Some insurance policies need to go away

Last week came news that McDonalds was considering dropping health insurance coverage for 30,000 of its lowest income employees due to new regulations that would come about from PPACA. This was heralded by some as an example of health reform destroying the current system. In one sense, it is destroying part of it, but that is good, not bad.

The coverage is not so good, and if employees assume it is a standard policy, they would be in for a rude awakening if they actually got sick.

David Leonhardt has a nice piece discussing this issue. It turns out that McDonalds had a variety of workers covered by $2,000 limit insurance policies. This was not $2,000 deductible insurance policies, which would give protection against catastrophic coverage. But, instead first dollar coverage policies who maximum payouts were $2,000. Basically, this was health insurance for people that didn't get sick. Anyone who actually got (very) sick or injured in an accident would rocket through $2,000 quickly. Insurance is first and foremost supposed to protect one against a catastrophic loss. Would you buy a homeowners insurance policy that paid $2,000 toward rebuilding your house if it burned?

Is a policy that covers the first $2,000 of care and no more on top of that better than nothing? I guess it is. But, it is really the opposite of insurance, where you know gain protection against a catastrophic expenditure. McDonalds understood it to be in their self interest to criticize PPACA and to say they would drop this policy. Fine. Now they seem to be backing off, in part because it is clear how poor the coverage actually is that has been provided. In the end, when one looks closely at this episode, I think you find that there are not so many people who would want their children covered by such a policy. Some insurance policies going away are a sign of progress.

update: more from aaron carroll @ incidental economist.