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Open panel plans are far more uniform in size the values for the mean number of claims paid were considered to be reliable. They are as follows:

1977: 139.2 claims paid per plan.

1978: 149.1 claims paid per plan.

1979: 162.4 claims paid per plan.

These values are not inconsistent with the mean size for open panel plans of 314.7 persons per plan.

2.8 Plans costs

Plans were asked about the amount of the contribution received by the plan on behalf of each member. The mean plan contributions, by funding source, are found in Table 2.17. The mean plan cost per member per year, across all plans, was found to be $78.73. Considerable difficulty was experienced by the plans in responding to appropriate questions on the mail questionnaire. Some appeared to think that the question asked for the aggregated contribution to the plan on behalf of all members rather than a per member per year amount. Accordingly, it was necessary for a plan expert to manually examine all responses to this question in order to identify incorrect data values. When incorrect values were identified, the procedure required them to be excluded from the group of responses, since there was a substantial risk of incorrectly calculating a per member per year figure based upon other data provided in the questionnaire.

One factor, the presence of telephone advice and consultation plans, is believed to have depressed the cost figure for individual payment plans. Telephone advice and consultation plans report their costs to be in the range of $30 to $45 per person per year. Nearly 20 percent of the study population consists of this type of plan. While no cross tabulation was done for cost by type of benefit structure, this sudy as well as plan literature indicates that telephone advice and consultation plans are frequently funded through individual payment plans, and also by employee association plans, but almost never by employer-funded plans. Accordingly, the cost figures for employer-funded plans can be characterized as covering plans uniformly providing comprehensive benefits, while cost figures for employee association plans include plan providing less broad benefits as well as plans providing telephone advice and consultation benefits. The cost figures for individual payment plans must be viewed as covering a mixture of both plans with comprehensive benefits, and plans providing telephone advice and consultation benefits.

Table 2.17.-Mean amount of contribution, per member per year, by funding

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Plans were also asked whether additional contributions were required for members or employees with spouses and dependents. More than 92 percent of the plans indicated that no additional contribution was required. For those requiring additional contributions, the amount of the contribution ranged between $16 to $24.

One of the objectives of the study was to collect baseline data on the costs of open and closed panel plans in order to determine whether delivery system was a factor influencing plan cost. While some data was collected on direct and indirect plan costs, it is not sufficient to begin to undertake any examination of the delivery system question. Instead, the authors refer interested readers to a study presently being conducted under the auspices of the American Bar Association Prepaid Legal Services Committee by Professors Richard J. Arnould and Robert W. Resek (University of Illinois) compairing “the cost of staff panel and participating attorney panel prepaid legal service plans".

2.9 Summary and profile of plans

The study population is a subset of the universe of plans, and consists of approximately 60 percent of the universe. Insurance plans are underrepresented in the study population. Otherwise, it is believed to be representive of the universe of plans. All of te plans in the study population have the following characteristics:

The plan is established, maintained or funded by a group, such that the group sponsors, collects funds, administers, or performs some function in connection with the plan;

The group associated with the plan is employment-related, consisting of either an employer, an employee association, or some other employment related organization; The plan involves prepayment for services at the rate of $5.00 per member per year or more.

The plans include many diverse types and structures. The most important plan variable is source of funding. Three major and three minor funding categories were identified; the major categories include employer-funding, employee association (or union) funding, and individual payment. An important but secondary variable is delivery system.

Only the union or employee association plans have been in existence for any length of time; 41 percent of these plans in the study population were established prior to 1973. The first employer funded plan was not established until 1974 and individual payment plans did not begin to increase quickly until 1975.

Based on 215 plans reporting membership figures, 19.1 percent of the plans were employer-funded; these plans covered 59.7 percent of the people participating in plans. Union or employee plans counted for 16.9 percent of plans and 36.1 percent of people participating in plans. These two groups of plans account for 95.8 percent of people participating in prepaid legal service plans. The third category, individual payment plans, account for a substantial 64 percent of plans but only 4.2 percent of covered persons.

