In this Alice-in-Wonderland world of election claims, counterclaims, lies, and bigger lies, one of the more bizarre stories is that of Joe the Plumber, a tradesman mentioned no fewer than a dozen times in the last and final Presidential debate.
Louise at Colorado Health Insurance Insidertook a look at Joe’s financial picture, and how Joe’s finances would be affected by the Obama and McCain tax and health care plans.
But first, a little fact checking. Joe’s not a licensed or registered plumber. He’s never been formally trained as a plumber. He can’t work as a plumber except in a few townships in Ohio. Perhaps it would be more accurate to call him ‘Joe the Plumber’s helper’.
Second, court records indicate Joe earned about $40,000 in 2006 (previous citation).
Here’s how the McCain tax and health reform plans would affect Joe (from Louise’s piece). Note that Louise assumes Joe’s company is earning a profit of $280,000 because that’s what Joe said the company ‘makes’. (which, according to D&B, it isn’t).
“if the business is paying premiums for two families, at roughly $12,680 each, that’s $25,360/year that the business is spending on health insurance premiums and deducting as a business expense. So that money is currently not included in the $280,000 profit the business makes. Losing that tax deduction [per the McCain plan which eliminates the employer deduction for health insurance premiums] would mean that the business would be paying 36% tax on the $25,360 that they currently pay for health insurance premiums. That’s $9,129/year in additional taxes.”
versus the Obama plan, which
“would raise taxes on small business profits (not revenue)[emphasis added] that are over $250,000 (a threshold that the vast majority of small businesses don’t even come close to reaching). In this case, that would be $30,000/year in profits being taxed at the higher rate. The tax rate on that $30,000 would go from 36% to 39%. The difference would be an additional $900/year in taxes for the business. The business would still get a tax deduction for the health insurance premiums they pay, so it would continue to make good business sense to offer group health insurance for the employees.
So Obama would increase taxes on the plumbing business by $900/year (if the business is making an annual profit of $280,000).”
But Joe’s company doesn’t make anywhere close to that – in fact annual revenues (not profits) are about $100,000.
The net?
“McCain would let the business keep that $900/year, but he would take away more than $9,000 in tax savings that the business gets by deducting health insurance premiums.”
There’s a bit more to this. If Joe is healthy, he may well qualify for coverage under the McCain plan – he’s 34, single, and works out, so insurance companies will want to take his application. But if he has an pre-existing conditions, chances are very slim he’ll get coverage at a rate he can afford (remember he makes $40,000 or so a year). He would be able to get coverage under the Obama plan, regardless of pre-existing conditions – coverage that would likely be more expensive, but would protect Joe from cancellation and ensure he has comprehensive benefits.
We don’t know if Joe has insurance right now; if not he’s covered if he gets injured on the job through workers compensation. If it’s not occupationally-related and he doesn’t have insurance, he’s going to get charity care (there’s no way Joe can afford a day in the hospital on his income).

Comprehensive health reform will not happen in the near future. There is no money. There are lots of other priorities – financial stability, huge and growing deficits, energy, wars in two countries, nuclear proliferation and tax policy. There’s just no money, and not much bandwidth. Yet the Democrats will be highly motivated to do something meaningful, pressured by campaign promises and voter demands.
There may well be a solution that enables the Democrats to deliver on their commitment without breaking the bank, while laying the groundwork for more comprehensive reform if and when that’s feasible.
Access can certainly be addressed without additional funds, with support from both parties, and while it will almost certainly incite much wailing and gnashing of teeth within the health insurance industry, they’ll get over it. It would certainly help the several hundred thousand folks who are at risk of losing their employer coverage as the country slides into recession, not to mention those currently unable to obtain meaningful, comprehensive coverage at an affordable price due to a pre-existing condition.
A modest proposal
Congress could pass and the President could sign legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan. There are (at least) three mechanisms available to meet these objectives.
1. The legislation could require states to work with the National Association of Insurance Commissioners to develop model language that would meet these standards. (NAIC does this for lots of insurance types and policies today)
2. The Federal law could set forth minimum standards, while allowing states to require carriers in their jurisdiction to meet higher standards.
3. A new Federal regulatory body could be set up to ensure all insurance carriers comply with the standards set forth in the legislation.
To guard against ‘cheaters’ – the folks who wait till they get sick before signing up for coverage, the law should include a provision allowing insurers to increase rates for those that do not sign up within a time certain after they become ‘eligible’ for coverage. The increase would be pegged to the length of time the individual delayed obtaining coverage (similar to the way Part D works today).
Some will contend that this will drive up premiums for the young and healthy. No argument from me. That’s the way health insurance should work: some subsidize others, with the understanding that when that ‘some’ (or when their kids break bones or they get hurt) someone else will help them out. I don’t know if the increase will be so drastic that it will drive all the young healthies to drop their coverage; my gut says there will be some disenrollment, but it will be modest. I do know that after a period of moaning and groaning, insurers would find themselves competing not on the basis of how well they select risks and decline coverage, but on cost and benefits.
Now wouldn’t that be something?
Politically, it would be pretty tough for any elected representative to come out against the proposal. Who wants to be pilloried for preventing someone from getting coverage just because they lost their job or their employer stopped offering health insurance? Answer – only the most committed of libertarians.
(bad health wonk joke – what’s a libertarian? Someone with a chronic medical condition who hasn’t tried to get insurance in the individual market)
Access would be improved, those who actually need insurance could get coverage (albeit at a price) and everyone would be financially motivated to get coverage.
No, it isn’t perfect. But it is doable.

