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Finally Revealed: Obamacare’s Hidden Gem

Research & Commentary
August 30, 2014

by Sam Pizzigati

An obscure provision in the Affordable Care Act, a new report details, raises taxes on firms that overpay their top execs. The only problem: The provision so far only applies to corporations in one industry.

The Institute for Policy Studies has been releasing annual reports on CEO pay for 20 years now, and these Executive Excess studies have built up quite a following. One reason: The studies offer what few other CEO pay reports do: context.

Who knew that a landmark CEO pay provision lurks within the hundreds of pages that make up the Affordable Care Act?

Who knew that a landmark CEO pay provision lurks within the hundreds of pages that make up the Affordable Care Act?

Anyone with the patience to plow through annual corporate filings can, after all, show that CEO paychecks are keeping America’s top execs on the fast track to fortune. The Executive Excess series shows just how.

America’s most lavish corporate rewards, past editions have detailed, are going to CEOs who downsize jobs, pocket bailouts, profiteer off defense contracts, cook their corporate books, contribute big to pols, and stiff Uncle Sam at tax time.

All this context can make for engaging — and enraging — reading. America’s CEOs aren’t just grabbing way more than their fair share, Executive Excess documents. They’re poisoning our economic and political life in the process.

The latest annual Executive Excess, released last week, has no shortage of new enraging stats. One stands out: The health insurance industry’s top 57 executives — the top five execs of the industry’s top 10 companies, plus their mid-year replacements — last year snared $300 million in total personal compensation.

But the new Executive Excess 2014, despite numbers like these, will likely leave readers feeling more invigorated than infuriated. We now have, the new study makes clear, a concrete reason to feel hopeful about reining in executive excess. And that new reason for hope sits in the unlikeliest of places: Obamacare, the controversial Affordable Care Act enacted back in 2010.

What does Obamacare have to do with executive pay? A virtually unknown provision in the legislation ends — for health insurers — the free ride on executive compensation the federal tax code hands Corporate America.[pullquote]Health insurers now only get to deduct off their taxes the first $500,000 they pay each executive.[/pullquote]

Until last year, all U.S. corporations could deduct off their corporate income taxes almost everything they pay their top execs. The new Obamacare tax provision ends this subsidy in the health insurance industry. Health insurers now only get to deduct off their taxes the first $500,000 they pay each executive.

What does losing this deduction mean in real corporate life? The 2014 edition of Executive Excess, The Obamacare Prescription for Bloated CEO Pay, has probed the pay records of the nation’s 10 largest health insurers for an answer.

These 10 insurers lost $207 million in deductions, thanks to Obamacare, on the compensation that went to their 57 top-paid executives. The loss of these deductions upped their tax bill by $72 million.

But that $72 million, notes Executive Excess lead author Sarah Anderson, only hints at the revenue the Obamacare executive pay provision will raise over coming years. Many more than 57 executives in the health insurance industry overall made more than $500,000 last year. Obamacare will likely raise the industry’s total tax bill over $50 billion over the next 10 years.

A significant sum, to be sure. Still, says Anderson, the Obamacare executive pay provision’s real significance doesn’t come from those billions. That significance comes from the precedent the new deductibility standard for health insurers sets.[pullquote]Obamacare ends the CEO performance pay loophole for health insurers.[/pullquote]

“All corporations,” says Anderson, “should get the same medicine.”

Outside the health insurance industry, current law has since 1993 limited the tax deductions corporations can claim on executive pay to $1 million per executive. But that limit comes with a huge loophole: Corporations can deduct “incentive pay” over $1 million that they define as “performance-based.”

Obamacare ends this “performance” loophole, drops the $1 million limit to $500,000, and applies that $500,000 limit to all health insurer executives. All other corporations only have their five highest-paid officers under pay scrutiny.

The health insurance industry, predictably, now feels picked upon.

“Requiring plans to pay higher taxes does nothing to make coverage more affordable or accessible,” groused Brendan Buck of America’s Health Insurance Plans, the top industry trade group, after last week’s Executive Excess release.

[toomuch_promo]So the health insurance industry is looking for ways to make health insurance “more affordable”? How about, for starters, not shelling out $300 million a year for just 57 executives?

Sam Pizzigati edits Too Much, the Institute for Policy Studies online weekly on excess and inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class (Seven Stories Press).

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