The mean size of plans (correcting for three extreme cases) is 1,393 persons per plan. The plans can be found in every region of the country, though not in every state. Considering only plans established by employers and employee associations, the mean plan size is 2,915 per plan.

The study population is characterized by a large number of extremely small individual payment plans and a smaller number of substantially larger employer and employee association plans. The employer and employee association plans include a number of extremely large plans, each of which is four or five times larger than the next largest plan in each group.

With the exception of plans providing primarily telephone advice and consultation benefits, benefits provided under all plans are reasonably comprehensive in scope. Only union or employee association plans provide more somewhat limited benefits.

In addition the following analysis revealed the following findings:

1. The most common areas of coverage provided by more than 85 percent of all plans were advice, real estate matters, wills, and consumer matters. Divorce was provided by nearly 80 percent of the plans.

2. A substantial majority of the plans provided coverage for juvenile, traffic, misdemeanors and felony criminal matters.

3. Probate and personal injury coverage, both traditionally provided on a contingent fee basis, are covered in some way by a large proportion of the plans (69.1 percent and 56.3 percent respectively).

4. Approximately half of the plans provide some coverage for the non-fee costs associated with legal services.

5. Nearly half of the plans will provide representation in tax court but few provide tax preparation services.

6. A substantial proportion of plan coverage involve legal matters where the government is a party or is being petitioned to grant some privilege or status. A large proportion of plans extend eligibility to persons other than the primary participant. Spouses and dependents are most often covered, usually with no additional contribution or premium payment required. Retirees and part-time employees are also covered by a substantial number of plans. Unilaterally employer-funded plans are the only plans extending eligibility to officers, owners and shareholders in any significant proportion.

The second major plan variable, delivery system, provided an interesting but incomplete picture of the factors with which different delivery systems are associated. It was found that the open panel delivery mechanism, when correlated with size, has not been used by larger plans; 62 percent of plans use closed panel or staff delivery systems and 33 percent use a mixture of open and closed panel systems, leaving fewer than 5 percent of the plans utilizing only open panels to deliver services. Union and employee association plans and individual payment plans strongly favor closed or staff delivery systems. Employer-funded plans are evenly divided between open panel plans and closed or staff plans.

By a small margin, open panel plans do appear to provide benefit packages including slightly broader coverage (i.e., specifically covering more legal matter).

This is partially a function of the type of benefit structure, however, since many closed panels use an Hour Bank approach which does not limit coverage to specified legal matters.

The mean plan cost, across all plans, is $78.73 per person per year.

Following are brief profiles of major types of plans, categorized by sources of funding.

Employer-funded plans established through collective bargaining.—These plans first appeared in 1974, after a 1973 amendment to the Taft-Hartley Act made legal service plans a legitimate subject of collective bargaining. Their mean size is 4,651 persons per plan. At least one employer-funded plan is national in scope. Due mainly to the large size of the 1 plan, plans of this type account for nearly 60 percent of the persons presently participating in a prepaid legal service plan. Employer-funded plans established through collective bargaining employ all of the different benefit structures which have been identified. The plans are evenly divided between open and closed panel delivery systems. Benefits are extended not only to employees but also to the spouses and dependents of employees. One-third of the plans extend eligibility to part-time employees and more than half also cover retirees. Fewer than a third extend coverage to officers, owners, or shareholders. For those plans using a dollar ceiling as a limitation on use, the mean amount of the ceiling is $3,560 per year, a higher figure than for plans of any other funding source. The mean cost per person per year is $87.

Employer-funded plans established unilaterally by employers.—These plans comprise the smallest type of plan, with a mean size of 50 covered persons per plan. They do not yet constitute a significant class of plans either in numbers of plans established or in numbers of persons covered. Similar to plans established through collective bargaining, the first unilaterally employer-funded plan was not established until 1974.

