Just Give Me the Cash

W-2s issued at the end of January 2013 by large employers will display the cost of employee health care coverage.  This new number could send shock waves through American society. 

The Patient Protection and Affordable Care Act of 2010 (PPACA, better known as “Obamacare”) says, “The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.”  Useful for what, one might ask?  Some would charge it is useful for taxation, employee agitation and union organizing.  Others would say that as long as health benefit costs remain tax-deductible, the taxing authority (the U.S. government) has a right to demand that those costs be disclosed to the covered employees.  Why that is important has not been openly discussed.  What it will do remains unknown but predictable.

The W-2 will provide “comparable consumer information” to what consumer?  Guess that depends on whether the employer is the sole “consumer” paying for the health plan or whether the employee is bearing any or all of the cost.  Even if the company is fully underwriting the entire cost, intelligent employees (and who would admit to hiring any other kind?) will quickly note that those payroll amounts could have gone into their personal wages and salaries.  Most employees would prefer to see those same dollars deposited in their pockets.  Unless they were one of the rare individuals whose expensive personal or family health care bills were covered by the insurance reserve pool accumulated from the sums unspent on hundreds of covered families who filed no claims, they will have no idea of the real situation.  This is a recipe for guaranteed dissatisfaction.

What will be the behavioral result of this “informational disclosure”?  All the research indicates that the dominant employee hunger for instant gratification will undercut responsible employer efforts to protect their people.

Healthy workers may recklessly declare, “I’m never sick.  Don’t need no stinking health care insurance.  Just give me that money!  After all, it’s mine.”  Argument will inevitably follow.  People who received coverage they didn’t use could rightfully claim that those same sums could be better applied to their personal bank accounts.  Employers (and particularly the handful of still-surviving benefit mangers) might respond that the moment baby gets sick, that same person will likely scream bloody murder and demand that the company retroactively reinstate their pricey family coverage health benefit plan.  It will be a fine mess. 

Code DD in Box 12 of the W-2 may foment a backlash against employers who fail to divert the health care cost into base pay.

What do YOU think will occur?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), and will express his opinion on almost anything.

Comments

[Jacque Vilet]

The idea of showing an employee what the company spends on benefits for him/her is not new by a long shot. Some companies have been providing employees with a Total Rewards Statement each year since the 90's.

These statements show the cost and value of each and every component of an employee's total rewards package. They are personalized for each employee. Cash is cash (base, incentives, etc.) but when you get to benefits you have 2 ways of showing info to employees --- 1) what the company actually spends on your benefits and/or 2) the amount of $ it would cost the employee to replace that exact same benefit.

Generally, because the company gets group rates their cost is lower than what an employee would have to spend to get an individual policy. Employees really need to see this --- the cost of individual plans in a lot of cases is prohibitive. That is why many terminated employees don't sign up for COBRA. The cost for a family of 4 can cost $1,200 per month or more.

These statements are meant to show employees the total amount the company spends on an employee. It is good communication. Employees tend to think in terms of compensation $ only. Companies want employees to understand there are other things the company spends money on for them.

Actually providing employees these statements has been well received in the companies I know that have done it. If someone has worked for/with companies where these statements have created discontent I would like to hear about them.

The touting of "consumer driven health plans" is a term that consultants have used in the last 5 years or so. The "consumer" is the employee or individual who is purchasing a service i.e. benefits. It encourages employees to study each option their employer provides for healthcare and select the one that is less costly --- maybe has a higher deductible. That's who "consumers" are.

So the fact that the "gov" is requiring this to appear on employees' W-2's is not new and should not be a shock. And it is a way to communicate this cost for employees whose companies don't provide annual Total Rewards Statements --- and there are lot of them.

Jim --- I honestly have never heard the issue of communicating what companies spend on employee benefits cause problems. This is just my experience. Can you be making a few generalizations based on your own opinion? :-)

[Shawn Miller]

Jim and Jacque - I think you both make great points.

For employers who provide benefits but have not communicated it to their employees, this may be an opportunity to show the employees just how large an investment the company has in them. Putting this information on the W-2 validates those numbers to employees.

To Jim's observation, yes, there are many who would say 'don't need no stinkin' insurance' but come running back with a hand out when they encounter a need (we've all had experiences with these types of situations).

But, the combination of Obamacare (it's now the law) and the continuous shift in the employer/employee relationship, in my opinion, makes it less probable that employees will push employers to transform benefits dollars into base pay.

[Jacque Vilet]

Yes I agree Shawn. With employees still skittish about losing their jobs it make sense they want to keep whatever security they have --- and not having to pay for their own benefits is security!

[E. James (Jim) Brennan]

Jacque & Shawn: A company initiative to communicate benefit values is different from a federal mandate to report the cost of those coverages on the employee's personal earnings statement. Unless I've missed it on the W-2s I've received for over 50 years, this is indeed something very new. Perhaps having been a union member before spending time as a labor relations manager has given me a different perspective, but the Mercer report linked above seems to support reasons for concern about employee attitudes towards the value of soft benefits compared to hard cash.

Saying nothing about potential issues created by the W-2 change would be a disservice to our readers who rely on this blog for timely compensation discussions and total reward ideas. It is my sincere hope that all worries about the implications of publishing this number are exaggerated, but I have found that it is always prudent to prepare for the worst while hoping for the best.

[E. James (Jim) Brennan]

With this headline story http://www.nytimes.com/2013/01/30/health/to-open-eyes-w-2s-list-cost-of-health-plans.html?_r=0 atop my hometown newspaper on SuperBowl Sunday, it appears that the movement to evolve "mere informational disclosure" into "essential and much-needed taxation" has begun. The next few months should demonstrate whether employees will begin to display greater gratitude or simply demand the cash value, especially as employers modify their healthcare premiums payments with the implementation of PPACA regulations.