How Hillary Clinton’s Credit for Out-of-Pocket Health Costs Could Backfire on Taxpayers

Hillary Clinton said recently that she supports efforts to allow some under 65 to buy into Medicare and suggested that this would help lower health-care costs. A key element of her broader health-care platform could, however, increase them–at a sizable cost to the federal government.

A plan the Clinton campaign unveiled in September would create a refundable tax credit worth as much as $2,500 per individual and $5,000 per family to cover out-of-pocket health-care expenses. The campaign has said that the credit would be “available to insured Americans with qualifying out-of-pocket health expenses in excess of five percent of their income, and who are not eligible for Medicare or claiming existing deductions for medical costs.” This means people eligible for the credit would include not only those who have plans through the Obamacare exchanges but also those insured through their employer. Making the credit refundable could allow individuals with little or no income tax liability to receive a refund from the federal government toward their out-of-pocket health costs.

The potential breadth of this proposal could prove its undoing. For one thing, the most recent Census Bureau survey, published in September, estimates that 175 million Americans are covered by employer plans. That’s nearly 14 times the 12.7 million individuals covered by plans through the Affordable Care Act exchanges. While there have been proposals to increase federal subsidies provides to those enrolled through the ACA exchanges, this is the only plan suggesting new federal subsidies for those with employer coverage.

Extending federal subsidies for out-of-pocket costs incurred by those with employer-provided plans could dramatically remake that market. Companies could opt to increase employee cost-sharing, knowing that workers would recoup some or possibly all of their new costs through the federal program. A Kaiser Family Foundation survey of employer plans last year found that only 19% of workers with single coverage faced a deductible of more than $2,000. The Clinton plan sets the maximum credit for individuals at $2,500. If the federal government provides individuals with high health costs a refundable credit to help subsidize their expenses, employers would have reason to try to offload their costs onto employees—which ultimately could end up costing the U.S. Treasury more.

Details of the Clinton plan are still limited. Should it be implemented, policy makers could attempt to shape or amend the tax credit’s effects. Still, it’s possible that a policy designed to absorb higher health costs would shift them from employers and workers to federal taxpayers. That cost-shifting wouldn’t lower spending–and could increase it. Knowing there is a federal credit might give employees incentive to incur additional expenses to exceed the subsidy threshold. That would mean a credit aimed at mitigating the effects of rising health costs for some families could end up exacerbating the problem on a broader scale.

This post was originally published at the Wall Street Journal Think Tank blog.