Legal services are provided through both open and closed panel delivery systems. Like the collectively bargained employer plans, spouses and dependents are provided coverage in all plans. Part-time employees are extended coverage in only 20 percent of the plans. However, the plans do provide coverage for retirees, officers, owners and shareholders 10 to 20 percent more often than collectively bargained plans. These plans have a dollar ceiling of $2,215 and cost $102 per person per year. This is the lowest ceiling and the highest cost per plan for which figures were available.

Union or employee association (dues) plans.-This category of plans constitutes 12.5 percent of plans and 34.8 percent of persons participating in plans, making it the second most important category of plans. The mean size (corrected) of duesfunded plans is 2,965 persons per plan; there is at least one extremely large plan included in the category.

The dues-funded plans differ in character from the employer plans in that their primary purpose is to serve members, not to compensate employees. Also, they are plans where the members, directly or indirectly through an elected representative, vote on whether to tithe themselves to pay for the program; the dues contribution comes directly out of the members pocket and is not subject to any kind of favored tax treatment.

These plans are usually provided on a closed panel or a staff basis. All kinds of benefit structures are found among the dues-funded plans, including plans providing primarily advice and consultation.

Two-thirds of the plans extend coverage to spouses and dependents and one-third extend coverage to retirees. Benefits are also somewhat limited than in employerfunded plans, covering fewer legal matters. (However, many dues plans utilize the Hour Bank benefit structure, which does not specify the legal matters which may be handled.) The mean cost of dues-funded plans is also lower, at $43.40 per person per year.

Union or employee association (general revenue) plans.—Like the unilaterally employer-funded plans, union or employee association plans provided through general revenues do not constitute a significant category of plans in terms of either numbers of plans or numbers of persons covered. The mean size of plan is only 814 persons. The small mean size compared to dues funded plans makes it difficult to characterize these groups except to say that they are small employee association groups with sufficient treasuries to fund their legal service plans out of general revenues without the necessity of having to seek a dues increase to fund the plan. Legal services are provided using all kinds of benefit structures, but services are usually provided on either a closed or a staff panel basis. Spouses and dependents are covered in not quite two-thirds of these plans. Part-time employees are also covered in not quite two-thirds of the plans. This is a high proportion compared to

other funding sources. Fifty percent of the plans funded through general revenues include retirees. Only 25 percent extend coverage to officers of the group.

No data is available on the mean cost per person per year.

Individual payment plans (voluntary and mandatory).-Because there are so few mandatory payment plans, they have been grouped for purposes of discussion, with the voluntary plans.

These plans constitute the largest category of plans, more than 60 percent, and are perhaps the most diverse. However, individual payment plans also constitute a relatively small type of plan, with a mean size of approximately 200 persons per plan, and contain less than 5 percent of the total number of persons participating in prepaid plans.

In some cases these individual payment plans will not be plans subject to ERISA because they are not "established or maintained by an employer" as that phrase is interpreted by the Department of Labor and the court. Yet they are plans established in an employment context with a sufficient nexus to the employment group to be considered a group plan; importantly, the employers were aware of the plans and their employees' participation in it. These plans were included in the study population because of their potential for conversion to employer funding in the future.

Most of the individual payment plans could be characterized as "commercial" legal service plans. They are marketed to many different groups and often are centrally administered. Nearly three-fourths of these plans form part of a plan cluster. For some of these plans, the sponsoring group is an employer credit union; approximately 20 percent are advice and consultation plans.

By a three to one margin these plans provide services on a closed panel or staff basis; they include all of the different benefit types. Because plan participants individually pay their contribution or premium, individual payment plans have no reason to restrict coverage unless a client group requests that they do so. Nor surprisingly, therefore, individual payment plans have broad eligibility guidelines. Benefits under individual payment plans appear to be extremely carefully defined and generally quite broad, extending to a wide range of legal matters. Also, dollar ceiling is comparatively high at $3,240. The mean cost is $74 per person per year, although this figure probably represents a mixture of low cost advice and consultation plans and higher cost comprehensive benefit plans.