Most pollsters have Obama well ahead nationally and in the swing states, with Gallup reporting he has almost reached a double-digit lead.. And after last night’s debate, which Obama ‘won‘ handily more independents look to be behind his campaign (although if you watched the alternate-universe-dwelling wingnuts on Fox, you might not get that impression).
It is looking very good for Obama, and very bad for the Mav (the bettors have it Obama with a 73% chance of winning).
So, the Senator from Illinois wins. What does that mean for health care?
We’ve established that his big reform plan is not going to happen. And I couldn’t really take Obama at his word when he said last night that health reform would be his second priority after energy. Energy’s big, but health care is bigger.
Here’s what I’d expect we’ll see in 2009-2010 from Congress and the new President.
Expect the new political year to begin with incremental fixes to specific programs – The biggie will likely be Medicare physician compensation. With docs scheduled to see their reimbursement drop by around 20% in 2009, the caterwauling will be heard loud and clear inside the Beltway. Don’t look for a major policy change, but rather something to satisfy the physician community and build a little equity for the future. Where will the money come from?
Do not be surprised if CMS is expressly ordered to negotiate prices with big pharma in the near future. The Part D program is a budget buster, big pharma has few political allies (despite big contributions) and reducing the cost of drugs will save CMS budget dollars that can be spent on physicians.
SCHIP may be next out of the blocks. The expansion of coverage for kids is a central piece of Obama’s platform on health reform, and with a Democratic Congress the chances of meaningful expansion of this program are pretty good. And it won’t just be Democrats voting ‘aye’. After the back and forth battles, marked by confusion and consternation from Republicans who felt Pres. Bush threw them under the bus by vetoing a bi-partisan bill to extend SCHIP earlier this year, enough Republicans are likely to cross the aisle to support funding of a somewhat-expanded program.
Also on the table will be reduced funding for Medicare Advantage, a program that has long struck Democrats as a giveaway to big healthplans. Foolishly. the insurance industry worked hard, and effectively, to block reductions in MA this year. As Bob Laszewski notes, with Congress and the White House changing hands, the bill they stopped this year will look great compared to what they’ll get next. Expect MA subsidies to be slashed, in what could, and should, be seen as a shot across the bow of the insurance industry.
The FDA will also be under the microscope. Despite passage of the Food and Drug Administration Amendments Act of 2007, ostensibly fully funding the FDA and giving it the staff needed to do its job, the FDA continues to stumble. With a Democrat running the Administration, expect increasing oversight, much more post-approval monitoring, and much less tolerance for patent-extending gamesmanship.
What does this mean for you?
Obama is a very smart guy who knows enough to not try to do everything at once. Incremental steps mean progress towards reform – and are easier to accomplish, build consensus. momentum and working partnerships.

An article in this morning’s Politico.com asks if health care will reappear as a key issue in the election. If it doesn’t it’s because Obama has missed perhaps his best chance to hit Mc Aon where he’s most vulnerable.
Careful – and not-so-careful – readers of the candidates’ platforms will note that McCain’s has two flaws guaranteed to scare most independent voters; the elimination of employer-based health insurance and requirement that families seek coverage through the individual market. This last may well be more of a factor than the policy wonks and economists think, for the simple reason that families are used to getting their insurance issues handled by their employer. Whether it’s a problem with a claim, need for a new insurance card, issue with a precert requirement, or change in coverage status most Americans have turned to their employer for help.
I sold group benefits for several years, a job that meant I spent a good bit of time talking with HR staff about their employees’ questions and issues. The HR staff acted as an advocate for the insured, and the size of the employer’s business relationship with my employer ensured there issues got addressed quickly. And with minimal shouting from the insured.
Insurance is complicated and complex, hard to navigate for even those of us with secret decoder rings. Normal folks don’t want any part of dealing with their health insurer, and in today’s market they don’t have to.
All that would change if a McCain plan passes. Of course it won’t, but that’s not the point. The point is what his plan reveals about McCain. Here’s betting Obama brings these issues to the fore tonight.

