Politics

Obamacare Could Cost McDonald’s Employees Their Health Coverage

| by Reason Foundation

By Peter Suderman

Mickey D’s says it will have to get rid of its current health coverage for its 30,000 workers if forced to abide by one of the new health care law’s regulations:

Trade groups representing restaurants and retailers say low-wage employers might halt their coverage if the government doesn't loosen a requirement for "mini-med" plans, which offer limited benefits to some 1.4 million Americans.

...While many restaurants don't offer health coverage, McDonald's provides mini-med plans for workers at 10,500 U.S. locations, most of them franchised. A single worker can pay $14 a week for a plan that caps annual benefits at $2,000, or about $32 a week to get coverage up to $10,000 a year.

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Last week, a senior McDonald's official informed the Department of Health and Human Services that the restaurant chain's insurer won't meet a 2011 requirement to spend at least 80% to 85% of its premium revenue on medical care.

McDonald's and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.

Stories like these help illustrate why health economist James C. Robinson argued that medical loss ratios, which were developed purely as an accounting tool, were "never intended to measure quality or efficiency" of care.

You can imagine a company like McDonald’s having a lot of trouble with a regulation that requires it to spend a certain percentage of its premium dollars on medical care. Its workforce skews younger because the company hires a lot of teenagers and college-aged employees. But while those employees might take advantage of the inexpensive plans, they tend to go to the doctor and file claims less frequently. But the company also hires large numbers of low-skilled workers who might not get health coverage elsewhere. And as State University of New York professor Jerry Newman, who went "undercover" as a McDonald's worker for a book, tells the Journal, those plans might not be the strongest, but "for those who didn't have health insurance through their spouse, it was a life saver." Its those workers who would likely be hurt the most if the company were to cease current coverage. Some of those workers would have alternatives; its workers could enroll in Medicaid or purchase subsidized insurance through the new state-based exchanges. But the exchanges don’t kick in until 2014 in most states, meaning many workers could simply be out of luck until then.

More on medical loss ratios here, here, and here.