Now I Know Why They Call Him Grimace

On September 30, 2010 the Wall Street Journal ran a story called McDonalds May Drop Health Plan followed on October 2, 2010 by one called Healthamburgler.  In the stories it was noted that 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 requirement, which becomes effective in 2011 under the Patient Protection and Affordable Care Act (“PPACA”), requires that fully insured health plans must spend 85% of their premium revenue on medical expenses rather than on administrative costs (the concept that defines the percentage of premium dollars that is spent on medical care is called the “medical loss ratio;” under the PPACA the ratio of medical expenses as a percentage of all premium costs must be 85% or higher).  The purpose of the provision is to prevent profiteering by insurance carriers who purportedly collect large premiums and do not pay enough of those dollars out, according to the Obama administration.

But despite the consumer protection intent of this law that is about to be visited on insurers, the law of unintended consequences has reared its ugly head.  Grimaces all around for nearly 30,000 McDonalds workers who may be about to go from saying, “do you want fries with that” to “it sucks to be me.”

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.  Yeah, it’s kind of a bare-bones plan, but at least it’s something (and you thought everything at McDonalds was Supersized!).  It may not pay for catastrophic care, but it does pay for all basic office visits with a minimal co-pay and provides a means for people to receive preventative and basic treatment (pharmaceuticals, inpatient and outpatient) to help them avoid unnecessary trips to the emergency room and the delay of early treatment that could lead to expensive and unhealthful consequences. Notably, McDonalds reports that about 85% of all employees who use these plans have total annual expenses less than $5000, so they are clearly meeting the needs of many.  They also report that they could not possibly meet the 85% medical loss ratio criteria because the plans are expensive to administer due to high employee turnover and relatively low spending on claims.

McDonalds isn’t alone in providing a so-called mini-med plan.  In fact, such plans serve more than 2 million Americans today.  Most of these people work in fairly low-income jobs (retail, fast-food, etc) where insurance of any kind is difficult to come by. Home Depot, CVS and Staples are among the companies that provide mini-med plans to their employees.  The government has now put these companies in a situation where they may just say, “forget it” and drop insurance for hourly workers altogether.  No fries for you!

“So what?” You say, “Every one will have insurance available to them soon, right?”  Yes, at least theoretically the PPACA provides that all low-income individuals will have access to free or subsidized insurance in 2014.  Problem is, it’s 2010 and if these programs are cut starting in January of 2011, there are three long years to wait.  Not exactly a Happy Meal.

McDonalds circulated a memo to federal officials that said, “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.”  McDonalds has requested a waiver to the 85% medical loss provision but Washington isn’t taking the McNugget.

Word on the street is that Mayor McCheese is headed to Washington to protest.  He has been rumored to be running around madly, funny little hat all akimbo, saying, “I’m Not Loving It!”

So what would happen to the people on mini-med plans if they lost their current benefit in 2011?  One of two things:  1) they would end up without any insurance at all and use the emergency room as the medical venue of first resort since they can’t be turned away there; or, 2) they will go on Medicaid if they qualify.  These are not exactly great back-up plans.

According to a survey by the Restaurant Opportunities Centers United, workers without health insurance were three times as likely to visit the emergency room without being able to pay as their counterparts with health insurance.  Excessive and uncompensated use of the emergency room adds to everyone’s insurance costs and is one of the reasons our healthcare system costs are so untenably high to begin with.  A recent Rand Corp. study found that about 17% of all ER visits were unnecessary (could have been served on an outpatient basis with no risk to the patient) and that those unnecessary visits added $4.5 Billion to the healthcare system’s tab.  $4.5 Billion would buy approximately 4.5 billion Sausage McMuffins on the McDonalds Dollar Menu (tagline: Delicious and only a dollar? You bet!).  You get what you pay for, is the lesson here, I think.

As for Medicaid, well, the states are already besieged by the costs of their Medicaid programs without this added gift.  Was it the federal government’s intent to cause over 2 million people to be dumped into these state insurance pools for 3-years?  I doubt it, but some people do believe that the PPACA is structured to intentionally fail so that the only possible solution to our healthcare crisis will be a single-payer system.  I like to think that isn’t true, but consequences like these make you wonder what they were thinking when writing the specifics of the PPACA legislation, which has had the support of less than a majority of the American electorate since it has passed.

Speaking in a backyard in Iowa this week, President Obama said,  “From this day forward, all of the cynics, all the naysayers — they’re going to have to confront the reality of what this reform is and what it isn’t.  They’ll have to finally acknowledge this isn’t a government takeover of our health care system.  They’ll see that if Americans like their doctor, they’ll be keeping their doctor.  You like your plan?  You’ll be keeping your plan.  No one is taking that away from you. So you’re keeping the health insurance that you had through your job.  And the majority of people still get health insurance through your job. ”

I am guessing that Filet-o-Fish was not on the menu in this particular backyard.

There is no doubt that we need healthcare reform of some kind.  And when significant change takes place in any major sector of our economy, good or bad, it can be quite disruptive to be sure.  I guess I am wondering whether the disruptions we are seeing are the precursor to impending disaster (defined by even more cost heaped on our healthcare system for even less quality of care) or just the growing pains of change that will end in a few years.  It is very hard to say without the benefit of 20-20 hindsight.  I would like to be able to take President Obama at his Iowa backyard word, but for that to be possible we must let people keep the less perfect insurance plans they currently have rather than throw them into the abyss while we are waiting for 2014.

It will be interesting to see how the federal government deals with McDonalds’ and others requests for medical loss ratio waivers. Their workers surely deserve a break today.