You may or may not support the Patient Protection and Affordable Care Act. But from a human resources management perspective, the legislation's requirement that employers report the cost of health care coverage on employees' W-2 forms will provide both employers and employees with an exceptional benefits education and communication tool.

The PPACA will require most organizations that provide employer-sponsored health care coverage to report the aggregate cost on the W-2 forms they issue to employees. This reporting requirement was originally effective for the 2011 tax year, but in October 2010, the IRS issued Notice 2010-69, which made 2011 reporting optional and postponed mandatory compliance to 2012. Therefore, W-2s issued in January 2013 must include this information.

First, this PPACA reporting requirement will help employers get more recognition for one of their largest investments. According to the Society for Human Resource Management, employer-sponsored benefits typically constitute 30 to 40 percent of an employee's total compensation package. Nevertheless, according to a study conducted by research and consulting firm LIMRA, most employees significantly underestimate the costs of these benefits. 

Recommended For You

To address this issue, a minority of employers have implemented the best practice of providing their employees with total compensation statements each year.   

These personalized statements describe employees' "hidden paychecks" by providing a summary of the employer sponsored benefits they receive. The statements also include the monetary value of all employer-paid benefits, including health insurance, flexible spending accounts, paid time off, disability insurance, life insurance, employee assistance program services, social security taxes, retirement plan contributions, long-term care coverage, workers' compensation insurance, etc. 

Unsurprisingly, when employers provide employees with this information, the data raises employees' appreciation and understanding of the actual financial value of their total compensation packages. Accordingly, although the mandated, health care cost reporting will not be equivalent to the provision of total compensation statements, since medical coverage costs are usually a substantial percentage of the total costs of employer-provided benefits, the reporting requirement should yield the same result – employers getting more recognition for one of their largest investments by producing employees that more fully appreciate these 'hidden paychecks.'

Second, when employees understand the monetary value of their health care benefits, they'll likely not only appreciate them more, but they'll also be empowered to make more informed choices about which employers offer the best benefits packages. This is important since according to LIMRA's survey, 62 percent of employees rated benefits, specifically medical, dental, and retirement plans, as the most important factors when comparing job offers with comparable salaries.

Moreover, in the current, challenging economic environment, this ability will become increasingly important because LIMRA's study also reported two interesting developments. In the past, most employers believed that providing a robust benefits package was necessary to attract and retain top talent, but LIMRA's 2009 study reveals that the number of employers holding this view has declined from 2004 levels.

Additionally, 60 percent of the employers indicated that they intend to shift more of the rising costs of benefits to their employees. As this cost-shifting occurs, employees' understanding of the monetary value of their benefits packages will become increasingly important because these losses may force them to make other difficult financial and/or lifestyle adjustments. Therefore, the knowledge that employees will gain as a result of the PPACA reporting requirement will be both powerful and important.

To summarize, while the PPACA's reporting requirement will help employers communicate health care costs and get more recognition for one of their largest investments, the increased transparency will also educate and empower employees. Consequently, although health care benefits have always been a major component of the Total Rewards package, human resource professionals may need to examine further how this particular mandate might affect their existing programs.

NOT FOR REPRINT

© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.