A report claiming McDonald’s might drop health insurance coverage has everyone playing defense.
It has been six months since Congress passed the healthcare reform package, and while many had hoped the chaos surrounding the legislation’s passage would be over by now, it became clear last week that we have a ways to go. Since passage of the landmark legislation, big businesses have continued to be skittish on the many changes included in the reform package. In particular, the largest companies have expressed skepticism of the potential increase in cost and new requirements mandated for all employees who receive insurance coverage. This uncertainty made its way to the front pages when The Wall Street Journal reported that fast-food giant McDonald’s had forewarned federal authorities it might drop their health plan for nearly 30,000 restaurant workers.
Behind the scenes, McDonald’s and others had been working with HHS on the proverbial medical loss ratio (MLR) question, which under the new requirements stipulates that large plans use 85 percent and small plans 80 percent of the expended dollars on actual healthcare services. The provision has caused quite a splash in Washington, where the government policy will, in essence, mandate how much money insurers must spend on non-care related expenses such as salaries and administrative costs. McDonald’s, in working with HHS, indicated it does not believe it can meet the threshold requirement and asked the government for a waiver. The chain then went on to say it would drop its workers from the mini-med plan if an exception is not made. The end result is that McDonald’s employees would then be forced to seek Medicaid access or care from community health centers – both of which are government subsidized. The firestorm was set off when HHS leaked the memo to The Wall Street Journal. Following the report, both McDonald’s and the Department of Health and Human Services vehemently denied either party had been in talks regarding medical loss ratio.
Regardless, the fury from the White House was palpable within minutes of the release. A negative lead story on the front page of the Journal a month before the mid-term elections is not what the White House wanted. Everyone backpedaled, but the incident nonetheless illustrated big businesses skepticism of health reform.
Today, McDonald’s – the world’s largest fast food restaurant chain– offers a “mini-med” health coverage program with limited benefits. Though most restaurant chains do not offer insurance, the McDonald’s plan requires an employee to pay a certain amount per week for coverage with a capped annual limit. Offering two separate plans, workers can pay $14 per week with a $2,000 annual cap or $32 per week with a $10,000 limit. Under the new MLR regulations, however, the formula would not work. As you might recall from past editions of The Washington Report, the new MLR requirements are set to begin in 2011.
The publicity around the report is simply the latest in a string of unintended consequences for big businesses as a result of healthcare reform. Aetna – a major provider of mini-med coverage plans to such companies as Home Depot, Disney, Staples, and CVS – has in the past commented that the MLR requirement could seriously jeopardize their business. The National Retail Federation has also publicly stated distaste for the medical loss ratio requirement and countless others are already analyzing their bottom line to see if MLR will negatively affect business.
Then on Friday morning, in a cynical twist of fate for the White House, The New York Times ran a front-page article reporting that Iowa-based Principal Financial Group will stop selling their insurance products to 840,000 people who receive coverage through their employer. Due to changes required under the health reform law, Principal announced that new regulations have, in essence, made it nearly impossible to maintain a profitable business. Principal Financial and McDonald’s appear to be the first of what some analysts predict will be many businesses to follow suit in the coming months.
The MLR formula issue is a slow burning and evolving problem for all sides. While the policy and the idea behind it look good on paper, those worried about running a profitable business model are closing ranks with opposition to the policy change. The battle shaping up between America’s largest corporations and the government will likely see other McDonald’s-type announcements and could very well be a harbinger of things to come.
Kevin Fickenscher, MD
The views and opinions expressed herein are my own and do not necessarily represent the views and opinions of Dell Services or its affiliates.