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McDonald's fires a warning shot about healthcare reform

McD's Stories this week about McDonald's potentially rolling back healthcare benefits  and Principal Financial Group withdrawing from the health insurance market  illustrate one of the flaws in the federal healthcare reform law:  the unintended but predictable consequences of requiring insurers to spend 80% to 85% of their premium revenue on medical costs. I don't think the developments justify repealing the law; instead, they show why lawmakers should view healthcare reform as an iterative process, with many lessons yet to be learned and improvements still to be made.

According to the Wall Street Journal, McDonald's offers restaurant workers low-cost insurance plans designed to cover modest claims, not major illnesses. Such plans will probably evaporate by 2014, when the new law requires large employers to offer more comprehensive coverage or contribute to the cost of insuring workers through subsidized insurance exchanges. In the meantime, however, the law requires all plans to meet the 80% to 85% threshold (also known as the "medical loss ratio"). And that's a problem for "mini-med" plans such as the ones offered by McDonald's, which typically have high administrative costs -- a consequence of insuring businesses with high employee turnover.

The threshold is also problematic for insurers that have a comparatively small number of customers, like Principal, which has sold fewer than 1 million health policies. The more customers an insurer has, the easier it will be to meet the threshold -- its fixed administrative costs can be spread across more people.

McDonald's is likely to obtain a waiver from the feds that will allow it to continue its current insurance plan, and another insurer (United Healthcare) has agreed to take over Principal's customers after it exits the business. Still, the reports raise the question of why the feds should be setting minimum medical loss ratios in the first place.

After all, in a free-market system, profits should be limited by competition, not by regulation.

The reason is that the law's authors feared that insurers would reap windfall profits without some kind of brake on their prices. The law requires all American adults to carry insurance and provides billions of dollars in subsidies to help working-class families pay the premiums. In other words, it creates something of a captive market for the insurance industry. The individual mandate, meanwhile, is a necessary adjunct to the reforms that bar insurers from cherry-picking customers and denying coverage to people with preexisting conditions.

I have less faith in mechanisms like medical loss ratios than I do in unfettered competition on a level playing field. Congress could have done far more to promote competition among insurers had it built the healthcare reform law around the proposal from Sens. Ron Wyden (D-Ore.) and Robert Bennett (R-Utah) to decouple insurance from employment. That direction remains open to lawmakers, although it's such a fundamental change, I doubt they would have the stomach for it so soon after the bruising battle over Obamacare.

A less radical step would be to give individuals much more latitude to seek (and insurers to offer) low-priced coverage that isn't comprehensive. The risk is that such plans would be popular among younger, healthier people, leaving comprehensive plans with an older, more expensive pool of customers -- and driving up their premiums. But the risk of the current approach is that younger, healthier people won't carry any health insurance, choosing instead to pay the tax penalty in the new law. The more uninsured people there are, the harder it will be to attack rising costs by fundamentally changing the way healthcare is delivered and paid for. Better to have the young and healthy insured in an imperfect way than not at all.

Credit: Karen Bleier / AFP/Getty Images

-- Jon Healey


Comments () | Archives (46)

The comments to this entry are closed.

Carl Moore

McDonald's problem with Obamacare is just one of many unintended consequences of this badly designed law. The only sensible way to deal with this 2000 page monster is to kill it. Repeal it and start over with a free-market approach, not a government-knows-best posture. But the way forward on that road won't be available until Obama himself and his veto pen are gone in 2012.


Articles like this continue to refer to so-called "unintended consequences." While I'm not a follower of conspiracy theories, I have to ask myself what kind of law could I write that would inevitably drive businesses to give up insuring their employees, and shift them to a single-payer (government) plan?


None of the complaints about "ObamaCare" seem to include any solutions.

I think the Republicans have an issue much like the Terry Schivo fiasco, it will make them look bad in practice.


I am 47. I neither drink nor smoke. Healthy my whole life. All I need is a catostrophic plan. But Obama won't let me...he wants me to get coverage for transgender surgery, alcohol and drug rehab...I would be subsidizing others for their bad habits.
So I will pay the tax penalty. And if I get sick (God forbid) then and only then I will get insurance.

Ernesto Gomez

"Unfettered competition" is what got us into the mess in which we pay twice as much as everybody else in the world with worse outcomes - and in which healthcare costs if you actually get sick are a leading cause of bankruptcy.
Basic rule - when you're in a hole - stop digging!

