Politics & Policy

The Dirty Little Secret of Hillary Clinton’s Health Plan

(Reuters photo: Scott Morgan)
Her proposal would erode employer-provided coverage and push workers toward a public option.

On Monday, President Bill Clinton committed a Kinsley gaffe, criticizing Obamacare as a “crazy” scheme whereby small business owners “wind up with their premiums doubled and their coverage cut in half.” In response to her husband’s accurate depiction of Obamacare’s problems, Hillary said on Tuesday: “We got to fix what’s broken and keep what works, . . . We’re going to tackle it and we’re going to fix it.” Secretary Clinton is exactly correct — if by “fix” she means enacting a proposal that could line the pockets of businesses to the tune of nearly a trillion dollars while simultaneously jacking up premiums and deductibles for millions of Americans.

Hillary Clinton’s plan for a new federal tax credit to subsidize out-of-pocket costs for all Americans will encourage businesses to make their health benefits skimpier — raising premiums, co-payments, and deductibles — because they know that the new tax credit will pick up the difference for the hardest-hit families. While Secretary Clinton’s other major health-care proposals (to increase federal subsidies on insurance exchanges and to create a government-run “public option” on them) would apply only to those without employer-based coverage, the out-of-pocket tax credit would apply to both insurance that is employer-based and insurance that is individually purchased.

In analyzing her proposals, the liberal Commonwealth Fund noted that Secretary Clinton’s out-of-pocket tax credit would affect a pool of 177.5 million potentially eligible Americans, which is more than four times as many as those who would be eligible to avail themselves of the government-run “public option.” The broader reach for the tax credit, plus its generous amount (up to $2,500 per individual or $5,000 per family for out-of-pocket spending that exceeds 5 percent of income) creates a sizable cost for the federal government: net spending of $90.3 billion in 2018 alone, according to the Commonwealth analysis. In 2009, President Obama made this pledge to Congress: “The plan I’m proposing will cost around $900 billion over ten years.” But one element alone of Secretary Clinton’s plan will cost at least that much — and probably more than $1 trillion.

The Commonwealth analysis of Clinton’s plan attempts to estimate how much the out-of-pocket tax credit will reduce health-care expenses for middle-class and working-class families. What the Commonwealth researchers did not mention in the report, and instead buried in a technical appendix, is this doozy of an asterisk: “Potentially, this [tax credit] approach gives firms an incentive to increase workers’ premium contributions, so that more workers are eligible to claim the credit.”

The Commonwealth researchers did not even attempt to model the impact of the tax credit on the actual behavior of businesses, claiming that employers might not know their workers’ income or out-of-pocket expenses, and saying they could not make decisions based on incomplete information. Nonsense. Even if businesses decide not to increase employees’ premium contributions, they could jack up deductibles instead. A firm could raise its deductible by $2,500, offer all workers a $1,000 bonus — to help employees whose out-of-pocket costs don’t meet the 5 percent of income threshold to obtain the tax credit, or assist workers’ cash flow until they receive it — and still come out ahead.

Whether by accident or design, the Commonwealth researchers assumed that employers will not respond to incentives — an assumption that belies three years of experience with Obamacare’s exchanges. Thousands of Americans have gamed the law’s special enrollment periods to sign up for coverage outside the annual enrollment window, incurred above-average costs – and then dropped their coverage at above-average rates, un-enrolling after returning to health. And because Section 1412 of the law allows enrollees a three-month grace period before insurers can drop their coverage for non-payment, one insurer found that 21 percent of its customers didn’t bother to pay their premiums last December, because the law effectively said they didn’t have to.

The Commonwealth researchers did not even attempt to model the impact of the tax credit on the actual behavior of businesses.

Given the ways in which Americans have gamed Obamacare’s morass of new regulations to create a system of barely functioning insurance exchanges, it beggars belief to think that businesses would not similarly work to maximize profit. According to the Kaiser Family Foundation’s survey of employer-sponsored health plans, only 23 percent of workers face a deductible above $2,000. With the average deductible rising 12 percent last year, firms would now have an even greater incentive to privatize their gains – because the new tax credit would allow them to socialize their workers’ losses by moving them to the federal fisc.

Why would Secretary Clinton propose a costly plan that encourages large businesses to pocket profits while jacking up costs on struggling families? Simple: The plan will make employer coverage less desirable, and it might even make the Obamacare exchanges look attractive by comparison. If liberals’ end goal is to erode employer-provided health coverage and migrate all Americans to government-run exchanges, offering a tax credit that will effectively erode that coverage faster isn’t a bad way to start.

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