Companies See Legal Plans as Cheap Perk

At a time of shrinking employee benefits, here’s one that’s growing:  legal services.

More employers are offering legal-service plans to employees, and the number of subscriber has nearly doubled since 1983, to 7.6 million, says the National Resource Center for Consumers of Legal Services, a clearinghouse for information on legal plans based in Gloucester, Va.

“Legal care is fast becoming the next major employee benefit,” says Joel Hyatt, founder of Hyatt Legal Plans Inc.

Indeed, big insurance companies that sell employee health and life insurance packages are entering the field as legal-service providers, well aware of the potential for good profit margins.  The payoff to employers is they can offer legal services and garner the goodwill of their employees—without spending any money.

Some plans, such as AT&T Corp.’s, are company-paid, but more often employees end up paying the premiums themselves, a fact that isn’t always effectively communicated.  

Retail giant Sears, Roebuck & Co., for example, began offering a Prudential Insurance Co. legal plan on Jan. 1, and about 5,000 of its 150,000 employees signed up.  Although Sears says it described the benefit as entirely employee-funded, that fact eluded some subscribers, such as Sears manager Sean Craig of Lansing, Mich.

“I pay a monthly deduction out of my paycheck, but Sears picks up the lion’s share of it,” says a grateful Mr. Craig.

That impression isn’t surprising considering that monthly premiums are only $8 per individual, less than many employees pay for health plans that are company subsidized.

Legal-plan coverage is similar to medical coverage through health maintenance organizations.  In exchange for a set premium – usually ranging from $80 to $200 a year – subscribers are entitled to free legal advice, representation and document reviews from a network of approved attorneys.  The lawyers providing the service usually are solo practitioners or members of small firms, who generally receive fixed fees from the plan provider.  

Although the number of companies offering legal plans isn’t known, insurance companies report a big increase in demand by employers.  “Some of our larger institutional customers have asked for legal plans,” says James O. Boothe, director of group insurance marketing for Metropolitan Life Insurance Co.  While Met-Life currently offers no legal-services plan, it is considering doing so through a joint venture.

Until recently, the legal-services field was dominated by a few small companies and law firms.  People in the industry say the interest of big insurers is a sign the industry is maturing.  

Insurance-company profit margins on legal services hover around 15% -- about four times higher than on health plans, industry officials estimate.

Little wonder that Prudential recently stepped up its national marketing.  “We’ve really expanded the market substantially in the last 30 months, and it’s really taking hold,” says James L. Snyder, director of group marketing for Prudential Legal-Care.

But critics generally have questioned whether employees are getting their premiums’ worth.  The critics assert that some of the plans hire lawyers who should be better qualified.  Detractors also have said attorneys could use legal plans to generate higher-priced legal work that isn’t covered by the prepaid plans.

Providers, however, contend that abuses are rare and that their products give middle-income Americans access to counsel most couldn’t otherwise afford.

Plans are available to individuals or through groups, although group plans tend to cost less.  Depending on the size of their work force, big companies – even if they don’t contribute to premiums – can win big discounts for employees.  Among other Fortune 500 companies offering the plans are Procter & Gamble Co. and General Motors Corp.

Most plans offered through employers pay for such expenses as wills, real-estate transactions on first homes, adoptions, tenant disputes with landlords, debt matters, divorce and traffic infractions.  When Walter Greenwood, a manager at AT&T Global Business Communications Systems in Basking Ridge, N.J., recently refinanced his home mortgage, he used free legal help available from an employer-paid plan with Midwest Legal Services Inc.  “Saving $600 in the cost of refinancing is a significant reduction,” he says.  “I didn’t have to pay that, which helped make it possible.”

Some plans explicitly exclude expenses stemming from driving while intoxicated and other criminal and civil matters because of the potentially high cost and companies reluctance to get involved in controversial cases.  Nor is a worker’s suit against his employer covered.

-Andrea Gerlin, The Wall Street Journal

Tuesday, March 14, 1995

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