Five years ago, an eight-minute cartoon delightfully demolished all the conventional rationales for grand concentrations of private wealth.
A new report analyzes the cost of removing Obamacare limits on the tax deductibility of executive compensation, based on pay data at the top 5 insurers.
The House Republican plan to replace the Affordable Care Act would give health insurance companies a huge tax break on their executive compensation, encouraging them to dole out even larger pay packages to their already overpaid top managers.
The plan would re-introduce a tax loophole that allows corporations unlimited deductions for executive pay — as long as the pay is in the form of stock options or other so-called “performance” compensation. Obamacare eliminated this loophole for health insurance companies, imposing a strict $500,000 limit on deductions for the expense of each executive’s compensation. This set an important precedent for reducing taxpayer subsidies for CEO pay.
To better understand the taxpayer savings from the Obamacare CEO pay reform, the Institute for Policy Studies has analyzed executive pay at the five largest U.S. publicly held health insurance companies in 2015, the most recent year for which data are available for all five firms, in the report The CEO Pay Tax Break in the Republican Health Care Proposal.
- The ACA deductibility limits generated an estimated $92 million in additional public revenue in 2015 from just these companies (Aetna, Anthem, Cigna, Humana, and UnitedHealth). On average, these corporations owed an extra $3.5 million in taxes per executive.
- This $92 million in savings from limiting pay-related deductions for just 26 executives is the equivalent of the average annual ACA premium subsidies for 28,500 Americans.
- The insurer that paid the most in federal taxes associated with their top five executives in 2015 was Cigna. The company paid an estimated $33 million more than they would’ve if the Obamacare deductibility cap had not been in place.
- These figures provide an incomplete picture of potential taxpayer savings. The deductibility cap covers all employees, but pay information is available only for each firm’s top five executives. Moreover, in 2015 the cap did not apply to $41 million in stock options gains because the options had been granted before Obamacare went into effect.
- The Joint Committee on Taxation estimates that eliminating the ACA cap would cost $400 million over nine years. Our calculations suggest this is very conservative. The CEOs of these five firms are already sitting on $268 million in outstanding stock options alone. At current market values, they would owe $94 million under the ACA cap when these options become taxable. Without the cap, they would likely be fully deductible.
Instead of re-introducing this perverse “CEO bonus loophole” for health insurance companies, lawmakers should expand the Obamacare deductibility cap to all major U.S. corporations. This would save taxpayers at least $50 billion over 10 years while encouraging more reasonable executive pay levels.