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Latest Unintended Consequence of Obamacare: McDonalds May Drop Health Plans for Workers

October 1, 2010

Today’s Wall Street Journal reports that McDonalds “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.”

Why? Because the central planners of the Obama administration decided in their infinite wisdom that all insurers should spend at least 80-85% of their revenues on patient care, rather than administrative costs. That’s called a “medical loss ratio” in industry speak. But there’s no evidence that spending 80% of revenue on patient care is good for customers. As health economist James C. Robinson explained years ago, “medical loss ratios” are just an accounting tool, and were “never intended to measure quality or efficiency.”

McDonalds’ employees tend to be young, and don’t stay with the company long. It’s often their first job and they quickly move on to another one. That means unavoidably high administrative costs to process new workers.

So, it’s not surprising that McDonalds may have to drop their health care plans for workers. From the WSJ:

… McDonald’s, in a memo to federal officials, said “it would be economically prohibitive for our carrier to continue offering” [its basic plan] unless it got an exemption

… Insurers say dozens of other employers could find themselves in the same situation as McDonald’s. Aetna Inc. … provides [similar] plans to Home Depot Inc., Disney Worldwide Services, CVS Caremark Corp., Staples Inc. and Blockbuster Inc., among others, according to an Aetna client list obtained by the Journal. Aetna also covers AmeriCorps teaching-program sponsors, who are required by law to make health coverage available.

This is just the latest example of the unintended consequences of Obamacare – or as Reason’s Peter Suderman puts it, the latest entry from the “No One Could Have Predicted! File.” This month, the rule banning insurance companies from turning down children with pre-existing conditions resulted in … insurance companies dropping those policies altogether. And as new mandates for minimum coverage come into effect, insurance companies have … announced big rate hikes to pay for it. (The Administration responded by threatening insurers, declaring they have “zero tolerance for this type of misinformation and unjustified rate increases.”)

Remind me: Why is it a good idea to give the federal government more control of the health insurance market?

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