The Affordable Care Act requires the disclosure of the cost of employer sponsored insurance (ESI) on employee’s W-2s. This is reported in Box 12-DD. It is a big number that is purely informational. The theory of change is that people will see that big number and realize that health insurance is a substitute for cash compensation and then demand better value for their ESI health insurance dollars.
I don’t think there is enough context in the large group market for this theory of change to make any sense.
Health insurance premiums are a function of how many services are used by a group and the price of those services. Benefit design, network configuration, incentives and rewards can all shape both the quantity and price of received services. In fully insured market segments that are risk adjusted, the premium a group replay will be reasonably reflective of the choices a group makes as well as its underlying demographic composition. This is not the case in large group, administrative services only (ASO) contracts.
ASO contracts are when the insurer takes on no financial risk from an employee group. ASO is the dominant means of providing insurance to most Americans who get ESI coverage. The insurer “merely” processes claims, builds networks, handles customer service complaints and manages contracts. The employer takes on the full cost of the claims.
Two employers with 1,000 covered lives where 999 of them are identical and have their employees in the same exact plans with the same exact network and the same utilization pattern at the same exact prices for those 999 covered lives will see very different Box 12-DD numbers if in Firm A that last person is a 25 year old male in perfect health or at least no utilization past a flu shot for the year while the last person in Firm B is a seven year old living with treatable Cystic Fibrosis.
Firm B’s Box 12-DD will show a number that is $400 per covered life per year higher than Firm A’s Box 12-DD.
Box 12-DD for ASO/self-insured firms is a partial reflection of the health status of everyone in the pool. Firm B could show “spending discipline” if they find some way to legally not cover that seven year old kid even if they expanded their network and lowered the cost sharing by $100 per member per year.
For people who get their insurance through work and whose work is self-insured with an ASO contract, Box-12-DD is a contextless factoid that informs little.