Why McDonald's Should Give Its Low-wage Employees the Ability to Purchase Major Medical Individual Health Insurance Tax Free

Editor's note: This article was written in 2010 and may be out-of-date. For more up-to-date benefits and health insurance content, visit our blog.

McDonald’s currently offers low-wage employees Mini-Meds (limited benefit health plans) for $14 to $32 per week in premiums that cover from $2,000 to $10,000 a year in medical expenses. This article examines the impact of Health Care Reform (PPACA 2010) on Mini-Meds and explains why McDonald’s should expand their low-wage employee benefits to include major medical tax-free individual health insurance plans.

Earlier this month, reports surfaced that McDonald's Inc. is considering canceling its mini-med limited benefit plans due to new health reform requirements taking effect January 1st, 2011. In a recent memo, the restaurant suggested that it may drop coverage for approximately 30,000 hourly workers. McDonald's memo is the latest indication of the unintended consequences of healthcare reform (remember AT&T, Deere, Verizon, and Caterpillar?).

According to WSJ.com, Home Depot Inc., Disney Worldwide Services, CVS Caremark Corp., Staples Inc., and Blockbuster Inc. offer similar mini-med plans.

An Overview of McDonald's Mini-Med Offering

Mini-med plans are inexpensive, limited health plans that are designed to cover routine expenses rather than catastrophic treatment. The "mini" refers to the coverage amount, which is typically capped at $2,000 to $10,000 per year. 

While popular among small businesses, the mini-med plans have become increasingly popular among large firms in the retail sector because they give these companies a way to offer cheap insurance to hourly workers. According to Mercer, 63 percent of large retail or wholesale companies offer mini-meds to low-wage workers.

The McDonald's chain has offered a mini-med plan for more than 10 years. It currently provides mini-meds for workers at 10,500 U.S. locations. A single worker can pay $14 a week for a plan that caps annual benefits at $2,000, or $32 a week to get coverage up to $10,000 a year.

The Argument in Favor of Mini-Meds: "Something is Better Than Nothing"

Proponents of med-meds argue that something is better than nothing. 

The advantage of limited-benefit plans is that premiums are an affordable alternative to traditionally expensive group health insurance premiums, usually costing as low as $40 to $130 per month. As McDonald's puts it so well, "Having to drop our current mini-med offering... would leave many without an affordable, comparably designed alternative until 2014."

According to PayScale, fast food workers make a minimum wage of $7.24 per hour, or around $15,000 per year pre-tax working 40 hours per week. That is just slightly more than the average employer-sponsored health insurance premium for family ($13,770 in 2010).

A secondary argument suggests that hourly employees making less than $20,000 annually do not need more than $20,000 in annual coverage—anything over this amount would be over-insurance. All Americans today receive medical care regardless of having "catastrophic" insurance, and low-wage employees typically don’t have more than $20,000 in assets to protect. 

The Problem with Mini-Meds: "Employees are Not Given a Choice"

The real problem with mini-meds is that low-wage employees are not given a choice between mini-meds and real catastrophic health insurance. 

Most employees enrolling in mini-med plans are often unaware of their insurance options. Today, the vast majority of low-wage employees participating in an employer-sponsored mini-med are eligible to:

1. Purchase catastrophic private insurance on the individual market for less than $150 per month in 46 states,
2. Join Medicaid; or 
3. Take advantage of state insurance subsidies for low-income residents.

If given the choice, many low-wage employees would elect to buy real health insurance, right? Well, there's only one way to find out... give them a choice!

The Solution: "Give Low-Wage Employees More Choice"

According to McDonald's, 85% of its mini-med participants spend less than $5,000 in medical expenses per year. If these numbers are accurate, it is fair to assume that ~85% of the 30,000 participants would be accepted for a medically underwritten policy. In most U.S. states a healthy applicant can get real health insurance for $30 - $150 per month through the individual market.

By offering an individual premium reimbursement plan, McDonald's would allow its employees to purchase "real" individual health insurance on a pre-tax basis. In this scenario everyone wins:

1. McDonald's low-wage employees are offered a choice to purchase major medical health insurance if they want it,
2. McDonald's franchisees save 7.65% in FICA taxes on all employee pre-tax contributions to individual health insurance, and
3. As Health Care Reform phases in, the private options get better for low-wage employees. In 2014, employees with income equal to or less than 133% of federal poverty level ($14,400 for an individual) will be eligible for Medicaid (free), and employees with income between 133% and 400% of federal poverty level will be eligible for subsidized health insurance. "Real" health insurance will cost the average hourly fast food worker less $400 per year.

To sum it up, Tax Free Individual Health Insurance is a no-brainer for McDonald's and its low-wage employees.

(If you live in the northeast, you probably don't believe me. See for yourself...)