I’ve noted many times on this blog that one of the difficulties faced by proponents of health care reform is the fact that a lot of Americans are somewhat shielded from the actual cost of health insurance because a portion of their health insurance is paid for by their employer. And when we talk about actual health care costs, almost all of us who have health insurance are at least partially insulated from the true cost of our care, unless you’re the sort of person who likes to go over EOBs with a fine-toothed comb (and those can be tough for even the most patient among us to decipher).
But if you pay attention to your W2, you may see an additional number listed on your 2012 W2 (if you work for an employer with at least 250 employees – for smaller employers, the new reporting rules will start next year). For the first time, large employers have to start reporting on W2 forms the amount the employer paid for an employee’s health insurance benefits (box 12, code DD).
More details from the IRS on how the W2 health insurance cost reporting works can be found here. The IRS guidelines note that the amount reported in box 12 is the aggregate total cost for the employee and covered dependents, including both the portion paid by the employee and the portion paid by the employer (see question 14, on page 9).
If you pay attention to blogs, forums, and/or internet news article comments, you’ll see all sorts of conspiracy theories as to why health insurance costs are starting to be reported on employee W2 forms. The IRS guidelines I linked to above clearly note that the purpose of the reporting requirement is to inform employees of the cost of their health insurance coverage, and that “Nothing in § 6051(a)(14), this notice… causes or will cause otherwise excludable employer-provided health care coverage to become taxable” Of course nothing is ever a sure thing when it comes to legislation and taxation – by their very nature they can change direction as needed. It has often been noted that it’s clearly unfair that employer-provided health insurance is a tax-free benefit while individual health insurance is paid for with after-tax funds (assuming the person is not self-employed). Many people have long advocated that it would be more fair to give everyone a tax deduction for health insurance, regardless of where they get their coverage. Of course it’s not beyond the realm of possibility to imagine instead that some day the portion of an employee’s health insurance that is paid for by an employer might be considered a taxable benefit.
But today is not that day. For now, the health insurance cost reporting in on W2s is for employee information purposes only. Some employees may already be aware of how much their health insurance actually costs, but for others – especially those who have employers who fund a large portion of the premiums – it may come as a surprise. Either way, educating employees on the true cost of their health insurance coverage is definitely a constructive move. It allows everyone to be on the same page in terms of understanding the fiscal challenges faced by our healthcare system, and it also gives employees an idea of approximately how much they would be paying for their health insurance if they were to leave their employer and opt for COBRA. And it may help employers justify lower-than-expected pay raises when employees are able to see the cost of their health insurance next to their total compensation on their W2.
