Concealed within the 123 pages of legislative verbiage and dense boilerplate of the House Republican bill repealing the Affordable Care Act are not a few hard-to-find nuggets. Here’s one crying out for exposure: The bill encourages health insurance companies to pay their top executives more.
It does so by removing the ACA’s limit on corporate tax deductions for executive pay. The cost to the American taxpayer of eliminating this provision: well in excess of $70 million a year. In the reckoning of the Institute for Policy Studies, a think tank that analyzed the limitation in 2014, that would have been enough that year to buy dental insurance under the ACA for 262,000 Americans, or pay the silver plan deductibles for 28,000.
As part of an effort to rein in soaring executive pay, the ACA decreed that health insurance companies could deduct from their taxes only $500,000 of the pay of each top executive. That’s a tighter restriction than the limit imposed on other corporations, which is $1 million per executive. The ACA closed a loophole for insurance companies enjoyed by other corporations, which could deduct the cost of stock options and other “performance-based” pay; for insurance companies, the deduction cap is $500,000 per executive, period.
The idea was to signal that the ACA, which cemented health insurance companies into the center of American healthcare, wasn’t a pure giveaway to the industry.
“Consumers across America should know that when they pay their hard-earned dollars to cover the soaring cost of premiums, they are not just chipping in to pay for the CEOs’ next new yacht,” said then-Sen. Tom Harkin (D-Iowa).
The limit also was slotted in as one of many other revenue-raising provisions of the ACA. According to the Joint Committee on Taxation, the reduced deductions would be the equivalent of raising $600 million over 10 years. The House GOP bill repeals most other taxes and other revenue-raising provisions in the ACA, leaving unanswered the question of how it intends to pay for the pieces of the law that remain.
The House Republican bill repeals the compensation limit as of the end of this year. The GOP hasn’t exactly trumpeted this provision; it’s six lines on page 67 of the measure, labeled “Remuneration from Certain Insurers” and referring only to the obscure IRS code section imposing the limit. Repeal of the provision apparently means that the insurers will be able to deduct $1 million in cash per executive, plus the cost of “performance-based” stock awards and options, like other corporations.
The Institute for Policy Studies calculated in 2014 that the 10 biggest insurance companies had paid their top 57 executives a total of $300 million the previous year. Because of the ACA rule, they were able to deduct only 27% of the sum. Without the ACA, they would have been able to deduct 96%.
It’s proper to observe that in corporate America, generally, the executive pay restrictions haven’t achieved their goal of reining in executive pay. The main reason is the “performance-based” pay loophole — it’s a rare company that can’t set its CEO performance benchmarks so low that they can’t be met.
Some might say that the executive pay limit on insurers turned out to be a bad bargain, considering how much the companies have been whining about ACA-related losses. But that would be incorrect. As we’ve reported in the past, the major insurance companies have actually made a mint from Obamacare — though perhaps not on the individual insurance exchanges. Their profits have come from the expansion of Medicaid, in which the largest insurers play a major role.
UnitedHealth Group, for instance, managed its individual insurance so poorly that it withdrew entirely from the business this year; but it loved Medicaid. Last year, its chief financial officer, Dave Wichmann, called managed Medicaid “the ultimate long-term sustaining solution for states” and said United would compete for that business aggressively.