Obamacare is at least an attempt to do something other than keep digging the hole - much hampered by Republican refusal to engage constructively to make the legislation better. Yes, it needs improvement, but it is already better than what we had - no lifetime limits, or recission when you actually need insurance come to mind.

Sam Charles Gould, M.D.

A Single Payer, National Health Plan, not connected to employment makes all these issues moot. It will free up the money sucked up in overhead and profit by the Private Insurance Industry for use in providing medical treatment. Someday, when income inequality becomes so great that the standard of living for average Americans sinks to Second World Levels, people will demand such a system.


Medicare for all!!!

S. Taylor

>After all, in a free-market system, profits should be limited by competition, not by regulation.

Whatever you feel about free-market systems -- which actually don't exist in the real world -- is completely irrelevant when talking about a mandatory-participation industry like insurance.

>I have less faith in mechanisms like medical loss ratios than I do in unfettered competition on a level playing field.

What freakin' planet have you been living on for the last 30 years???


Mr. Z

So Republican corporations are going to PUNISH employees for having the gall to even ask for fair health care!

Yup that's the Republican way!!






Diane W

I concur with Carl Moore.


Once again within a two year period my Medicare Advantage Plan is pulling the plug and getting out of the business so I have to once again spend hours gathering up information about existing plans for 2011 and spend time filling out enrollment documents, setting up payment schedules and NOT HAVING A CHOICE OF MAYBE GETTING A BETTER MORE COST EFFECTIVE PLAN FROM A CARRIER OUTSIDE OF THE STATE OF MASSACHUSETTS BECAUSE THE LEGISLATIVE TRASH HAS ONCE AGAIN SKIRTED THE ISSUE OF ALLOWING INSURERS TO SELL POLICIES OUTSIDE OF THEIR HOME STATES.


Good Golly Molly, do you really think the unfettered competitive health care market puts the consumer on a level playing field with the giant insurers? You unrestricted free enterprise lovers really need to take a close look at reality. I support free enterprise too but, as the recent financial crisis has clearly shown, an unregulated market is all too often very unfair to the average consumer.


----A less radical step would be to give individuals much more latitude to seek (and insurers to offer) low-priced coverage that isn't comprehensive.-----

I would love to have the option to buy such a policy. It's currently ILLEGAL to sell policies like that where I live (one of the many reasons why I have zero respect for the law).


Considering that "unfettered competition on a level playing field" is as non-existent as unicorns, it is much better to have a mechanism like medical loss ratios that can be adjusted over time to reach economic equilibrium. Unprofitable lines of business, like the Principal's health insurance offering, get sold off to more efficient providers all the time. The Affordable Health Care Act is not the end of "for profit health insurance" in the US, it's just a new chapter.


An "iterative" process. Ok, let's look at what that looks like:

1. Baby boomers are unable to secure health care
2. Cities end up paying for services to baby boomers that can't get health care and that can't find employment because of America's view on the older worker
3. The un and under employed are unable to get health care. Again cities end up paying for health care

More important - because I know how stupid Americans think:

America remains at a significan disadvantage in the global marketpalce because of the high costs of servicing health care. This of course, is not a problem with 18 other coutries that remain competitive in the global marketplace.

So, yes, continue believing your stupidity about health care. I figure in about five years, our economy will be destroyed because of your myoptic point of views.

Ignorant Americans.


Some folks don't get it.
I am not saying that Obama care is the answer.
The persons that rails against Obama's plan and then offers this post "So I will pay the tax penalty. And if I get sick (God forbid) then and only then I will get insurance." , does not get it and is actually part of the problem if I undertand him correctly.

So does your home or auto insurance work the same? Your home has never caught on fire, so you will wait until it does to buy insurance and expect the insurance company to cover it? You have never had a car accident, so you will wait until you do and expect the insurance company to pay for it ? Makes so sense with these types of insurance coverage and makes no sense with health care insurance either. What insurance company could exist under such terms.

Stephen Dimig

"The only sensible way to deal with this 2000 page monster is to kill it. Repeal it and start over with a free-market approach, not a government-knows-best posture."

