Tiered Employer Contributions at a 20-Person Litigation Firm
A 20-person litigation firm in Los Angeles consists of 4 equity partners, 8 associate attorneys, and 8 support staff (paralegals, legal assistants, and administrative personnel). The partners want their medical premiums fully covered by the firm. Firm management wants to cover 75% of the employee-only premium for associates and 50% for support staff. The question: can a California employer legally structure different employer contribution amounts for different categories of employees on the same group health plan?
What the Employer Needed
- A single group health plan covering all 20 employees on one carrier contract, not three separate plans
- The ability to pay different employer contribution percentages based on employment classification (partner, associate, support)
- Compliance with California group insurance rules and IRS non-discrimination requirements under IRC §105(h) for self-insured plans (or HIPAA rules for fully insured plans)
- Clear documentation of contribution tiers in the plan's Summary Plan Description (SPD) and carrier enrollment materials
What to Compare
Bona fide employment classes under California law. California insurance law and federal ERISA rules allow an employer to offer different contribution structures to different “bona fide employment classifications.” A bona fide class must be based on a genuine employment distinction that exists independently of the health plan — it cannot be created solely to give certain employees better benefits. Common examples recognized by carriers include: full-time vs. part-time employees, salaried vs. hourly employees, employees in different geographic locations, employees in different job categories (management vs. non-management), and union vs. non-union employees. An equity partner vs. associate vs. support staff structure qualifies as a bona fide classification at most law firms because these distinctions reflect real differences in compensation structure, ownership interest, and job function that exist regardless of the benefit plan.
How contribution tiers work in practice. The employer submits enrollment documentation to the carrier that identifies each employee by contribution class. The carrier does not typically administer different contribution percentages — it simply bills the employer for the full group premium and the employer handles the allocation of cost internally through payroll deductions. The carrier charges one combined group premium based on the full enrolled census. The employer then deducts different amounts from each employee's paycheck based on their classification. Partners pay nothing out of pocket; associates pay 25% of their employee-only premium (and a separately defined contribution toward dependent tiers); support staff pay 50% of employee-only premium. These deduction amounts must be documented in writing and applied consistently within each class.
IRC §105(h) non-discrimination for fully insured plans. For fully insured group health plans — which describes the vast majority of small and mid-size employer plans purchased from carriers like Anthem or Blue Shield — the ACA's non-discrimination rules under IRC §105(h) were not enforced at the time of this writing pending further regulatory guidance. However, the underlying rule requires that fully insured plans not discriminate in favor of highly compensated individuals (HCIs) with respect to eligibility or benefits. Law firms should document their classification structure carefully and consult employment counsel to ensure that any tiered contribution arrangement does not inadvertently create prohibited discrimination. The safest structures are those where all employees are eligible to enroll in the same plan on the same terms — the only variation is in the employer's contribution amount, which is generally permissible under current guidance for fully insured plans.
Anthem PPO vs. Blue Shield PPO for a downtown LA law firm. Both Anthem Blue Cross PPO and Blue Shield of California PPO provide extensive networks in the LA metro area. For attorneys and partners who frequently travel for depositions, hearings, or client meetings throughout Southern California, a statewide PPO with strong out-of-area coverage is essential. Anthem's PPO network (through the BlueCard national network) is particularly valuable for attorneys who appear in federal courts in other states — the BlueCard network provides national in-network access. Blue Shield's PPO is similarly strong for California coverage. Either carrier can accommodate tiered employer contributions; the choice comes down to specific physician network preferences and plan pricing for the firm's ZIP code and census.
Dependent contribution structure. The tiered contribution design applies to the employee-only premium, but dependent coverage is a separate consideration. The firm may choose to offer 100% employer-paid employee coverage for partners while offering 0% toward dependent premiums (dependents pay full cost). Associates might receive 50% employer contribution toward dependent premiums; support staff may receive no employer contribution toward dependents. This secondary tier for dependents must also be documented clearly. Many firms find that providing a meaningful employer contribution toward dependent premiums is an important retention tool for associates who have families, even if the contribution is relatively modest (e.g., $200/month toward dependent premiums).
Broker-Style Takeaway
- Tiered contributions are legal for genuine employment classifications. Partner, associate, and support staff are widely recognized as bona fide employment classes at law firms. Document the classification in the SPD and apply it consistently. Do not create a classification structure whose primary purpose is to route better benefits to owners — that draws regulatory scrutiny.
- Choose a national PPO for litigators who travel. Attorneys who appear in courts outside California need a national network. Anthem's BlueCard PPO and Blue Shield's national PPO access both cover this need, but confirm national network strength with your specific plan tier before enrolling.
- Address dependent premium contributions explicitly. A plan that pays 100% for partner employees but nothing toward dependent premiums can create unexpected retention problems when associates with families compare total compensation to peer firms. Even a modest employer contribution toward dependent premiums sends a meaningful signal.