There are millions of Americans that are underinsured — people that are technically covered by health insurance, but actually have extremely limited benefits. Many of these people work for large low-wage service employers such as McDonalds, who offer “skinny” plans that limit the annual amount of covered benefits to $10,000. One important question is whether these low-wage employers will be exempted from new regulations under the Obama health reforms that abolish lifetime caps on employer benefits and set very high limits (more than $750,000) on annual benefits.
This issue came to a head last week in a well-publicized spat between Health and Human Services Secretary Sibelius and the Wall Street Journal. McDonalds claims that it needs a waiver from the regulations to remain competitive, although for now they remain committed to providing coverage to 30,000 workers that have mini-med health plans.
While conservatives seize on this moment as an example of how well-intentioned regulations hurt the competitiveness of businesses, liberals argue that employers could pass along more benefits to their workers without adversely affecting their bottom-line. Neither of these claims is entirely borne out by the evidence. State insurance regulations already vary considerably, and so we can see that doomsday scenarios are not playing out in places like Massachusetts and San Francisco that have employer mandates and coverage regulations. But it also true that there is a tradeoff between wages and fringe benefits. When workers are already at a minimum wage, companies operating on thin margins often lay-off workers. This does not completely let low-wage employers off the hook — it defeats the purpose of health insurance to offer coverage that does nothing to protect people against large, unanticipated losses. Rather, we need to think about insurance products that allow employers to make a reasonable contribution (perhaps with some government subsidy) while providing reasonable benefits. The architecture for this is already in health reform, but many details need to still be worked out by federal agencies before the provisions start going into effect in three years.