Health Care Under the Golden Arches: Cheap But Faulty

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There’s a central maxim to health insurance pricing: If it seems too good to be true, it is.

Health insurance is basically standardized gambling. Insurers set premiums based on how much risk is posed by those who enroll in their plans. Profit margins are generally small and fixed — about 3% to 6%. So next time you hear about a health insurance plan offering deep discounts, keep this in mind: There are only a few variables that can push the price of health insurance down. (More on Maybe It’s Not Such a Good Idea to Marry a Doctor…)

* A huge number of people enrolled in a single plan, diffusing risk
* A very healthy and/or young group of people enrolled in a plan
* Skimpy coverage

The last factor explains how McDonald’s can offer its part-time hourly employees the chance to buy “health insurance” for just $13.09 per week. The fast food chain is under scrutiny for this coverage thanks to a waiver it recently received from the Department of Health and Human Services (HHS).

McDonald’s, along with scores of other organizations that offer these so-called “mini med plans,” were temporarily exempted from a new Affordable Care Act rule that bans insurers from severely limiting how much they will pay annually to cover medical costs. HHS justified these exemptions, which affect more than 1 million Americans, by basically saying mini med plans would go out of business under the new regulation. The exemptions are temporary and besides, said HHS, skimpy coverage is better than no coverage. But is it?

Insurers that that aren’t exempted can set annual limits no lower than $750,000 in 2011. The $13.09 McDonald’s plan, in contrast, will only pay out a maximum of $2,000 in benefits per year. Appearing on Wednesday before a Senate committee that is investigating mini med plans, Richard Floersch, the chief human resources office for McDonald’s, said the coverage — while minimal — was an affordable option for workers. (More on “Family Only” Hospital Visitation Rules Get Scrapped)

A person enrolled in this plan would pay $680.68 per year in premiums and be subject to a $150 deductible before the plan would pay charges for hospital stays or emergency room visits. So at best, a person enrolled in this plan who breaks a bone or who gets cancer will enjoy a $1,169.32 discount on whatever care they need. For someone who spends any time in a hospital — stays can easily exceed $5,000 per day — $1,169.32 is a drop in the bucket. Still, for these folks the plan may indeed be better than nothing.

Yet, at Wednesday’s mini med hearing in the Senate, Floersch, of McDonald’s, said 90% of the company’s workers with these plans never hit their annual limits. These folks presumably use the coverage mainly for routine check ups and generic prescriptions drugs, which require copayments of only $20 and $5, respectively, under the plan. But these people would, in many cases, be better off financially if they didn’t shell out for mini med plans and simply paid full price for their checkups and generic drugs. In most cases, the 90% of people who don’t hit their limits are paying out more in premiums than they are getting in benefits. This is how insurers make money. (More on Family Health History: ‘Best Kept Secret’ in Care)

The McDonald’s $2,000 annual limit plan is small compared to some other severely restricted coverage. As I wrote in a story earlier this year:

Cinergy Health charged families $479 per month for its Preferred 1000 plan, which covered $100 for one emergency-room visit per year per person and $1,000 per day of hospitalization for up to 30 days. (The average cost of an ER visit is more than $500; a single day in the hospital can easily cost more than $5,000.) Coverage for doctor visits was pretty decent — up to $70 per visit for up to five visits per year, a key selling point. But even if a family of four maxed out this particular benefit, it would have received only $1,400 in payouts after paying nearly $6,000 a year in premiums.

See, there are no deals. Under traditional health insurance plans, as with mini med plans, most people pay more in than they get out, and this helps cover the costs for people who experience catastrophic illness or injury. But with the McDonald’s plans, someone with a horrible or even routine health event isn’t protected from massive financial drain, which is usually the point of what we think of as “insurance.”

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