We all have memory loss or some type of selective memory disorder in this country. We have been trying a free market approach for as long as I have been alive. FAIL.

bryan galt

What should have happened is that insurance companies should have been handed their hats and sent packing. Their presence in the health care industry drives up the costs of medical services since they have to make their "cut" out of the premium dollars.

Then, there should have been a health care payment (tax) that everyone would pay, regardless of their income levels. It would be a sliding scale of course, and those people that punch out kids like Hershey's pops out kisses would be given a break (under my system the break would be less after your second kid, and zero by your fourth).

With everyone paying in something from $40 to $400 a month, all 300 million of us, that would raise a bundle of money which would go to Medicare. Then Medicare would be responsible for reimbursing hospitals and doctors for everyone's treatment.

It is funny to me that so many people sing the praises of the free markets, and exalt the power of private enterprise to make things better, but that just isn't true in this case. When a profit margin became more important than the life of even a single individual, then the system became too expensive and heartless for any civilized society to be forced to tolerate.

Lloyd Cata

So...so...so tired of the mega-corps complaining that they have no business model that incorporates the health care of their most important asset; their employees. It is being done successfully by progressive countries and corporations around the world, but somehow Americans are such 'mavericks' and 'grizzlies' that health care is whatever you find in the woods. Real tough guys these Americans who are paying more for health care and are sicker than other societies. Spend more on education and getting more illiterate. Why they even had a War on Poverty; 50 years a failure. A War on Drugs; 40 years a failure. What the hell?! They're at war with themselves and they expect success?

Lloyd Cata

The "comrades" in the executive offices of McDonalds, and their allies on Wall Street, are now allied with the "comrades" in Beijing. Are they for better health care for Chinese workers than their American counterparts? Are they for better health care for their European workers? Is there a different 'business model' for the rest of the world and another for the Wild West we call America...with all these 2-legged animals walking around, it appears so.

Mark O. David

If this country ever gets to national health for all then we will ,as a nation ,have to shift from a war based economy to a civil/peace based economy.This is a huge threat to corp. interests that control the government .The real threat to Americans is not in a cave or madras it is in the board room right here at home.The world without unlimited corp. charters with limited liability is a basic societal shift that is a century over due and will not happen till fiat money is debased to zero values .The current bailout of both Bush and Obama is a tragic mistake.This was a missed opportunity to let let these parasitic institutions die a natural and nessessary death


In the history of our country, politicians have always been way outsmarted by businessmen. Remember the tax on luxury boats? It destroyed an industry because companies outsourced rather than pay exorbitant taxes. The end result was that tax revenues dropped like a bomb while tens of thousands lost their jobs. People either bought overseas or did not buy, period!

What arrogance from Obamalosi to think that this time would be different? That this time they could think of all angles?

My mother and aunt, both with splendid health plans are being screwed. So will be those of us who are well insured, so will those who were not insured.

IMHO, we should repeal ObamaLosiCare and start again.

Do not kowtow to the unions, insurance companies, AMA, Class Action Litigators, Big Pharma... create a business based solution with true competition across state lines, with medicine available from Canada and the provide a free public, barebones option to those that can not or will not afford it.

But, ObamaLosi are incapable of doing this because they are in the art of the deal, moral relativists like Clinton. What we need is someone that can see in absolute terms... and I think that will rise from the revolution of the Tea Party.


thanks Dr Z, I now know what to vote for on the props.

Opposite of your picks for sure.

New flash! Dems control politics in this state. It is not the Republicans's fault for our issues. You are a partisan person with little intelligence.


I think that most people that comment on these blogs are out to get the corperation a break, and not for the everyday person that actualy works hard for there companies. These corperation don't care for there workers in any way except how much that they could work and not have to pay for there over time. CEO's care about there own income not yours.


Why insurance in the free market isn't right for health care: The basic idea of insurance is that everybody pays, and those whose house burns or car gets run into get benefits. Insurance cannot work if people say "When my house is on fire, then I'll go to the insurance company and buy a policy."
Furthermore, unlike, say, buying a car or a pizza, people do not choose to get sick or be smashed up in an accident. People don't say, "Gosh, I'd like to have painful and nauseating chemotherapy." You need health care when you're sick or are in an accident.
If we had a single-payer system, or a system like Germany's with nonprofit insurance companies where everybody participates, everybody would have care when they needed it. And businesses would be free of the burden of providing health care and could go back to doing what they do best -- producing their own products.
Obama gave it his best shot, but while you complain about the flaws in what he was able to pass, remember that NO Republicans even signed on to the moderate final bill -- essentially the Republican Romney's Massachusetts plan.

