Tuesday, February 9, 2016

You're about to find out what your health insurance really costs

Here's a quick question. How much does your health insurance cost? You probably have no idea.

You’re about to find out what your health insurance really costs


Here’s a quick question. How much does your health insurance cost? You probably have no idea.

Most Americans get coverage through an employer – either their own, their spouse’s or their parent’s. The employer usually picks up most of the tab, somewhere between 50 and 80%. You probably know the size of your share, since it is taken out of each paycheck. But few people know the size of the entire bill.

That is about the change. Starting this year, the W-2 form you receive from your employer will include the full amount that was paid for your health coverage. (That’s the form you file with your tax return listing compensation for the year. Employers who file fewer than 250 of them are exempt.) When you see it, you may be in for a big surprise.

Take a look at Box 12. If you received health coverage, you will see the code “DD” followed by an amount. That’s how much your employer paid. There’s a good chance it’s a lot more than you thought.

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The average individual policy cost $5,615 in 2012 and the average family policy $15,745. Some plans cost much more – over $20,000. If you are like most workers, only a small portion of that, about a quarter on average, is deducted from your paychecks. The rest is compensation you may not have realized you were getting.

The cost of health coverage was not reported until now because it is not subject to income tax. The money is a benefit you receive tax-free, so the IRS has no need to know how much it is. For most workers, this ignorance is bliss. They enjoy financial protection from health care expenses and have no idea what it really costs.

The problem is that many workers pay the cost without realizing it. That’s because their employers make up for the expense by paying less in salary. If Box 12 on your W-2 lists, say, $15,000, there’s a good chance you could be making thousands of dollars more in salary if your employer didn’t provide health benefits.

The change in reporting was mandated by the health reform law. The purpose is to make you more cost-conscious. With knowledge of what coverage really costs, workers may be more open to accepting cheaper plans in return for higher salaries. That could help to push spending down throughout the health care system.

The law does not change the tax treatment of your health coverage. It is still tax-free, if you get it through an employer. While some fear the new reporting rule will make it easier for the government to tax health benefits in the future, there are no plans to do so. A tax change would require that Congress pass another health reform law, and that is not likely to happen anytime soon.

Lest you think the new rule was an insidious provision slipped in by Obamacare’s architects, it actually had clear bipartisan support. It was originally proposed by two Republican senators – Charles Grassley of Iowa and Michael Enzi of Wyoming – and two Democrats – Max Baucus of Montana and Ron Wyden of Oregon.

America has the most expensive health care system in the world. While cost increases have moderated in recent years, they are unsustainable in the long run. Few of us appreciate how much of the expense we actually bear – often with each paycheck. Thanks to health reform, we will now have a better idea. That could be a first step in bringing costs under control.

Professor, Drexel University Kline School of Law & Dornsife School of Public Health
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About this blog

Do you have a large bill from a provider you didn’t expect? A claim that was denied without explanation? A change in your insurance plan you don’t understand? Do you need help sorting through data on the quality of your doctor or hospital or figuring out what your care will cost?

“Health Cents” will point you toward answers, while also offering insights on government health policy and political debates. Read more about our panel of bloggers here.

This blog is produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health-policy research and communication organization not affiliated with Kaiser Permanente. Portions of this blog may also be found on Inquirer.com and in the Inquirer's Sunday Health Section.

Robert I. Field, Ph.D., J.D., M.P.H. Professor, Drexel University Kline School of Law & Dornsife School of Public Health
Jeffrey Brenner, MD Founder of the Camden Coalition of Healthcare Providers, Medical Director of the Urban Health Institute at Cooper University Healthcare
Andy Carter President & CEO, The Hospital & Healthsystem Assoc. of Pa.
Robert B. Doherty Senior Vice President of Governmental Affairs & Public Policy American College of Physicians
David Grande, MD, MPA Assistant Professor of Medicine at the University of Pennsylvania
Tine Hansen-Turton Chief Strategy Officer of Public Health Management Corporation
Drew A. Harris, DPM, MPH Director of Health Policy Program at the Jefferson College of Population Health
Antoinette Kraus Director of the Pennsylvania Health Access Network
Laval Miller-Wilson Executive Director of the Pennsylvania Health Law Project
David B. Nash, MD, MBA Founding Dean of the Jefferson College of Population Health
Mark V. Pauly, Ph.D. Professor of Health Care Management, Business Economics and Public Policy at The Wharton School
Howard J. Peterson, MHA Managing Partner of TRG Healthcare, a national healthcare consulting firm
Paula L. Stillman, MD, MBA Healthcare consultant with special expertise in population health and disease management
Elizabeth A. W. Williams Senior Vice President & Chief Communications Officer for Independence Blue Cross
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