Hon. ROBERT PACKWOOD,

MARYLAND STATE BAR ASSOCIATION, INC.,
Baltimore, Md., May 25, 1981.

Chairman, Subcommittee on Taxation_and_Debt Management, Committee on Finance, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: The Board of Governors of the Maryland State Bar Association, representing its 8,000 members in the State of Maryland, unanimously passed a Resolution at its meeting on May 19, 1981 to support the passage of Senate Bill 1039 which will have the effect of making Section 120 of the Internal Revenue Code permanent.

Very truly yours,

CHARLES O. FISHER, President.

Re prepaid legal services plans S. 1039.

Hon. ROBERT PACKWOOD,

THE IOWA STATE BAR ASSOCIATION,
Des Moines, Iowa, May 20, 1981.

Chairman, Subcommittee on Taxation and Debt Management, Committee on Finance, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: The Board of Governors on behalf of The Iowa State Bar Association unanimously endorses and supports S. 1039 which would make Section 120 permanent.

We sincerely hope that the above bill which you are sponsoring will be adopted by the Senate.

Respectfully,

EDWARD H. JONES.

AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES,
Washington, D.C., May 13, 1981.

Hon. BOB PACKWOOD,
Chairman, Senate Finance Subcommittee on Taxation and Debt Management, U.S.
Senate, Washington, D.C.

DEAR CHAIRMAN PACKWOOD: On May 18, you will hear testimony on S. 1039, which makes permanent the exclusion from taxable income of amounts received under a qualified group legal service plan. The American Federation of State, County and Municipal Employees (AFSCME), a labor union representing more than one million public employees nationwide, urges you to support this legislation. The Tax Reform Act of 1976 contained provisions to encourage employers to provide group legal services for their employees. Since that time, the number of employer-related legal service plans has grown at a tremendous pace. However, a provision of the 1976 Act which makes the value of legal service benefits provided by an employer tax-free for employees, will expire on December 31, 1981. Should this provision expire, the continued growth in the utilization of legal services by many working individuals in the moderate income bracket, may be diminished. During the 97th Congress, recommendations to limit or eliminate the availability of legal services for the poor have been proposed. AFSCME opposed these proposals because of our strong belief and support of the right to legal representation of all Americans, regardless of their financial status. We, therefore, urge you to support S. 1039, which assures the continued existence of legal services provided by employers for employees.

We would appreciate having our letter inserted as part of the official record. Sincerely,

JOSIAH BEEMAN, Director of Legislation.

MCNEES, WALLACE & NURICK,
Harrisburg, Pa., May 20, 1981.

Hon. JOHN HEINZ,
U.S. Senator,

Washington, D.C.

DEAR SENATOR HEINZ: During the past ten years, I have been chairman of the Pennsylvania Bar Association Committee on Prepaid Legal Services. During that time, our committee has been active in advancing the development of group legal services plans, in order that a greater portion of middle income people will be able to obtain competent legal services during their times of need.

Among the early barriers to the proliferation of employer-funded legal services plans was the lack of a tax deduction for such contributions. This barrier was removed by the amendment of Section 120 of the Internal Revenue Code, which provided a tax exemption for such plans; however, as you are probably aware, this exemption would expire on December 31 of this year. I understand that your Senate Committee on finance conducted a hearing into this matter on May 18, and I am sure that you have received sufficient information and arguments in support of continuing this exemption. Federally and state funded free legal services plans have, for the most part, taken care of much of the need for legal services to the poor, and the higher income groups are usually able to afford their own legal services. The problem has been in providing legal services to the large middle income group who need to have a prepaid or employer-paid plan available for emergencies and unusual circumstances. In order to accommodate that need, and encourage the further development of employer-funded plans, we urge your support of Senate Bill 1039.

Sincerely,

83-405 0-81--6

J. THOMAS MENAKER,

Chairman, Committee on Prepaid Legal Services,
Pennsylvania Bar Association.

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