Alan Shore

McDonalds is lucky they aren't taxed more for causing the illness of so many of its customers. They profit from selling their horrid food, yet balk at health care for those that probably need it the most; their customers.

Lloyd Cata

Health care is now a 'right' in America, and if they don't like it those arches certainly know the way to India and China. Brazil now owns Burger King and they wouldn't have bought it under Obamacare if they were not going to make money.

There's no "uncertainty"...the owners of McDonalds are going to pay higher taxes, they're going to pay higher health care costs, and they're going to pay a livable wage, or they can take up residence in Beijing with the rest of their "Capitalist Comrades", because there is still money to be made in America. It's just not the easy money they've been getting away with.


Only 80-85% of premiums devoted to medical care... tough deal. Most countries require 95% or more. If the insurance companies (and free market advocates) hadn't shot down the public option, may be I'd have some sympathy.

It's great that McD's offers some medical insurance in the current environment, but ultimately it's a not even a half measure. Should a 25 year old who develops cancer while working at McD's be sentenced to death with minimal treatment?

The Healthcare Bill wasn't perfect, but it'll be much better than we had in 2009.


I applaud McDonald's for not providing health insurance to their employees any longer, and I encourage all businesses to stop providing health insurance for their employees. Government-mandated health insurance is actually less of a imposition on personal freedom, because a big private-sector company PAYS for your health insurance from a provider of their choosing, thereby depriving you of freedom to choose.

Further compounding this issue is that health insurance providers respect the buying power of big companies, and they often afford these companies discounts for insuring a group of employees. After all, a big company wants to buy cheap health insurance as well, and insurance providers will provide incentives to attract big companies and their business. These discounts are expenses which are then passed on to individual buyers, which DRIVE UP costs for the individual policy-holder.

By eliminating the "collective-bargaining" mechanisms of company-provided health insurance plans, it forces everyone to buy health insurance, with no group discounts and incentives; therefore, no extra costs that get passed on to individual policy-holders.


What about repealing Mc donald care. The one that influences our agriculture policy to highly subsidize Corporation grown crops which then go to feed these genetically modified hormone injected animals. That then the public eats for cheap.

If you want to truly repeal something i suggest you start there. why do they need subsidizes and should the Democratic government be directly supporting these agri-corporaitons when the products they sell have been scientifically proven to cause a long list of chronic diseases.


Lets stop subsidizing the Agricultural Corporations which then make genetically modified food for these also genetically modified animals which are then injected with hormones and go to feed a large portion of the population.

Let the food prices truly reflect the cost of open market capitalism and you will see $8.00 happy meals.


A message from The Netherlands,
We do not understand the discussion in the US at all. In case of good healthcare for everyone the nation will have more healthy people available for work. Have more stability in the society. Healthcare for everyone makes you show a rich nation. US is still the 3th world when socialize standards are measured. The only winner is your pharmacy industry. As Jim (9.47 pm) wrote, he is a healthy person. I am too but do you know what will happen over the next 10 years? Maybe you need medicine you can not afford to buy. Or what if an operation is needed?
Ferry - The Netherlands

Paul J Graham

Although Obama's healthcare reform is seriously flawed, I will never understand the US reluctance to implement a simple, basic coverage plan for all its citizens, regardless of income. Protecting human life, raising the quality of life, and removing the burden of healthcare from employers....you'd think the companies would be lining up in Washington to lobby the government. What gives?

Georgia Jim

Considering all the suggestions included in these comments, it seems more than obvious that the Congress SHOULD HAVE brought in experts from all areas of health care and taken the time to do this right... instead of following the President's deadline. Unintended consequences follow most of our government's legislation because they refuse to call in experts... except to grill them so they (our representatives(?) ) can get publicity. Instead of wasting time questioning professional athletes about steroid use, they should be taking the time to do things right... so that doctors and real estate agents aren't driving around in Hummers paid for by we taxpayers.

