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Brooks Wilson's Economics Blog: McDonalds and Healthcare Waivers

Friday, October 8, 2010

McDonalds and Healthcare Waivers

Thirty companies and organizations including McDonald's were granted health care coverage waivers from the Department of Health and Human Resources allowing them to offer insurance plans that do not meet new health insurance guidelines of the new healthcare legislation to approximately one million workers.

The “mini-med” plans run afoul of the legislation for two reasons.  First, insurance plans must spend at least 85% of their revenue on medical care (David Leonhardt, “Health Care’s Uneven Road to a New Era”).  This is a big hurdle for insurance plans geared to young, healthy consumers.  After all, a $200 medical bill for a simple checkup is likely to have much the same administrative cost as $200,000 bill for bypass surgery.  Second, the new health care legislation requires that companies provide a minimum of $750,000 in coverage in 2011, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014 (Drew Armstrong, “McDonald's, 29 other firms get health care coverage waivers”).  That amounts to a huge salary increase for low skilled workers.  The mandated increase in salary will result in less demand for low skilled workers and an increase in the price of goods and services that they produce.   Leonhardt gives a good positive description of mini-med plans and their limitations mixed with his normative views in the article linked above.  Three sentences exemplify many of my objections to healthcare reform.
…people will be required to buy insurance, to spread costs among the sick and the healthy. Second, insurers will be prohibited from cherry-picking only the healthiest customers, again to spread costs. Finally, the government will give subsidies to people, like McDonald’s workers, who can’t afford insurance on their own.
Leonhardt puts much less value on freedom and trust in markets than I do.  Words like “people will be required to buy” and “insurers will be prohibited from” make me cringe.  Who is the government to tell me what I need to buy or designing products for private companies?  Nor do I have a problem with cherry-picking of the healthiest consumers.  That leaves a market segment for insuring the chronically ill, a group more deserving of subsidies than workers who are generally young and healthy.  In fact, most analysis that I have read conclude that the young will subsidize the old and the ill.  Finally, the government may “give subsidies to people” but they do so with taxpayer money.

In regards to the reform in general, it weakens market incentives that would lead consumers to watch medical costs and providers from producing low cost products because taxpayers will subsidize insurance plans with unlimited costs.

Taxpayers and healthcare consumers would have been better served by legislation that increased market incentives.  See “More on Rationing Health Care” for a short explanation of how the tax code weakened market incentives for healthcare and a comparison of government rationing vs market rationing of healthcare. 


  1. Promises, Promises, Promises...President Obama promised that every American would have health care and/or would not lose the coverage they have. What is the purpose of setting up the new health care laws if businesses are not required to participate? I feel the health care issue will end up costing families more than they ever expected. Government needs to place their focus on setting increase limits for the insurance industry. They need to set laws up for them to make insurance more affordable for all. Once costs can be contained, I feel more families might be willing to purchase insurance. Taxpayers should not foot the bill!!
    Suzanne Goff

  2. April Matos17/10/10 2:16 PM

    My views on health care reform tend to derive from social and/or moral beliefs rather than economic ideals. However, with that said, after reading this blog is it correct that you feel the "mini-med" plans will cause employers to increase salaries and that this increase in salaries will cause movements along both the supply and demand curves. Ultimately causing the quantity demanded of the goods/services produced by the workers to fall and this will cause a decrease in the demand for workers.
    April Matos

  3. I do believe the government should be responsible for some kind of health reform; however, the rights of taxpayers should not be limited by what the government tells us that we need or don't need. Health care should be made available to those who can't currently afford it, but it should be made available in a way that does not have a negative impact on the economy. I do agree that healthy consumers should have a wider range of choices when it comes to health care--whether to have minimal or maximum coverage, or only emergency care insurance. It should be made easier to get insurance for people who are already sick or chronically ill. If that were the case, specialized firms could concentrate on these individuals, and an entire new job and insurance market would be created. However the government handles the much needed health care reform, they need to keep in mind that their decisions also directly effect our economy.

    Brandi Armstrong--Macroeconomics

  4. I think everyone should be able to receive health care from their job...but they should also be able to afford it outside of their job too and to where it does not place a negative hold on the economy.