'McHealthcare' Giving the White House Indigestion

Around 1.8 million workers have mini-med policies, which put a low cap on what an insurer will cover. Justin Sullivan / Getty Images

It's cheap, of arguable quality, and available to tens of thousands at McDonald's. No, not the Big Macs—this is a type of limited-benefit health-care plan used by 30,000 workers at the company, and 1.8 million others at fast-food chains, retail shops, and small businesses.

McDonald's lowest-level policy costs employees about $700 a year, but if illness or accident strikes, workers get only $2,000 of coverage and then have to pay out of pocket, according to an article in The Wall Street Journal. (Workers at McDonald's corporate offices have no limits on health-care benefits, according to the company's Web site. The company declined a request for interview, but said in an earlier statement that the plans are of "highest quality".)

To some, the plan falls short. "The principal purpose of health insurance is to prevent serious illness or injury from causing financial ruination," says Henry Aaron, a health-care expert at the Brookings Institution. "The only way a trip to the hospital is costing you $2,000 is if there is a clerical error." Call these limited-benefit plans McHealthcare.

And while it may be of dubious value, it is causing the Obama administration a massive headache as the health-care bill begins to be phased in this month. The bill bars such limited plans under rules that prohibit meager coverage, and instead offers more comprehensive insurance through a health-care exchange. But that alternative won't be available until 2014.
In the meantime, many low-paid workers could lose their coverage if their employers aren't granted two separate waivers on rules intended to ensure a minimum quality for health insurance.

This puts the administration in an awkward position as Republicans and trade groups push for the repeal of many of the health-care act's key provisions. The administration had promised that no one would lose the health care he had. But it also had said these minimum standards would go into effect this year. "Did the administration make itself an easy target by cutting off these plans before the exchange started? The answer is yes." says James Gelfand, director of health policy for the U.S. Chamber of Commerce, a business lobbying group that opposed the health-care-reform bill. "They have given ammunition to people who want to overturn all of the bill, even the pieces that people would like."

To strike a balance, the administration has already granted McDonald's and 29 other companies waivers so they can peddle benefits below the $750,000 annual minimum. At least another 100 policy waivers are still being reviewed.

But many of the plans will still need a separate waiver starting in 2011, as the administration works with state insurance officials to create rules on the proportion of insurance money that has to be spent on medical care. A $700 plan with a $2,000 payout would likely not pass muster. So another waiver will be needed.

But because the rules haven't yet been drafted, no one knows how tough the second waiver process may be, and business groups say the uncertainty is making them jumpy. "We have to deal with 2011, we are hanging out over the edge waiting for the standards so our members can make decisions on policies. It's a tough position to be in," says Neil Trautwein, vice president of the National Retail Federation, an industry trade group.

Some proponents of the bill are also unhappy with the way the rules are being phased in. They see the waivers as an opportunity for insurers to weaken those rules by threatening to drop coverage as a way of seeing if the administration balks. "[The waiver issue] is a perfect illustration of how awful the next three years are going to be with insurance companies continuing to try and change the rules," Kavita Patel, director of health policy at the New America Foundation, a liberal think tank, told NEWSWEEK. "Businesses are going to continue to try get more leeway by threatening to dump employees. The braver thing to do would be to just say 'these are bad plans and they don't protect you anyway.' " But Patel adds that whether or not the plans offer value, pulling the policies without offering an alternative would have been politically devastating for the administration.

The administration, for its part, says it's not making concessions, just smoothing the road until the bill covers everyone. "The issue is how do you preserve the coverage that people have now, inadequate as it may be, while moving to 2014 when we can get everyone into the system," Nancy-Ann Deparle, director of the White House's Office of Health Reform, told NEWSWEEK. "What is the smoothest glide path from here to there?"