Health insurance executives stand to be the sole beneficiaries of a small provision in Republicans’ bill to repeal and replace the Affordable Care Act.
Both the House and Senate repeal measures would free insurance companies from a part of the Affordable Care Act — also known as Obamacare — that effectively makes it more expensive for them to pay their CEOs.
Typically, when corporations pay taxes, they can save money by deducting the pay their employees receive from the income they report to the federal government. That fact effectively reduces the cost of firms’ payroll, encouraging employers to hire and pay their workers more than they would if corporations had to pay taxes on wages and salaries as well.
For well-paid executives, firms can deduct up to $1 million in cash — not including stock options and other forms of compensation that often form the bulk of executive pay.
But Obamacare created an exception to the general corporate rules that applied specifically to the insurance industry. Under the law, companies are only be allowed to deduct up to $500,000 for each executive — including stock options and other forms of payment.
By undoing that change, insurance companies would return to the same rules as other firms, and have a stronger incentive top offer big money to their top executives.
Liberal critics see it as a giveaway that will only encourage insurance companies to pay their executives more — although they will receive the same treatment as other CEOs, noted Mark Mazur, director of the nonpartisan Tax Policy Center.
There is not very much money at stake. Testifying in the House in March, Thomas Barthold, the chief of staff of the Joint Committee on Taxation, said that eliminating the break would save corporations about $400 million over 10 years.
That is a trivial amount in the context of the overall bill. The legislation would also eliminate a broader tax on the insurance industry overall, which will save the sector $145 billion over the same period. In all, the House’s version would have forgone nearly $1 trillion in revenue over a decade.
Still, the provision has political significance.
When Democrats were working on Obamacare, they were reckoning with public outrage against what many saw as special treatment for certain industries. Obamacare benefited the private insurance industry financially and protected the sector politically by requiring many Americans to buy their products.
Possibly to deflect criticism from activists on the left, Democrats included this nominal penalty on the salaries of well-paid insurance executives. They were following a precedent President Bush had established in 2008, when he enacted a similar provision for the executives of companies that benefited from the Troubled Assets Relief Program. Opponents decried the program as a federal bailout for the financial sector.
“It was not about the money. It was much more about the symbolism,” Mazur said.