To Open Eyes, W-2s List Cost of Providing a Health Plan
Published: January 29, 2013 - New York Times
WASHINGTON — As workers open their W-2 forms this
month, many will see a new box with information on the total cost of
employer-sponsored health
insurance coverage. To some, it will be a surprise, perhaps even a shock.
Workers often have little idea how much they and their
employers are paying for coverage. In many cases, economists say, workers give
up cash compensation to get and keep health benefits.
The disclosures, required by the 2010 health
care law, are meant to make workers more cost-conscious. Health benefits are
still tax-free. But labor unions and employer groups say it could be easier to
tax them in the future, now that employers must report their value to the
government.
The new information appears in Box 12 of the standard
W-2 form, with a two-letter code, DD. The box shows the “cost of
employer-sponsored health coverage.” And that amount is not taxable, the
Internal Revenue Service says on the back of the form.
Jay J. Makled, a union steward for the United
Automobile Workers at the Ford plant in Dearborn, Mich., described his reaction
after seeing that his health coverage cost nearly $16,000 last year: “It’s quite
expensive. I was surprised to see how much the company was paying for that
benefit.”
Hourly employees represented by the union there said
they generally did not pay any of the premium.
The number on the W-2 form is
supposed to reflect the part of the cost paid by the employer and the part
paid by the employee.
Prof. Nicole Huberfeld, an expert on health law at the
University of Kentucky, who received her W-2 form on Monday, said, “Most people
who get health insurance from their employers have no idea how much it costs.”
“People are often shocked when they see the cost,
$12,000 to $16,000 a year,” Ms. Huberfeld said. “Many Americans believe this is
something they get free. But employers pay lower wages because they provide
insurance.”
In 2012, according to an annual survey by the Kaiser Family Foundation,
premiums for employer-sponsored health insurance averaged $5,615 a year for
single coverage and $15,745 for family coverage. Over five years, the costs have
increased 25 percent for individual coverage and 30 percent for family coverage.
“Health coverage is a big piece of people’s income and
a large part of the social welfare budget,” said C. Eugene Steuerle, a
tax economist at the Urban Institute. “But the benefits are not taxable, and
most of the spending is hidden, so we don’t consider the trade-offs. If we want
to get control of health care costs, people have to be aware of them.”
That is the goal of the disclosure requirement, which
was proposed by a bipartisan group of senators: two Republicans, Charles
E. Grassley of Iowa and Michael
B. Enzi of Wyoming, and two Democrats, Max
Baucus of Montana and Ron
Wyden of Oregon.
Congress acted after Peter R. Orszag, then the
director of the Congressional Budget Office, told lawmakers: “The economic
evidence is overwhelming, the theory is overwhelming, that when your firm pays
for your health insurance, you actually pay through reduced take-home pay. The
firm is not giving that to you for free.”
The tax-free treatment of employer-provided health
benefits is the largest tax break in the tax code, costing the government
roughly $180 billion a year in lost revenue, or 80 percent more than the home
mortgage interest deduction, according to the administration.
Katie W. Mahoney, the executive director of health
policy at the U.S. Chamber
of Commerce, said, “It’s useful for employees to know the value of coverage
their employers provide.” But she said some employers worried that reporting the
benefit on the W-2 form could lead to taxing the benefit.
“That’s not the intent of the current requirement,”
Ms. Mahoney said. “But once the information is collected by the government, it’s
very easy for another administration to have a different intent.”
An employee of the A.F.L.-C.I.O. whose health coverage
was listed as costing more than $20,000 said: “That knocks my socks off. When I
saw the number, my eyes popped out. I appreciate my employer all the more.”
The employee said he had been told not to discuss the
cost publicly because the union did not want to suggest that some employees had
“Cadillac coverage.”
An employer that fails to comply with the reporting
requirement could be subject to penalties of $200 per W-2 form, up to a maximum
of $3 million, tax lawyers said.
Employers are exempt from the reporting obligation if
they are required to file fewer than 250 W-2 forms, the I.R.S. said. That could
change, but the agency said employers would be given at least six months’
notice.