The obscure part of Obamacare that takes on executive pay

August 27, 2014

The health-care law targets tax breaks for insurers' pay packages. (bigstockphoto)

We all know Obamacare is a pretty big law, with plenty of obscure provisions that don't get much attention. For one, the law targets big executive pay packages at health insurance companies — and based on data released Wednesday, the provision is already going a long way. 

Companies have long been able to deduct salaries to top executives from their federal tax bills, although since the early 1990s — in an effort to reduce excessive pay — the government has limited the amount to $1 million.

Starting last year, a piece of the Affordable Care Act lowered the limit to $500,000 for health insurers (although the $1 million limit still applies to the rest of corporate America). It also eliminates the tax carve out for what tends to be much more lucrative performance pay, like stock options, for health insurers. Finally, the cap applies to all health insurance employees, no longer just a firm's four highest-paid executives.

This obscure provision resulted in a $72 million infusion to the Treasury last year from just the 10 largest publicly traded health insurers, according to an analysis from the left-leaning Institute for Policy Studies. The actual tax tab is probably higher when accounting for smaller insurers. And the Joint Committee on Taxation in 2009, a few months before the ACA became law, projected the provision would mean $100 million in revenue each year.

It turns out, based on this data, the law is significantly limiting how much companies can deduct from their federal corporate tax income.Of the nearly $300 million in executive pay in 2013 that the report looked at, just about 27 percent of that was deductible. In past years, about 96 percent of the compensation, or $289 million, could have been deductible performance pay, according to the report.

UnitedHealth Group, the nation's largest health insurer, was hit with the largest tax bill worth $19 million, according to the analysis. Under previous rules, all of chief executive Stephen Hemsley's $28 million pay package could have been claimed as fully deductible. But in 2013, $17 million could be claimed, according to the analysis. The company declined to comment on the report.


(Institute for Policy Studies)

Still, the top five executives at the largest health insurance firms saw an average 2.7 percent pay increase, up from $5.1 million in 2012 to $5.4 million in 2013, according to the institute. Average pay for insurance chief executives is still tops across the health-care industry.

An industry spokesman criticized the Obamacare provision, which was the brainchild of former Sen. Blanche Lincoln (D-Ark.). "Requiring plans to pay higher taxes does nothing to make coverage more affordable or accessible," said Brendan Buck of America's Health Insurance Plans.

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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