Thursday, September 30, 2010

Oh, yes they will: McDonald’s WILL DROP health coverage without a medical-loss ratio waiver

image In today’s Wall Street Journal Online edition, the media outlet reports that fast-food giant McDonald’s will be forced to drop coverage for up to 30,000 of its hourly employees, unless the government can grant a waiver of the new Obamacare’s medical-loss ratio requirement.

The story caused an immediate flurry of activity from the company and Democrats eager to extinguish a pre-election prairie fire:

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.

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.

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.

The push-back from McDonald’s—and the White House—was swift and sharp.  McDonald’s Senior VP Steve Russell and Heath and Human Services Secretary Kathleen Sebelius both trotted out to breathlessly deny the accuracy of the Wall Street Journal Story:

McDonald's and the Obama administration are firing back at a Wall Street Journal report saying that the fast food giant is considering dropping its "mini-med" health insurance for hourly workers because of the new health care reform law.

"Media reports stating that we plan to drop health care coverage for our employees are completely false," said Steve Russell, a senior vice president and head of human resources for McDonald's, in a written response to the article. "These reports are purely speculative and misleading."

That sentiment was echoed by Health and Human Services Secretary Kathleen Sebelius today.

"The McDonald's story is flat out wrong, and I am sorry that they were not more accurate in their reporting," she said.

They can deny that McDonald’s is “planning to drop health care coverage,” as Russell did.  They can complain that “the medical loss ratio isn't even settled yet,” as Sebelius did.  But what they can’t evade is the fact that because of high turnover and low spending on claims, the costs of administering the so-called “mini med” plans are higher than the costs of plans that cover large numbers of salaried employees in industries with low turnover.

They are so much higher, that it is impossible for most of these plans to get under the proposed 15% to 20% and for their providers to remain profitable.  McDonald’s and the insurance companies are in business to make profits and increase shareholder value.  If they can’t do that, they won’t provide the goods or services they once provided, whether its an entry-level job for a pimply faced teenager or a health insurance plan for hourly employees. Business doesn’t work that way, people.

The Wall Street Journal provides quotes from the McDonald’s memorandum, and the facts are inescapable:

“[It] would be economically prohibitive for our carrier to continue offering the mini-med plan unless it got an exemption from the requirement to spend 80% to 85% of premiums on benefits.

"Having to drop our current mini-med offering would represent a huge disruption to our 29,500 participants.  It would deny our people this current benefit that positively impacts their lives and protects their health—and would leave many without an affordable, comparably designed alternative until 2014."

Mickey D’s isn’t the only company in this boat, either.  There are dozens of restaurants, retailers and leisure services companies also offering mini-med programs, and all of these will have to meet the 2011 regulatory requirements, too.  Companies like Home Depot, Starbucks, Best Buy, Ruby Tuesday and Disney will either have to seek a waiver or drop the mini-med programs.

If they don’t get the waiver, THEY WILL DROP THE COVERAGE.

UPDATE: Ed Morrissey at has a similar analysis, and reaches a similar conclusion:

What happens if they don’t get the waiver?  They’ll have to dump the plan, regardless of the hedging today by McDonald’s.

And so we come to another problem with ObamaCare: regulatory uncertainty.  The “loss ratios” should have been set by Congress as part of the bill (or not set at all, and left to the market) so that employers could plan for coverage options — which have to be settled by about this time to get enrollments set for 2011.  It’s been more than six months since ObamaCare’s passage, and no one can tell employers yet what the rules are?  Apparently, no one in the government understands the bill, nor do they understand that employers have to negotiate with insurers for plans months ahead of enrollment to budget properly for the next year.

And Democrats wonder why businesses aren’t hiring.


rikdergis said...

This seems to be the first step on the path to single payer health care.

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