Obamacare and the Future of McBenefits

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.


About Brendan Saloner

I am a postdoctoral fellow at the University of Pennsylvania in the Robert Wood Johnson Health and Society Scholars Program. I completed a PhD in health policy at Harvard in 2012. My current research focuses on children's health, public programs, racial/ethnic disparities, and mental health. I am also interested in justice and health care.
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4 Responses to Obamacare and the Future of McBenefits

  1. Paul says:

    I think it’s important here not to suggest that increases in the minimum wage *itself* leads to job losses. That just isn’t borne out by the facts, as I understand them. (Maybe I’m wrong?) See e.g.

    http://www.peri.umass.edu/236/hash/aaad9ca129/publication/293/

    But of course it’s important that increasing the minimum wage puts less strain on a business’s finances than does financing health care. So your larger point still stands.

  2. Paul,

    I was very careless in the point I was trying to make. I was referring to some evidence from research on mandated benefits: We do know that when employers are required to provide benefits, there is an offsetting downward effect on wages (some good papers by Jon Gruber and Brad Herring on this). There was also a great 2008 paper by Kate Baicker and Helen Levy (http://deepblue.lib.umich.edu/bitstream/2027.42/73099/1/j.1540-6296.2008.00133.x.pdf) who estimate the number of low-wage workers that are likely to be affected by employer mandates under health reform. From the abstract:
    “We find that 33 percent of uninsured workers earn within $3 of the minimum wage, putting them at risk of unemployment if their employers were required to offer insurance. Assuming an elasticity of employment with respect to minimum wage increase of -0.10, we estimate that 0.2 percent of all full-time workers and 1.4 percent of uninsured full-time workers would lose their jobs because of a health insurance mandate.”
    So the effect is potentially quite large for a certain pool of workers, but can be offset by the Medicaid expansions (a point they make), tax credits, and other policy instruments.

  3. Paul also points out that the Incidental Economist blog did a short post showing how a typical McDonalds worker would benefit from the expanded offerings on the insurance exchanges. http://theincidentaleconomist.com/wordpress/why-i-said-that-in-the-nyt/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheIncidentalEconomist+%28The+Incidental+Economist+%28Posts%29%29

  4. Pingback: Highlights so far… | Inequalities

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