How Much Does Your Health Insurance Cost?

Most Americans do not know the actual cost of their health insurance because the insurance is purchased on their behalf by their employers, whether through small group, large group, or self-insured programs, with employers typically paying a portion of the cost of that insurance. The employee-paid portion of the cost may be as little as 10% of the actual total premium. As the cost of health care has risen faster than inflation in recent years, policies have been developed that shift more of the cost of care to the employees, in an effort to keep premiums low enough for employers to continue to offer coverage. This is particularly true of the small group market, in which employers with fewer than 10 employees may be required to pay higher rates for the same coverage as those with larger numbers of workers. Large groups (50+ employees), in turn, pay much less than small groups.  Employees pay any applicable deductibles or co-payments for the care and/or prescriptions they receive, but this is not considered to be part of the cost of the insurance. It is simply part of the cost of health care.

Beginning January 1, 2013, this lack of transparency regarding the actual cost of health insurance provided by employers has changed. The Affordable Care Act (ACA), otherwise known as the Patient Protection and Affordable Care Act or Obamacare,  requires many employers to report health insurance costs on employees’ W-2 forms. The premiums paid by employers on behalf of employees do not become taxable simply because they are reported on the W-2. Any payments made for insurance on behalf of employees that is excludable from employee income remains in the category of non-taxable income or benefits.

Why Report Non-taxable Benefits?

Recognizing that the actual monetary value of benefits which carry no price tag cannot be readily appreciated, Congress decided it would be wise to make the cost of health insurance clearer to those workers whose insurance comes through their employers. Reporting of this information to employees is particularly important as those who do not receive this employer sponsored  non-taxable income support are offered help as of 2014 to purchase coverage for themselves through the exchanges or on the individual market. By requiring that such payments be reported on an employee’s W-2, Congress is moving to make the value of this benefit clear to those who receive it.

Non-taxable benefits, including employer paid health insurance, are part of an employee’s total package of compensation. They are an expense line on the employer’s income statement, so they are deducted from the employer’s total gross receipts for tax purposes. They are a factor that affects the over-all prosperity of a business and of the employees of that business. No one pays taxes on the value of the health insurance benefits received — neither employers nor employees.

Healthy Employees Improve National Economic Health?

As a nation, we seem to have decided, consciously or not, that keeping employees healthy contributes to the economic health of the nation as a whole. This decision is reflected in the tax policy noted above.

Large businesses generally recognize the value of a healthy workforce, especially when the size of the workforce must be managed to promote the highest possible levels of employee productivity. To this end, employers have begun to work closely with insurance providers to offer employee wellness programs with benefits outside those normally included in health insurance, including smoking cessation and weight loss programs.

Smaller employers recognize the benefits of health insurance as well, but the cost of providing that insurance can be prohibitive, especially for the mini-micro-teeny-tiny Mom and Pop enterprises that are so common in this country. These very small businesses provide a living for their owners, ideally including health insurance for the proprietors and their families. Many small business owners also consider health insurance for their employees to be a cost-effective benefit that over time keeps profitability higher than would be possible with employees who did not have access to affordable health care.

As the cost of insurance has risen in recent years, new kinds of small group policies have been designed that require those who use care to pay more of the cost for that care as a way to keep employer-paid premium costs lower. Many of these are high deductible plans that were originally designed to include funding of Health Savings Accounts that would be the source of money for use in paying deductibles and copays. Unfortunately, for many small employers and their employees, these new types of plans do not offer truly affordable access to health care and their cost continues to rise.  The number of American workers covered by employer sponsored health insurance has declined steadily since the year 2000 as a result of the rising cost of offering health insurance.*

Help for Small Business Owners

The Affordable Care Act includes multiple provisions to help small employers with the cost of providing affordable insurance for their employees, including:

• Small business owners (those with fewer then 50 employees) are not required to offer employer sponsored health insurance coverage under the Affordable Care Act.
• Favorable tax incentives are offered to small employers who provide health insurance as a benefit to their employees. The incentives do not apply to the owners and/or family members employed by the business — only to non-family employees. Nevertheless, these tax credits offer small business owners the possibility of reaping some of the benefits that larger employers receive from keeping employees healthy at an affordable price.
• Special exchanges will be set up for small business owners who want to offer insurance to their employees but cannot afford policies offered on the open market.
• Employers who filed fewer than 250 W-2 forms in the preceding calendar year are not required to report the cost of providing health insurance on their employees’ W-2s for 2012.

Moving Forward

As implementation of the Affordable Care Act continures, the economic benefits reaped by businesses from keeping their employees healthy will be extended to more of the American people. Those who do not have access to affordable health insurance through their employers will have better access to insurance through the exchanges. Small employers who cannot currently afford to offer insurance to their employees will be able to purchase it through special business exchanges.

With the expansion of access to health care through more affordable insurance, premium subsidies for lower and middle-income Americans, and expansion of the Medicaid program, we continue to move towards implementation of a broader policy of subsidies for health insurance that builds on the original decision to treat employer sponsored coverage as a non-taxable benefit. The new reporting requirement will put more of us in a position to answer the question, “How much does your health insurance cost?” Continued implementation of the Affordable Care Act will benefit all through enlarging the pool of those who have the access to care that comes with health insurance.

 

* For more detailed information regarding the decline of employer sponsored insurance since 2000, see “Employer sponsored coverage continues to decline in a new decade,” a report by Elise Gould of the Economic Policy Institute.