Employees at larger companies are getting some eye-opening news in the W-2 statements they are receiving this month listing their 2012 income.
The health overhaul law required employers to add a line reporting the total cost of employer-sponsored health-insurance coverage. “To some, it will be a surprise, perhaps even a shock,” Robert Pear reports in a New York Times piece, “To Open Eyes, W-2s List Cost of Providing a Health Plan.”
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.”
. . . 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.”
We have argued for years at the Galen Institute that the generous tax break for job-based health insurance shields employees from knowing the full cost of the benefit they are receiving — and the wages they are giving up to get the expensive health coverage.
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 number is being disclosed on a tax form even though health benefits are not counted as taxable income — yet.
“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.
This is just a preview of the sticker shock that is coming when Obamacare’s mandated benefits and regulatory distortions kick in.
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 Cadillac Tax begins in 2018, adding a 40 percent excise tax to the highest-cost health insurance.
If you didn’t see the line on your tax form, it may be because employers are exempt from the reporting obligation if they are required to file fewer than 250 W-2 forms.
The law calls for the report to have been included in W-2s last year, but Health Secretary Kathleen Sebelius declared employers would have a one-year reprieve.
Posted on National Review Online: The Corner, January 30, 2013.