How To Calculate the Cost of Benefits

Contact your payroll vendor first to determine if the vendor already has a system in place to provide the calculations and reporting of health costs on W-2 forms. If you are providing the cost to the payroll vendor, the following information will assist in calculating the cost to report.

The aggregate cost of coverage includes the portion of the cost paid by the employer and the portion of the cost paid by the employee (on either a pre-tax or after-tax basis). The cost of coverage is generally determined under the rules for determining COBRA premiums, and the same amount should be reported for employees electing each tier of coverage (for example, the same amount would be reported for all employees electing family coverage). The IRS requires employers to determine cost taking into account the actual period of coverage and any changes in coverage tier during the year.

The regulations describe four methods that can be used for the calculation. The most common method for insured plans is the "Premium Charged Method", which is the premium charged by the insurer for the employee's coverage. This includes the employer and employee portions of the premium. The other methods are the "COBRA Applicable Premium Method", which is COBRA rate for the benefit; "Modified COBRA Premium Method", which can only be used by employers who subsidize the cost; and, the "Composite Rate", which can only be used by employers who charge the same rate to all employees regardless of number of individuals covered by the plan.


    Next Steps

    Sign up for Updates

    VIP Notification Service

    We provide a VIP Notification Service to keep you informed as new Health Care Reform rules are issued.
    Click here to sign up.

    Employer Toolbox

    Health Care Reform checklists, worksheets, sample employee communications, and other solutions!
    Learn More

    Quick Access

    • Your Account

      View your policies, download forms and check the status of your claims - all in one spot!

    • Claim & Flex Forms

      1Select the forms you need:

      Flex Benefits
      Accident Benefits
      Cancer Benefits
      Critical Illness
      Disability Benefits
      Hospital Indemnity
      Life Benefits
      Medical (GAP)
      HRA Benefits

      2Select your state & industry:

    • Check Claim Status
    • FAQs

      Please select a category or type your question in the box below.

      Keyword Search
      All FAQs