David Davenport

This illustrates what is wrong with the entire approach to health care reform. What is needed is a "Public Health Approach." All doctors should receive a stipend from the government in return for providing basic health care to every person in the country. This basic care would provide check ups a couple of times a year; vaccinations, TB X-rays, that sort of stuff; and medications for common stuff. Every person should then be free to buy whatever coverage they want so that if I have heart disease because I'm an overweight smoker that is my problem, not the governments, and not my neighbors. The government should not be paying for liver transplants for anyone. We all die, some of us sooner than others because we decide to do things, eat things, or are born with genes that predispose us to certain maladies. No amount of coverage is going to prevent death, but the cost of providing it will backrupt us all.


Two words - SINGLE PAYER!

If it works in every other developed country - it'll work here.


Can anyone explain why McDonald's will get an exemption? How does our political system work? The squeaky wheel gets the grease?

I thought that part of the point of the healthcare bill was to ensure that people got real coverage. While McDonald's mini-med program is better than nothing, it certainly doesn't come anywhere close to what the bill calls for.


What would we expect when a major health care bill is passed before any of our elected representatives read it. I would be willing to bet that most of our representatives still have not read the bill and have no idea of the consequences. Do we really need to keep voting these people into office.


bruce, note that McDonalds' poor insurance virtually assured that any of McDonalds' employees who actually got sick would shift to Medicaid, a single-payer plan. Under health care reform, on the other hand, particularly with the extension of how long young people can stay on their parents' plans, more of the employees will own comprehensive health insurance with no lifetime caps, keeping them OFF the single-payer plan.

Frank Stanton

I don't know who Jon Healey (the author of this piece) is, but It would seem that he is another insurance industry schill or, worse yet, one of those greedy,'every man for himself Americans'. I am sick of these pages being filled with greedy, selfish persons who view everything in terms of dollars and cents. It is a souless way to view the world. Health care is not something which should be sold to the highest bidder, which market based health care is about. It is something which should be available to all Americans!

When the 9/11 event occurred, many people rushed in to search for victims and survivors. This included cops, firemen, nurses and rescue specialists. I am sure there were plain old civilians who just wanted to help, too. They were not thinking about their own safety. They were concerned about their fellow human beings. Now, years later, many of those folk are seriously ill. Many of them went beyond their catastrophic care limit. Many of them were denied coverage. This is what happens in a market based healthcare system. The people who need the health care the most are given the fuzzy end of the lollipop. It is another form of class warfare where, if you cannot afford to pay premiums while you are out of work, or just plain poor, you are screwed!

The Right wingers , Teabaggers and most Republicans and Blue Rat Democrats always proudly profess what a Christian country America is, and how they are the most Christian of all, like if one is conservative and rich, one is among God's chosen people. That is decidedly unChristian. Market based medical care is in opposition of genuine Christian principles which are based upon helping all, not just those with nice bank accounts. What all these people really worship is money, and they do so at the expense of the needy and seriously ill.

Jon Healey

@Frank -- The issue of whether market forces can improve healthcare is separate from the issue of whether everyone should have access to the care they need. Here are a couple of examples. Giving people more ability to choose among insurers is a way to use market forces to encourage insurers to improve their customer service and wring costs out of their operations. And requiring people to pay directly for more of their routine healthcare costs (say, by having mandatory annual deductibles) is a way to use market forces to encourage more competition among providers of primary care, which could drive prices down and encourage more efficient business models.


The myth of the"free market" persists, much to the determent of rational discourse.


Mr Healy forgets that there is no such thing as the"free market." Markets
only exist because governments enable them with such things as a stable currency, a court system (I have read that 80% of the judicial systems time is taken up with
matters concerning corporations), good roads, a stable government so business can proceed without any worries of
regime overthrow, etc.,etc.
We have already tried his approach to healthcare and it has failed. Please all you free market fundamentalists, wake up and smell the coffee!


Right, lets continue to have blind faith in the Free Market that has treated us so well already. Its not like the invisible hand has not already robbed us poor. Lets keep bowing down to corporate masters until citizenship is just an idea and instead we are born property to companies like Goldman Sachs and AT&T. Wont it be grand.


McD's managed to provide healthcare coverage, paid vacations and a living wage in coutries like Germany but expects us to buy that they can do any of this in the USA?!?!?!?


Wouldn't universal healthcare/single payer save employers $$$$$$$$$$$$$$$ when such coverage under workman's comp is eliminated?



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