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Not Much Med in Mini-Med Plans

The Wall Street Journal reported last week that McDonald’s was considering eliminating health coverage for some of its hourly employees because the company’s health plan couldn’t comply with health reform’s requirement that it spend a certain percentage of its premiums on medical care rather than overhead or profits.

Although McDonald’s quickly denied the report, the incident brought new attention to the “mini-med” health plans that many low-wage workers have access to (if they have job-based coverage at all).  The plans’ inadequate coverage underscores the importance of the benefit standards that the Affordable Care Act will apply to the health insurance market starting in 2014.

The McDonald’s plan charges premiums of $728 per year while capping medical payments at only $2,000 per year, according to the Wall Street Journal. (The company also offers a more generous plan that charges $1,680 annually and caps payments at $10,000.)

As Jonathan Cohn of The New Republic points out, “to call that ‘insurance’ is to distort the definition.”  Two thousand dollars wouldn’t begin to cover the cost of a hospital stay or the treatments needed for a serious illness, and would fall short of covering treatments like prescription drugs and doctor’s visits to treat many common chronic conditions.

Moreover, even before reaching the annual cap on insurer payments (after which workers would have to pay all of their medical costs on their own), workers would still have to pay 30 percent of the cost of any days in the hospital that the insurer would help pay for and $50 per brand-name prescription.  A low-wage worker enrolled in this plan who gets sick could end up having to choose between financial ruin and forgoing needed care.

Fortunately, the Affordable Care Act will make it easier for consumers — as well as small employers — to find decent, affordable coverage.  Starting in 2014, all plans provided within the new health insurance exchanges, as well as new plans in the individual and small-group markets outside the exchanges, will have to meet minimum benefit standards.  Specifically, they will have to:

  • cover a list of essential benefits, such as hospital and physician services and prescription drugs;
  • limit the annual out-of-pocket costs that enrollees would have to pay for covered services; and
  • provide coverage that overall meets a minimum level of comprehensiveness (defined as plans with an actuarial value of at least 60 percent, meaning they would pay 60 percent of the medical expenses for covered health services for a typical population).

In addition, people with incomes below 400 percent of the poverty line, or about $88,000 for a family of four, will qualify for tax credits to help pay the premiums for coverage (with a 70 percent actuarial value) purchased through the exchanges.  People below 250 percent of the poverty line will also get additional help with their cost-sharing charges.

As David Leonhardt writes in today’s New York Times, “In 2014 . . . the choice for McDonald’s workers will no longer be between a bad policy and no policy.  Through the exchanges, they will be able to buy a real health insurance plan — one that covers cancer, heart attacks, surgeries, M.R.I.’s and hospital stays.”  So for low-wage workers, many of whom now have no access to quality, affordable health insurance, 2014 can’t come soon enough.