False Sense Of Security Still Prevalent Among Law Firms

In spite of overwhelming evidence that the booming economy enjoyed practically uninterrupted for the past 20 years has ended, at least for the near term, many law firms are still optimistic of their 2009 prospects.  I beg to differ.  I believe 2009 will start a strong shift in the make-up of many law firms due to the lack of any planning for the economic conditions.

Who can blame attorneys for being optimistic?  Regardless of the economy since at least the early 1980′s, lawyers have enjoyed consistently increased business and profits.  This has led to a complacency and a denial of the economic conditions that are facing the country.

Law firms aren’t alone.  In fact, the “big three” auto makers (Ford perhaps excepted) are acting out of a similar denial as they attempt to scare Congress and the President into paying for their internal problems.  Who didn’t see the failure of GM coming?  Was no one noticing the extravagant pensions being offered to the employees?  Did anyone who dared notice believe the ever slimming margins would cover the ever growing benefits?   Not likely.  As the Legislative and Executive branches delve deeper into the phantom pockets of our tax base, a  nice summary of the fallacy of “avoiding acting like Herbert Hoover” has been inked in an opinion piece by Todd J. Zywicki in the Wall Street Journal.

Law firms, though not nearly in the long-term slide as the domestic auto industry, is more sensitive to this economic downturn than many attorneys would like to admit.  Many firms have been spoiled by margins that exceed 50% without spending more than a passing glance at the indicators that led them to such bounty.  The issue isn’t so much a drop-off in business, though some firms who specialize in areas that are in the midst of collapse will certainly feel the pain.  Rather, the issue is how firms will retain good talent, retain their expected incomes and avoid layoffs of associates.

These are regular issues for most industries but are foreign to the mid-size law firm.  Many firms pride themselves in their “family” atmosphere, which includes the bratty sibling rivalries that are tolerated when times are good.  Salary incongruousness may seem a bothersome itch when profits are high, but once the deadwood becomes heavy the scratching becomes intolerable.  Some may panic to find their balance sheet showing a loss without ever seeing it coming.  Drastic change is put into place – at a time no worse to prepare.  No more is it wise to visit a market when hungry than to suggest change while in the midst of a spiral.

Yet our economy has afforded all of us time to prepare.  It was suggested by many (myself included as far back as March) that our economy was in for some hard times.  Firms with the foresight and gumption to plan and hold timekeepers accountable for providing not only quality service to their clients but ensuring prompt billing and payment for the betterment of the long term financial health of the firm are in a position now to profit over the firms who were complacent.

It’s not too late, however.  Many firms are just now seeing the first bumps in the road.  It is my opinion that the economic downturn is just now really beginning to hit middle America.  The massive layoffs (over 533,000 in November) are an indicator that the many months of body blows caused by the collapse of the credit and housing markets (not so unlike what happened in the late 1920′s, speaking of Herbert Hoover) are finally taking its toll.  The question now is, where is the bottom?

No one knows.  That is a troubling concern that should make you want to hug every dollar your firm receives and not let go of it.  In times such as these, power goes to those who hold cash.  This may change if our government attempts to over-spend its way out of our economic downturn (thereby devaluing the dollar, leading possibly to hyperinflation combined with stagnant productivity – a prescription for the “d” word), but as of right now, many believe that the economy should rebound sometime in 2010.

In my opinion, firms need to pay more attention to the profitability of each fee earner and place more emphasis on marketing activities and their key profit drivers.  Please feel free to email me (by clicking here) if you would like some ideas on how to not only retain your current income, but increase profits during an economic downturn.

The Case Against Universal Healthcare

A major part of the Democrat platform is the advancement of universal health care.  And who would blame them?  The health care system is ridiculous.  It is as far away from market-based as it has ever been in this country.  But is the solution to have it centrally managed by the federal government?  Or to return it to it’s market-based roots?

