Written by: Andrew Hetzler
The PPACA puts additional requirements on employer sponsored group health insurance plans by requiring the employer to disclose the cost of coverage for each participating employee or family.
The purpose of the mandate is not to place additional burden on plan administrators (even though it may seem that way), but to “provide employees useful and comparable consumer information on the cost of their health care coverage” according to an IRS FAQ.
Even though this completely changes the format of the W-2, makes tax filing more confusing, provides little relevant information from a consumer standpoint, and generally adds to the frustration of group health plan administration, it is, I believe, a clue to the administration’s ultimate goal of providing more transparency in the health insurance market. The cost of coverage is reported in Box 12, with the code DD, that identifies the correct amount.
More and more, employees are turning to the health insurance marketplace(s), established by the PPACA, to look and see what their options may be. They may also look at their pay stub, and see a $500 monthly deduction for their major medical insurance, and see a similar plan on the health insurance marketplace for $500 a month and think that they are getting a fair deal. Thanks to the change in reporting requirements, employees will now see the “full remuneration” of their and the employer’s contribution to the health insurance plan.
That same plan may actually cost their employer much more than $500 per month. Access to this information allows the employee to make an informed decision about their participation in the employer sponsored health plan versus the health insurance marketplace plans. Even though this may be considered a burden to the plan administrator, it may provide a reduction in costs if employees can find a better deal on the marketplace.
Nearly all employers are required to report the cost of coverage on the W-2, with very few exemptions. Federal and state governments, churches and other religious organizations, and even employer groups under 20 employees who are not required to offer COBRA continuation are subject to the requirement.
However, the law does not require that certain types of plans report cost on the form W-2. Those plans being dental and vision plans, health reimbursement arrangements, some self-funded health plans, employee assistance programs, and multi employer plans. For more specific guidance, see the IRS Chart to see if you’re offering a plan that requires new reporting.
Some transition relief was provided for groups under 250 employees that issued W-2s, but that only provided relief until 2013. Almost all groups are now required to change their W-2s.
Andrew Hetzler is the Chief Operating Officer of American Exchange. For a free consultation with a licensed agent call 1-888-995-1674 or email info@americanexchange.com. To contact Andrew directly, you can email him at andrew.hetzler@americanexchange.com.
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