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Joe The Plumber Should Like Obama's Health Plan

Would Barack Obama's health care plan be bad news for Joe the Plumber?

Not at all. In fact, Joe the Plumber would be among the plan's primary beneficiaries.

It's no secret that small businesses have a really hard time finding affordable health insurance right now. And it's no secret why.

For one thing, it costs an insurer a lot more money to solicit, and then run, an insurance plan for multiple small businesses than it does for one large employer with the same number of employees. That drives up the cost of insurance for small businesses.

More important, insurers are a lot more picky about which small businesses they'll insure--and under what conditions.

An insurer crafting a plan for a large employer, with hundreds or thousands of employees, can be confident that there will be enough premiums from healthy people to offset the costs of those few employees with high medical costs.

In a small business, by contrast, the presence of just one worker with serious health conditions can upset the actuarial balance. So if, for example, a plumbing business had one employee with arthritis, coverage for the whole group could get very expensive, very fast.

So if you want to help Joe the Plumber, you might start by helping him buy into a large group plan. And that's exactly what Obama's plan would do.

Under the Obama proposal, small businesses could go choose from among a set of private insruance plans or a new public plan modelled (vaguely) on Medicare. The idea would be to give every small business the very same choices that employees of the federal government have. And since even group plans might be too expensive for small businesses, Obama would also offer them a tax credit to offset the cost.

But what about McCain's claim that Obama's plan would require Joe the Plumber to pay for one of these options? That's just not true. Obama would require larger businesses to pay for insurance, either by providing coverage or paying a contribution to the government. But he would very explicitly exempt small businesses from this requirement. 

McCain also suggested that Obama would dictate the terms of insurance coverage, rather than let Joe the Plumber choose whatever coverage Joe wants. But this is also misleading. After all, the whole premise of Obama's plan is to give small businesses--and their employees--the same choices that workers in large companies and the government already get.

The truth in McCain's claim is that these choices would be subject to regulations. Among other things, all the insurers would have to provide a standard benefit package. But this sort of regulation is necessary both to make sure insurers don't discriminate against the sick and to make sure everybody gets decent benefits. It's the best way to make sure that insurance actually meets the needs of everybody--and not just the healthy.

McCain's health plan, by contrast, would have precisely the opposite effect. You can read more about that here and here and here.

Update: Since we're on the topic of health care, I should mention that I remain skeptical about Obama's claim of delivering $2,500 in savings. And it's also possible, although not certain, that some people who currently have insurance will end up losing it because their employers decide to drop coverage and pay into a public plan instead. go for one of the options in Obama's scheme. But, for the most part, that would be people who now work for small(er) businesses and, as a result, get a pretty lousy deal on health care. In other words, they'd be giving up current coverage to get something better. I'll try to explain this with less haste, and more clarity, later this week.

Jonathan Cohn