Thursday, October 14, 2010

Draft W-2 to show cost of health benefits

Sarah Kliff at politico and @sarahkliff on twitter pointing out that a newly released draft W-2 form with a space (box 12) to report the cost of employer paid insurance premiums on behalf of the employer, per PPACA. These benefits are not taxable as income, but this is a great step in at least helping people understand how much their health insurance actually costs.

During the health reform discussion, I became obsessed with the fact that people working in my building (a school of public policy!) had no idea that Duke was paying more than twice as much per month for health insurance premiums than we were paying individually. Some said, 'Don, you are nuts, they don't do that,' I pay my own premiums. Others said, 'that must be a special benefit for professors only.'

Since World War II, when employers pay health insurance premiums on behalf of their employees (aka a 'benefit'), then the employer does not pay taxes on the value of the premiums paid. This is an example of a tax expenditure in the federal tax code, which simply means the tax code provides a benefit to one group of tax payers (those who get insurance partly paid for by employers) and not others.

The tax on high cost health insurance which was delayed until 2018 by the reconciliation bill will eventually make use of this information to apply this tax.

I would prefer going ahead and capping the amount that is tax free (capping the tax exclusion) much sooner than that because it is probably the one policy option that will most surely apply downward pressure on the rate of health care cost inflation, and it is a flexible policy, meaning it will work as intended (slow the rate of cost inflation) under any conceivable health insurance policy option that our nation might take.

Here is a column I wrote about this last year, and again earlier this year when talking about the Deficit Commission on the tax exclusion.

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