In my opinion, health care costs were bad in 1992, but since then have spiraled out of control.  I believe some measure of blame can be made on the universal coverage push made by then First Lady Hillary Clinton.  Though the objectives were noble, it mandated employers cover employees via heavily regulated HMOs.  HMOs had been around since the early part of the 20th century, but it wasn’t until the 1980′s in response to threatened socialization of medicine that they became popular.   The commercialization of HMOs came to a head in 1992, when for-profit HMOs were more numerous than non-profit HMOs.

There is little question that the 1993 health care plan exacerbated HMO growth and insurance carriers have taken over health care decisions ever since.

So is the answer federally guaranteed health care?  I went to a specialist the other day (referred by my primary care physician who seems more a referral stepping stone than a physician) who was refreshingly frank as to why doctors wouldn’t perform a certain procedure that used to be routine – lack of repayment by insurance carriers.  Insurers are controlling doctor decisions.  Even when doctors will perform procedures, they have to go through hoops to ensure payment even if they are certain the procedure must be done.  This causes needless delay and makes health care more expensive.

If I were a conspiracy theorist I could easily blame this on those seeking to instill universal healthcare on us – make the system so unworkable that people just want something different – change.

I prefer to think it is the meddling of health care by politicians with good intentions but with poor business sense.  If I were to go to 10 attorneys, I would get 10 variances in quality representation.  Based on the results, demeanor and cost I could determine who was the best and go to that attorney.  If I were to go to 10 doctors, I can only choose based on results and demeanor.  Cost is completely out of the picture.  This takes a market force and throws it in the trash – and is wrong.

Our country has safety nets for indigents that are subsidized by taxpayers – Medicare, Medicaid, and the Emergency Medical Treatment and Active Labor Act, which requires ambulance and hospital access to anyone regardless of citizenship status, legal status or ability to pay.

However, there is a problem with insurance coverage and preventative care.  Solving it, in my opinion, requires giving consumers the freedom to choose their care based on their pocketbook – not the pocketbook of an insurance carrier.  If individuals were able to choose care and insurers were only able to insure against catastrophic care (something, like any other supplemental insurance, can be done relatively inexpensively) the cost of care would reduce.

How?

How does the market work in every other arena?  Competition. Competition fosters efficiency and innovation and that leads to lower costs.

The alternative is universal care, or socialized medicine.  The argument for socialized medicine always starts with “every other industrialized nation has it”.   The Cato Institute has an article from 1996 that addresses European socialized medicine.  A highlight:

The Europeans have run into a very simple economic rule. If something is perceived as free, people will consume more of it than they would if they had to pay for it. Think of it this way: if food were free, would you eat hamburger or steak? At the same time, health care is a finite good. There are only so many doctors, so many hospital beds and so much technology. If people overconsume those resources, it drives up the cost of health care.

I maintain that we have been operating under a semi-socialized system for several decades.  Even if you consider the cost of health care in your paycheck, if you have met your deductible or have unused purchased health care, you are apt to use it more often, regardless of need.

I also believe that if the federal government were to control health care (and the cost of health care) it would damage the system tremendously.  Why?  Because lower cost reduces the incentive for quality doctors.  The best doctors would be in highest demand and those who don’t want to sit on a waiting list would pay a premium.  In other words, the only people would would benefit from universal care would be the rich, those who could afford paying extra.

Don’t fall for the rhetoric:  universal health care is a bad idea.  Our health care system needs to be fixed, but instead of socializing the system, we should look to lessening the presence of insurance companies in health care decisions.  In my view, putting the cost decision in the hands of consumers is a good step.

A federal tax incentive for saving for health care would encourage saving for your needs.  Rather than forcing you and your employer to set aside over a thousand dollars per month for a family of 4 that is paid to an insurance carrier, how about saving it in a money market account?  Then if you don’t use it, it accumulates and if you live long and healthy, you have saved up a nice retirement supplemental fund.

Catastrophic care needs insurance.  However, the risk associated with this for those who are healthy are low, meaning low premiums.  For those with chronic ailments, I believe the taxpayers are willing to help expand the safety net for those who need it.  It will still cost less than covering everyone.

What do you think?  Do you think universal coverage is a good idea?  Please let me know why.  If not, please give me your opinions on an alternative to what I propose above.