A dispute between McDonald’s Corp. and the federal government over a new health care reform requirement is giving a peek into the potential complexities that the massive new law will have on companies.

The U.S. Department of Health and Human Services confirmed Thursday it has been in discussions with the Oak Brook-based fast-food giant over regulations that will require health plans to spend at least 80 percent of premium dollars on medical costs.

And that’s a sticking point for McDonald’s, which worries the mandate involving medical-loss ratios, or the percentage of premium revenues that go toward medical services, will make an insurance plan for 30,000 workers at its franchise resturants too expensive to continue. The Obama administration says the key tenet is designed to expand medical benefits and hold insurance companies to more rigorous standards.

Both McDonald’s and the Obama administration took issue with the accuracy of a published report on the dispute Thursday, saying the restaurant chain has no plans to drop health coverage for employees. But McDonald’s said that it may have to replace its plan with another form of insurance.

And the Obama administration is clearly concerned about the impact of the overhaul amid intensifying Republican criticism and threats to repeal the law, saying through a Health and Human Services spokeswoman that it is “working closely with businesses like McDonald’s” and that guidance on new medical-loss ratios rules “has not even been issued.”

Once that guidance is issued, possibly by the end of the year, insurance companies should know what is classified as a medical expense. Aside from obvious expenses on doctors and hospitals, for example, insurance experts say medical costs also are related to quality of care and services, such as a 24-hour nurse call line that is used to manage a chronic condition.

The health insurance industry, however, has taken issue with what should be called a medical expense, saying that fraud and abuse, among other things, should be factored into medical-loss ratio calculations. In addition, critics have said it will be difficult for smaller companies’ insurance plans to comply because such businesses tend to have a younger workforce and higher turnover, so they might not spend as much of their premium dollars on medical-care services.

The new rules regarding medical-loss ratios will not affect most Americans who work at large companies and have employer-sponsored insurance and are generally considered self-insured.

But they will affect those uninsured individuals and small businesses expected to win subsidies under the new law that will help them hold on to coverage for their workers or buy coverage if they have none now. For those people, in particular, health plans have warned of higher costs as they attempt to comply with such new rules.

And this is where McDonald’s comes into the debate: The fast-food giant’s franchisees tend to fall in the small-business category because they buy fully insured plans, which means they pay premiums to an insurance company. McDonald’s would not provide details of the benefits its franchisees offer their workers or the names of their insurance carriers.

“Health reform is complex, and some companies will have unique situations that make it challenging to coply with new regulations while meeting the needs of their workforce,” said Jim Winkler, managing principal with employee benefits consulting firm Hewitt Associates.

Under the new federal law, individual policies and small-group insurance products sold to businesses with 50 or fewer workers will have to spend 80 percent of health plan enrollee premiums on medical costs. Policies for groups with more than 50 workers will have to spend at least 85 percent of health plan subscriber premiums on health costs.

Health plans that do not provide the percentage of medical care service required by the law will have to pay a rebate to health plan subscribers.

“Medical-loss ratios are important because they demonstrate to the employer or family that premium dollars are being used on health care,” said Illinois Department of Insurance Director Michael McRaith, who along with other state insurance commissioners are developing recommendations on medical-loss ratios that the Obama administration is expected to finalize later this year. “Most employers strongly favor medical-loss ratios.”

Such insured plans subject to medical-loss ratios will be the primary choice for uninsured Americans as they look to purchase health benefits once states have exchanges up and running by 2014.

Under the recommendations insurance commissioners are expected to provide the Obama administration, insurance plans will begin providing information on their medical loss ratios next spring based on 2010 financial information. But eventually, insurers will have to pay rebates if they do not comply with the medical-loss ratios.

Rebates, however, will not have to be paid until after their 2011 financial information is submitted in the spring of 2012, according to information being developed by members of the National Association of Insurance Commissioners for consideration by the Obama administration. 

Tribune reporter Emily Bryson York contributed to this report.