it.' That wouldn't work for Sears."

Consider coverage options.
Before you decide what you want to cover in your plan, you should probably decide what you absolutely don't want covered. Besides the universal exclusion of actions against the employer, there are several areas you may want to consider. For instance, most companies opt to exclude criminal cases. First of all, they're extremely expensive; secondly, they carry a definite stigma. Sears took a bit of a twist on this one: Although the company won't cover criminal cases for its employees, it will cover criminal charges against juveniles. "With a juvenile, it generally can be handled more expeditiously, not as expensively," says Tehi. "And it helps the parent who's going to worry about it on the job. The parent didn't commit the crime, but he or she is the one who has to deal with it."

Another controversial area is divorce. Again, like, criminal cases, it can be very expensive. Only 2% of employees undergo divorce proceedings each year, but they may add as much as 50% to the plan's cost. Also, for some companies, they can carry a stigma. Says PRC's Bohlman: "We don't cover divorce, DUI, anything we thought had a little bit of morality attached to it. We didn't want to issue a program that supported things we didn't think encompassed family values."

Sears, on the other hand, chose to include divorce up to certain dollar amounts, as well as post-divorce issues such as custody negotiations or harassment. This reflects Sears' own company values—it has a large single-employee and single-parent population. However, like PRC, Sears maintains an exclusion that supports its philosophy: Because Sears is deeply involved in the credit business, its plan refuses coverage for credit problems. The final word from all companies: It's your plan, so design it to fit your company—in size, cost, construction and values.

So now you know what you need to know. Legal services are less expensive than medical benefits and many other employment staples—yet they're just as likely to be used. And they'll be all the more appreciated because they're not your average-Joe benefit. "I really just would encourage everyone to not be afraid of it," says Bohlman. "It's just a really easy benefit, and one that's so well-received by the employees." When you and your employees have a 50/50 chance of needing legal assistance this year, legal services sound like a pretty good investment.

Personnel Journal, October 1996, Vol. 75, No. 10, pp. 48-56.

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