Examine Box 12 on your W-2; it tells a story of rising health care costs

OPINION:

As tax season approaches, I encourage every American worker to look at one number on their W-2 form that often goes unnoticed: Box 12, code DD.

It may be one of the largest numbers on your form. It shows the total cost of your employer-sponsored health insurance, including medical, dental and vision coverage.

For the average American family, that number is now nearly $27,000 per year. Many people assume this is a “free benefit” paid by their employer. It isn’t.

Employers treat health insurance as part of your total compensation. When insurance costs rise, something else often gives, usually wage growth.

Research shows that rising premiums have contributed to slowed wage growth, particularly for lower- and middle-income workers. One academic study found that from 1988 to 2019, the typical U.S. family with employer-sponsored insurance lost about $125,000 in cumulative earnings because of rising health care premiums.

That money could have gone toward housing, retirement or everyday expenses.

The burden of rising health care costs falls hardest on those least able to absorb it. According to the Bureau of Labor Statistics, 50% of the 154 million workers in America earned $23.80 or less per hour in 2024.

For these 77 million workers, the math of a “pay raise” has become a zero-sum game. Because these workers are often in industries with thin margins (retail, hospitality, health care support), employers are most likely to offset rising insurance premiums by capping hourly raises.

Advertisement Advertisement

When their health insurance costs rise, the “employer contribution” acts as a sponge, soaking up funds that would have otherwise gone toward a larger paycheck.

So why do premiums keep rising?

Rising hospital prices are a major driver of rising premiums. In 2024, spending on hospital care accounted for nearly one-third (31%) of national health care spending. From 2023 to 2024, hospital price inflation (6.9%) was more than double medical price inflation (3.3%).

Private insurance plans already pay hospitals much more than either Medicaid or Medicare. For example, in 2022, hospitals charged commercially insured patients and their health plans, on average, 267% what they received from Medicare for the same services.

In simple terms, employers and working families with private coverage are paying far more than government programs for hospital care, and that gap is likely to widen. Recent and proposed changes to Medicare and Medicaid are designed to slow growth in payments to hospitals.

Advertisement Advertisement

History suggests hospitals will respond by increasing prices further for private insurers, who then pass those costs on to employers and workers in the form of higher premiums.

Multiple states, including California, have recognized that allowing unconstrained health care cost growth is unsustainable. For example, California’s newly established Office of Health Care Affordability set spending growth targets at 3.5% per year, based on the median household income growth over the past 20 years, to help slow growth and increase affordability.

It’s an important step because health care costs do not rise in isolation. They affect premiums, paychecks, hiring decisions and the broader economy. When employers devote more resources to health insurance, they have fewer resources to invest in wages and job growth.

That is why Box 12 on your W-2 matters.

Advertisement Advertisement

If you’ve never paid attention to it, you’re not alone, but that number represents a significant share of your compensation. Its steady growth reflects the broader challenge of health care affordability and the need to support solutions that protect working families, retirees and taxpayers alike.

Health care affordability is not just a policy issue; it’s also an economic issue that affects every family in America.

• Glenn Melnick is a professor and Blue Cross of California chair in health care finance. He has worked extensively in health care competition, health systems financing and delivery and accountable and managed care. He is a nationally recognized expert on health care competition and has served as an expert for numerous government agencies, including the Federal Trade Commission.