There is no chance McCain-style health reform will happen.
None.
The hammer blows of crushing budget deficits and the complete failure of a deregulated financial system have ended the free-market, individual insurance movement’s chance of becoming reality. The death of the McCain model was inevitable, but the economic and political realities have saved us from the burden of tearing it apart through public discussion.
As hard as it is to believe, the plan, which would have covered fewer Americans, would have cost much more than rival plans that actually insured more of us. The Joint Committee on Taxation estimated the plan would cost $3.6 trillion over ten years (a mere $205 billion in 2009). (for the details click here) Cost-prohibitive to start, the plan is now so obviously unaffordable that McCain himself couldn’t rationalize its cost.
The McCain health reform plan’s other fatal flaw was its reliance on a deregulated individual insurance market. As Daniel Libit noted on Politico.com today, “In a 2003 interview with CNN, John McCain avowed, “I am a deregulator. I believe in deregulation.” Herein lay the fundamental problem with McCain’s proposal – its reliance on the free market to operate counter to its interests. Somehow the Senator believed that the ‘free market’ would figure out a way to cover people with heart disease, asthma, cancer, hypertension, and skin cancer (that would be McCain) at a price they could actually afford to pay.
Expect to see a lot less trumpeting of the wonders of the free market; even the folks at Cato have been quiet these days; perhaps they are stocking up on food and water as they prepare to hunker down and try to survive their own version of nuclear winter.
At least we didn’t have to describe in detail how McCain’s plan was awfully similar to Bush’s last feeble attempt at health reform, one that a GOP Congress couldn’t bring itself to consider.
If there is a silver lining to the credit market disaster, one of its threads is the demise of McCain’s ill-conceived and deeply flawed attempt at health policy.

I didn’t know whether to laugh or cry, or (more likely) become violently ill after reading this.
Here’s an excerpt from Katie Couric’s interview of Gov. Sarah Palin.
COURIC: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families who are struggling with health care, housing, gas and groceries; allow them to spend more and put more money into the economy instead of helping these big financial institutions that played a role in creating this mess?
PALIN: That’s why I say I, like every American I’m speaking with, were ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health-care reform that is needed to help shore up our economy [emphasis added], helping the–it’s got to be all about job creation, too, shoring up our economy and putting it back on the right track. So health-care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans. And trade, we’ve got to see trade as opportunity, not as a competitive, scary thing. But one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity. All those things under the umbrella of job creation. This bailout is a part of that.
I kid you not.

FactCheck is one of my favorite all-time ‘helpers’. They do a lot of the digging and checking so we can know what’s right and what’s BS. And most of the time they get it right.
Yesterday they didn’t.
FC took Obama to task for an ad that, according to Igor from Think Progress; “improperly conflated banking deregulation with McCain’s plan to allow health insurers to sell plans across state lines.” Igor claims that deregulating one is same/same as deregulating the other; McCain has been an ardent advocate of deregulation for years, and it is no big leap to think that he’ll do much to deregulate the health insurance business. As he’s already said, himself, repeatedly.
I’d go a bit further than Igor did.
In the McCain plan, what’s to stop a health plan from canceling coverage when they find out you have a bad case of the horribles? Answer – nothing, as long as the state where the insurer is licensed is OK with it. While McCain may say that won’t happen, who’s to say it won’t? States will fight to be the domicile of choice for health insurers, knowing that the lowest cost and lightest regulation makes for lots of fees (see Delaware for corporations…)
McCain says (in the Contingencies article) that he wants to do something (exactly what is undefined) to protect Americans with pre-existing conditions. This desire to ‘protect’ Americans with pre-ex will require the government to either force insurers to cover them (hmmmm, is that a ‘regulation’?) or use high risk pools, a notoriously under-funded and inadequately managed method that has never worked well.
I emailed FactCheck on their smackdown of Obama, protesting what I consider to be a very narrow view of the logic behind the ‘offending’ ad. Haven’t heard back yet…

