Why McDonald's May Drop Health Care for its Workers

By: Janet Adamy, Wall Street Journal
By: Janet Adamy, Wall Street Journal

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.

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.

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.

Democrats who drafted the health law wanted the requirement to prevent insurers from spending too much on executive salaries, marketing and other costs that they said don't directly help patients.

McDonald's move is the latest indication of possible unintended consequences from the health overhaul. Dozens of companies have taken charges against earnings—totaling more than $1 billion—over a tax change in prescription-drug benefits for retirees.

More recently, insurers have proposed a round of double-digit premium increases and said new coverage mandates in the law are partly to blame. HHS has criticized the proposed increases as unwarranted.

Democrats, looking toward midterm elections in which the health overhaul is an issue, say it already has stopped insurance practices they call abusive, has given rebates to seniors with high out-of-pocket prescription costs and has allowed parents to keep children on their insurance plans until they turn 26.

McDonald's, in a memo to federal officials, said "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. Officials said McDonald's would probably have to hit the 85% figure, which applies to larger group plans. Its insurer, BCS Insurance Group of Oak Brook Terrace, Ill., declined to comment.

McDonald's didn't disclose what the plan's current medical loss ratio was.


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