I always like to look at the 12-DD box on my W-2.
friendly reminder: 100% of the employer sponsored market is subsidized, and has mostly higher premiums https://t.co/eQ4MgLdMFX
— Seth Trueger (@MDaware) September 6, 2016
This box tells me how much my employer sponsored insurance (ESI) actually costs between premiums and Health Savings Account (HSA) contributions. The 12-DD box was a requirement of PPACA and its goal is to make people slightly more aware that their health insurance at work really costs them more than $47.56 every two weeks.
My employer is starting the annual open enrollment education process. We’ll get weekly e-mails from Human Resources about all of the different options and how the networks interact. There are no major changes to network or plan design for employee insurance this year. There is a small diabetes disease management program and a reference pricing experiment but for most people there will be very few visible differences between the 2016 policies and the 2017 policies. For people at my pay grade, we are seeing a 4.2% increase in premiums explicitly taken out of our paychecks. The company is “covering” roughly 85% of the cost of 85% Actuarial Value coverage for my family. Economically, the company contribution is “just” cash income transformed into a tax advantaged compensation but I don’t see the money so it does not feel like I am paying the full price of my insurance coverage for my family.
I do get two explicit subsidies. The entire premium of the policy is tax deductible. That is worth 4% of my families income. We also put away some money into a tax advantaged savings account that is worth another .5% of my family’s income for the year. So we get a total of 4.5% of family income subsidy help to pay for a good insurance package.
This is important because most poeple who get ESI don’t think they are getting subsidized. Everyone is getting subsidized. People with higher incomes and ESI get a larger dollar figure subsidy than people at a lower income because tax deductions are valued at the marginal tax rate. People with higher incomes also tend to have richer benefits, higher actuarial value coverage and fewer gatekeepers so total premiums are higher.
Medicare is heavily subsidized. Part A and Part B premiums pay for roughly a quarter of the program. The rest of society subsidizes the rest of the cost of Medicare.
CHIP has subsidies ranging from 0% to 25% to 100%.
Medicaid is almost entirely subsidized.
The individual market is heavily subsidized for people earning under 200% FPL. For people who earn between 200% and 400% FPL it is modestly subsidized. For people who earn more than 400% FPL there are no explicit subsidies like the advanced premium tax credits available between 100% FPL and 400% FPL nor any implicit subsidies through the tax code.
Let’s keep that in mind when we talk about health insurance. Almost everyone is subsidized except for a narrow segment of the PPACA individual market. It is just that some of the subsidies are well hidden and non-obvious.