We took a look at Sen McCain’s health reform plan last week, aided by an analysis published on the web by the journal ‘Health Affairs. Today it’s Obama’s turn.
Unlike Sen McCain’s plan, Sen Obama’s plan maintains employer-based coverage (something most Americans want), prohibits medical underwriting and cancellation of policies and establishes a minimum set of benefits to prevent ‘back-door’ medical underwriting, and requires employers to contribute to employee coverage or pay a tax.
Estimates indicate Obama’s plan will add eighteen million Americans to the rolls of the insured over the near term, with some likelihood that there would be increasing incentives put in place to encourage more and more folks to buy health insurance coverage. Obama has resisted (although not too strenuously) calls from many to establish a universal mandate, thereby requiring all to have health insurace, noting that it is more important to first control costs and only then expand coverage.
He’s right. Unfortunately Obama’s plan doesn’t do enough to control costs.
Perhaps the most significant cost-oriented part of Obama’s plan is the ‘stop loss’ coverage whereby the government will agree to “reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums.” For truly catastrophic claims there’s certainly lots of precedents for this type of coverage – for years self-insured smaller employers have purchased stop loss coverage for high-cost individual claims for years. The question is how much of the claim cost will the Feds assume, and how much it will cost to do so (someone’s got to come up with the dollars, and if the Feds do that ‘someone’ is the taxpayer; it looks like the Chinese are done funding our deficits for a while). But while this will reduce the cost of insurance, this does nothing to address health care costs per se.
The only other solid part of the plan that addresses cost is the call to negotiate drug prices. That may well lower trend rates somewhat, but drug pricing seems to be rather flat these days, so the change may not be all that beneficial over the near term.
Neither of these policy ideas will do much to address costs. That’s because US health care costs are not high (relative to other countries) because care is better, or we live longer, healthier lives, or Americans have more access to expensive medical technology or drugs, or there are proportionally fewer folks dieing of cancer or heart disease or AIDS. US health care costs are higher because for two mostly unrelated reasons – higher unit prices and wildly varying, and inconsistent, medical treatment.
Unit prices for medical services are higher in the US than in other industrialized countries. Office visits, diagnostic imaging, lab tests, hospital stays, surgery, brand (but not generic) drugs – almost are are more expensive – on a per-service basis – in the US than elsewhere. Those higher unit prices mean more profits for manufacturers, higher wages for clinicians and support staff (and consultants) and more cash to use to build even more medical facilities and buy medical machines.
Sounds simple, because it is.
The not-really related issue of practice pattern variation (a technician’s term for different physicians in different geographic areas using different medical care to treat the same condition), and the increasing evidence that this variation results in far too much useless or potentially harmful care may be even more of a problem. Practice pattern variation has been shown to result in far too many hospital admissions in Boston, prostatectomies in Alaska, hysterectomies in parts of Maine, and back surgeries in southwestern Florida,. There is absolutely no evidence that these additional medical procedures deliver longer/better life, or even that they represent appropriate care. On the contrary, these additional procedures add cost and complicate treatment with no apparent benefit.
These two issues are not addressed adequately by Obama (or McCain either, for that matter). However, as Obama has correctly stated that expansion of coverage must be preceded by cost control, this oversight is more obvious in his plan.
Obama has called for the establishment of a Federal Agency to oversee effectiveness assessment – to help determine what medical care works best for what patients. Yet the proposed funding for this agency appears grossly inadequate. It is also instructive to remember what happened to the ‘old’ Agency for Health Care Policy and Research, a body that was emasculated after angering physicians and other stakeholders by pointing out the inconsistencies in treatment for back pain across the country.
As I noted last week, taking on the medical establishment, which is what the next President and Congress must do if they are to rein in health care costs and expand coverage, is going to be a brutal and bloody war. Big pharma, medical device manufacturers, physicians, hospitals, ancillary providers, health plans, nursing homes, medical gas suppliers, distributors, states, attorneys, and consultants will all be vociferous in their defense of their critically important, and therefore financially-deserving role. Health care accounts for a sixth of the US economy, which means that very few would be untouched by a major restructuring of the health care system. While it is understandable that Obama would not tip his hand, thereby opening himself up to the inevitable assault from those whose oxen slated to be gored, it is also unfortunate that the ‘change’ candidate won’t reveal more of his plan than the usual ‘reduce cost through elimination of waste fraud and abuse’.
Solving the health care crisis will absolutely require attacking price and practice pattern variation. This should be the core of any health reform program, for without cost control universal coverage will rapidly drive up costs, crowding out investment in plant, labor, technology and education. We should know where the candidates stand, what they are prepared to do, what groups they will take on and how they will do it. Yet neither candidate has the political courage to take a stand.
Obama’s platform falls well short on the most important issue.

