Would you like some health insurance with those french fries?

Maryalene LaPonsie | October 6, 2010

By: Maryalene LaPonsie

There has been a firestorm of controversy lately regarding whether the health insurance of approximately 30,000 hourly McDonald's workers would become a casualty of the new health reform law. The Wall Street Journal touched off the frenzy with a report that the king of fast food was in talks with the government in hopes of receiving a waiver for new federal regulations taking effect in 2011.

According to a memo obtained by the paper, McDonald's seemingly threatened to eliminate coverage for hourly workers if the government did not comply. The company denied the claim and said that medical coverage benefits were not in jeopardy. While the government backed McDonald's claim that it wasn't threatening to drop insurance benefits, it also granted the company's waiver request.

Mini-med plans and medical loss ratios

In question are the medical loss ratios going into effect in January 2011. At that time, health insurance companies will be required to spend 80-85 percent of incoming premiums on health care costs. The health reform provision is intended to prevent companies from pocketing big bucks from consumers while offering substandard coverage.

The McDonald's health insurance falls into the category of mini-med plans, with the emphasis on the mini. The plans provide participants with cheap health insurance, but they also provide extremely limited benefits. When approaching the government to request its waiver, McDonald's stated that it would not be able to meet the medical loss ratio requirements.

It is not just McDonald's that has expressed concerns about the ratios either. The health insurance industry as a whole has argued that fraud and abuse should be factored into the medical loss ratio formula. McDonald's claims that the medical loss ratio is unrealistic because of the expensive administrative costs of their health plan, due to high turnover, and the relatively low amount spent on claims. In the case of the burger giant, a younger workforce and high turnover may mean that employees leave before they have an opportunity to submit a claim.

McDonald's serving junk health insurance?

Critics argue that McDonald's' insurance options aren't much better than the food it serves. The three tiers of health plans have annual premiums that range from $727 to $1,680. For that price, employees get coverage that is capped at $2,000-$10,000 per year. Each plan also requires:

  • $20 copayments for doctor visits
  • $5 copayments for generic prescriptions
  • $50 copayments for brand name prescriptions
  • 30 percent coinsurance for inpatient hospital care
It all adds up to rather mediocre medical coverage. Even in the plan with the highest level of benefits, outpatient care--which may cover most families' medical needs--is capped at $2,000. This doesn't take you far, when, according to the U.S. Center for Medicaid and Medicare Services, the average hospital stay in recent years has consistently topped $8,000.

Although annual caps are to be phased out beginning in 2010, it appears that the waiver granted to McDonald's will allow it to continue to offer paltry benefits to its workers. Rather than use some of its $4.5 billion in profits to subsidize meaningful medical insurance, minimum-wage employees will continue to pay for medical coverage that acts as a band-aid.

Apparently, it is not just the food that is cheap at McDonald's--the company is too.

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