Unintended Consequences: Could McDonald’s Demand for Reduce MLR Launch a Public Option?

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Of course we all know there is no requirement that employers offer their employees heath care insurance or pensions or any of those once imagined “entitlement benefits”.  McDonalds, for all they might be contributing to the obesity epidemic in our country is a company that takes care of its restaurant workers.  The fact that they provide health insurance to restaurant workers is remarkable especially since their workforce tends to be transient.  

But Janet Adamy’s article in the Wall Street Journal (McDonald’s May Drop Health Plan) suggests that McDonalds may pull the plug on this important option.  She writes: “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 reason is that their program cannot meet new Medical Loss Ratio (MLR) requirement of 80% to 85%.   And McDonalds may be the first but likely won’t be the only employer to threaten elimination of benefits.  Adamy goes on to say: “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 Medical Loss Ratio (MLR) is the percentage of premiums that are used to pay health claims, and the government wants to make sure that their percentage remains high and that significant portions of premiums are not used to pay administrative costs, salaries and the like.  

So what does increasing MLR really do?  As we mentioned in our recent blog UPDATE: Heath Care Reform Redux essentially, MLR validates sickness. The more an insurer pays, the sicklier is its clientele. As UHY’s Robert Cirkiel says: “Truly, the most desirable MLR is ZERO. Under that scenario people are HEALTHY and don’t need medical attention and services.”  Sounds crazy? Cirkiel agrees that this an unobtainable goal of course, but his point is convincing: the best circumstance for American citizens would be to be so healthy that their premium payments don’t need to be used to cover the cost of any medical treatment.  “Unfortunately, the Health Care Reform law that passed validates and perpetuates not just sickness but the delivery models that got us into this mess” according to Cirkiel. 

As Adamy says: “McDonalds didn’t McDonald’s didn’t disclose what the plan’s current medical loss ratio was…” or how close it might be to the magical 85% number, but it is likely to be in the area of 60%, with just over half of the premiums used for claims.  But why does McDonalds find themselves in this situation?  Is it because they employ healthier people?  But human nature would suggest that these healthy folks would not buy the insurance in the first place.   Is it because they have a younger workforce who doesn’t need medical care? Again, then why would these individual buy the insurance in the first place.  If you couple that with the fact that these employees are likely paid minimum wage, the “luxury” of health insurance that costs between $13.99 and $32.40 per week might not even be possible.    So either McDonald’s restaurant workers are buying insurance they don’t need (or at least don’t need 85% of) or administration and other insurance company related costs are 40% of the premium. 

There are a couple ways to get the MLR to 85%.    One option would be to reduce the premiums.  Another option would be to reduce the costs charged to the plan.  In either case it is McDonald’s insurance carrier who “suffers” the consequences.  But is seems that rather than to investigate the viability of these alternative, McDonald’s and their insurer (BCS Insurance Group of Oak Brook Terrace, Ill., ) will take a tea party approach and blame the legislation. 

Don’t get us wrong, we aren’t saying that the legislation is perfect, or even especially good, but the unintended consequence of McDonald’s actions will do nothing to diminish the possibility that US health care will ultimately require a government or public option to cover low wage workers.  Don’t forget, come 2014 companies are going to dump their lowed paid workers into the government’s lap by simply paying a somewhat-less-than-punitive “penalty” and will not be responsible for their health insurance anyway.

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

P.S.    Atlas Blinked:  After the original drafting of this article, the Government has agreed to grant McDonalds’ demand for a one year period.

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