Sen McCain has modestly noted economics is not his strong suit. Examining his health reform plan provides additional insight into that assessment.
“Achieving Senator McCain’s vision (for health reform) would radically transform the US health insurance system…The decline in job-based coverage would force millions of Americans into the weakest segment of the private insurance system [emphasis added] – the nongroup market – where cost sharing is high and covered services are limited. Senator McCain’s proposal to deregulate this market would mean that people in it would lose protections they now have. These changes would diminish the security of coverage for most Americans, especially those who are not – or someday will not be – in perfect health.”
That’s how Health Affairs summarized the impact of GOP Presidential candidate John McCain’s health reform platform.
I’m at a loss to understand how McCain and his supporters could think that a free market in health insurance would actually help resolve the health care crisis, cover more of today’s uninsured, and provide insurance for those who need it – the folks with chronic conditions.
There are two very simple reasons the free market will not solve the health care crisis. First, private industry is in business to make money. And insuring high cost people is not how insurers make money. Auto insurers refuse to cover drivers with bad records; home insurers won’t insure houses on flood plains, liability insurers won’t provide coverage for companies run by convicted felons, marine insurers won’t write ships operating in a war zone. Ask homeowners on the Gulf Coast about their ability to buy wind and flood insurance – if the various states don’t force insurers to provide the coverage, it is incredibly difficult to find any insurer willing to take the risk.
Second, most health care dollars are spent on/by relatively few people.

One-tenth of Americans incur two-thirds of all costs. One-twentieth drive half of all costs, and a mere one percent drives over twenty percent.
In a free market, insurance companies would absolutely refuse to cover anyone on the left side of the graph, and they’d work very hard to tweak their underwriting so they only insured folks in the far right column (where half the population incurs less than four percent of costs). That’s not an indictment of insurance companies, it is a statement of fact. Even in today’s regulated markets, fully one-third of individuals seeking coverage in the individual market (the only market that would exist in McCain’s world) were “denied coverage or charged more because of a pre-existing condition…nearly half found it difficult or impossible to find affordable coverage” (Health Affairs).
McCain proposes an expansion of state-run high risk pools to help deal with these folks, but his plan only provides funding for three million potentially high risk people – less than one percent of the population. That leaves (at the very least) fourteen percent of the population without coverage, yet needing care. Who’s going to pay for their health care? Sure some of it would be paid by each person, but few individuals can afford to write a check for a couple days in the hospital. The result? A huge rise in the number of charity cases seeking care at emergency rooms, a rise that would quickly bankrupt many providers.
There’s a further problem with McCain’s plan; the deregulation of insurance would mean that any insurance company would be able to cancel anyone’s policy as soon as they were diagnosed with a potentially costly condition. That is not the case today, where in most states once you’re insured, the insurance company can’t single you out for a premium increase or cancel your policy; the practice, known as post-issue medical underwriting, is illegal in most jurisdictions.
So just as some auto insurance companies cancel policies after an accident or ticket, under the McCain plan health insurers could – and would – do the same.
Then there’s the cost. McCain wants to cancel the tax exemption for employer-based health insurance plans, replacing it with a refundable tax credit of $2500/individual or $5000 per family to help them buy insurance (note – the average individual policy now costs over $4000 and the average family policy cost exceeds $12,000). The Senate Joint Committee on Taxation’s report on the McCain health plan estimates the cost of the tax credits would be $206 billion in FY 2009 and $3.6 trillion over 10 years.
The McCain plan works just fine – in a world inhabited only by free-market economists where no one gets sick or hurt. Except when it comes time to pay for it, or when any of our economists does get ill and finds him/herself seeking care at the doors of a bankrupt hospital.
As Bob Laszewski points out, if McCain is elected, there is absolutely zero chance his plan will be passed. That being the case, why waste my time writing about it and yours reading? Because it shows McCain’s complete lack of understanding, his total ignorance of the workings of one-sixth of our economy. Then again, he’s been covered his whole life by a government plan, so he has had zero exposure to health care in the real world. Come to think of it, he hasn’t had any exposure to the real world in recent memory, as he has been in Washington for the last thirty years.
McCain said it himself – economics is not one of his strong suits. His health plan proves it.
Next week I’ll examine Obama’s plan to see how he deals with the real world. For starters, what about cost inflation, Senator?

The presidential election looks like it is going to be a battle of personalities or issues. Bob Laszewski notes that the lipstick issue is a winning one for the GOP while the Democrats want to keep the election focused on ‘real’ issues – such as health care and the economy.
For now, it looks like the electorate is living in la la land – more concerned about appearances than reality.