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
Robert I. Field, Ph.D., J.D., M.P.H.
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.
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.