Thursday, September 30, 2010

The Big Mac Insurance Policy

The Wall Street Journal reports that McDonald's may stop offering health insurance to its workers

McDonald's Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.

The move is one of the clearest indications that new rules may disrupt workers' health plans as the law ripples through the real world.

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.

The requirement concerns the percentage of premiums that must be spent on benefits.


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.
The medical loss ratio seems to mean that the McDonald's mini-med plan should pay out 85 cents as benefits from each dollar it collects from workers. Thus, the costs of the program and any profits should add up to at most 15 cents out of each dollar collected.

McDonald's argues that it can't do that because worker turnover means higher administrative costs? And because the total claims are so small?

The claims are probably so small because the average McDonald's worker is young and healthy. But the claims might also be small because the insurance doesn't cover much:

What happens to an insured worker who really gets sick? Who covers the claims that go well beyond 10,000 dollars per year?

McDonald's pays most of its workers less than eight dollars an hour. The most expensive of the three policies costs full-time workers more than ten percent of their salaries and it still doesn't cover anything truly serious and expensive.

If this is what being insured means the HCR can't start soon enough. On the other hand, McDonald's is considering stopping even this meager coverage unless it gets an exemption to the medical loss ratio. The workers can always go on Medicaid!