Disclosing contextless factoids in Box 12-DD

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.

7 replies
  1. 1
    BRyan says:

    I’m not sure I understand the ASO distinction, but I can’t see how the W-2 info re health care would be contextless. I’m amazed at the number of people I’ve encountered who get their health insurance through their job and have NO idea what it actually costs — right up until they have occasion to run up against COBRA, and find out that the family policy they’ve been carrying for $200/month out of pocket (and they thought that was unreasonably high) will cost them $1200 when they have to pick up the share the employer has been paying as well. I don’t see that the info on the w-2 will make the employee a better health care consumer, but it can’t hurt to have employees knowledgeable about actual insurance costs, both for the benefit of the employer, and for a better understanding of the ACA and the entire health insurance issue. Seems to me people with employer-provided health insurance (and anecdotally I gather that number is getting smaller all the time) are insulated from real-world costs and situations. In the same vein, there seems to be a widespread assumption within that group that the ACA serves only (undeserving) poor people who should just go out and get themselves jobs with health care coverage provided. There doesn’t seem to be much general understanding of the vast population of people for whom health insurance is entirely their personal burden, whether because their employer doesn’t provide coverage, they are self-employed, or any of the myriad other reasons an individual would need to be obtaining coverage on the exchange. Seems to me a good idea to get as much information in front of the low-information/doesn’t affect me audience as possible.

    I do realize I may have entirely missed the point of your post.

  2. 2
    p.a. says:

    What’s the status of the ‘Cadillac’ tax, and if it’s still in effect, what is the $# and the rate?

  3. 3

    @p.a.: Cadillac Tax is still officially on the books but not scheduled to go into effect until I think 2025 at which point it will be pushed backwards again. It ain’t going to happen but it is a convienent fiction for interested actors to believe that it will.

  4. 4
    Victor Matheson says:

    Mayhew, while I agree with you that the value of the required reporting in Box 12-DD is small and that it won’t cause much in the way of pushback on the part of employees, the cost of providing this information is also small. We don’t need every idea in the ACA to single-handedly solve all of our problems.

    On net, it’s hard for me to believe that the provision of this information isn’t a net positive. And include lots of ideas with small net benefits and you wind up with big net benefits on the whole.

  5. 5
    StringOnAStick says:

    When (if) people take notice of what they’re tax forms tell them about what their employer pays to insure them and possibly their family as well, how well does that compare with just buying plans on an ACA exchange? Because that is the only comparison someone in the enviable position of not needed to buy their own insurance can compare prices and coverage.

    The main and huge block to getting to universal coverage in any form is all the people who get health insurance through their jobs, and they don’t want that apple cart upset in any way. To me this is the biggest lift for anyone proposing bigger changes to the system, and something the Single Payer or Be Pilloried on Rose Twitter crowd don’t get.

  6. 6
    Old Scold says:

    Meaningless effort by politicians and other “health care is a marketplace” believers to convince people they ‘have skin in the game’ for cost containment.

  7. 7
    Jonas says:

    I think one of the things it can do is make people more aware of health care policy and not just their specific health insurance. In BRyan’s example, they will know that their health insurance costs over $14000 per year whether they file for COBRA or not. This (in theory) could create more demand for change of policy to bring down heath care costs, whether MFA or some other idea.

    And at worst, it’s like dietary labeling. Not everyone pays attention to what they eat, but those that want to should be able to.

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