Inclusion of Cost of Employer-Sponsored Health Coverage on W-2

(Note : For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law.)

So what’s included in the Sec. 9002 of the Affordable Care Act, concerning the inclusion of the cost of employer-sponsored health coverage on W-2 forms?

Starting in 2011, employers are required to disclose the aggregate cost of "applicable employer-sponsored coverage" provided to employees annually on the employee's Form W-2. Regardless of whether the employee or employer pays for the coverage, the aggregate cost of the coverage reported is determined under rules similar to those to determine the applicable premiums for purposes of the COBRA continuation coverage requirements of group health plans.

Coverage is treated as applicable employer-sponsored coverage regardless of whether the employer or employee pays for the coverage. Applicable employer-sponsored coverage does not include coverage for long-term care, accidents, or disability income insurance. Nor does it include coverage that applies to only a specified disease or illness, hospital indemnity, or other fixed indemnity insurance, the payment for which is not excludable from gross income and deductible under Code Sec. 162(l) (Code Sec. 4980I(d)(1)(B) and (C), as added by the Affordable Care Act).

Applicable employer-sponsored coverage includes coverage under any group health plan established and maintained by the U.S. government, the government of any state or its political subdivision, or by any agency or instrumentality of such government. In the case of self-employed individuals, coverage under any group health plan providing health insurance coverage will be treated as employer-sponsored coverage if a deduction is allowable for the health coverage under IRC Sec. 162(l).

Employer-sponsored coverage does not include any salary reduction contributions to a flexible spending arrangement (FSA) under a cafeteria plan or contributions to an Archer medical savings account or health savings account (HSA) of the employee or the employee's spouse.

Note that a 40% excise tax will be imposed on health coverage providers starting in 2018 to the extent that the aggregate value of employer-sponsored health coverage for an employee exceeds $10,200 for individuals, and $27,500 for families.  In part, inclusion of health costs on the W-2 will be used to determine this tax on so-called "Cadillac" health plans.

This provision only requires disclosure of the aggregate cost of employer-sponsored health insurance coverage by the employer. It does not require a specific breakdown of the various types of medical coverage. For example, if an employee enrolls in employer-sponsored health insurance coverage under a medical plan, a dental plan, and a vision plan, the employer must report the total cost of the combination of all of these health related insurance policies.

Effective date. The provision applies to tax years beginning after Dec. 31, 2010.

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