The 2010 Affordable Care Act (ACA) sharply reduced taxpayer subsidies last year for executive pay at the nation's 10 largest publicly held health insurance companies, according to a new report by the Institute for Policy Studies (IPS), a Washington-D.C.-based think tank.
Last year, an ACA provision took effect that put a $500,000 cap on the tax deductibility of health insurer executive compensation. Previously, the companies had a $1 million limit on the deductibility of executive pay from federal corporate income taxes. Now, health insurance companies are allowed to deduct only up to $500,000 in combined performance-based and salary pay per employee each year.
As a result of the deductibility limits under the health reform legislation known as Obamacare, the country's top 10 health insurers saw their collective corporate taxes increase by an estimated $72 million in 2013, according to the report, "Executive Excess 2014: The Obamacare Prescription for Bloated CEO Pay."
Last year's $72 million in taxpayer savings came from tax deduction limits on the pay of just 57 top executives at America's 10 biggest health insurance firms, including Aetna, Assurant, Centene Corporation, Cigna, Health Net, Humana, Molina Healthcare, UnitedHealth Group, Wellcare Health Plans and WellPoint.
That $72 million in additional tax revenue is equal to the "cost of dental insurance for 262,000 Americans or the average annual health insurance plan deductible for 28,000 people," the report noted.
In all, the 10 health insurance corporations paid their top 57 executives a combined $300 million last year. The companies, however, could only deduct up to 27 percent of that $300 million from their 2013 income taxes.
"Health insurer executive pay levels did not decline in 2013, but the share of executive compensation that top health insurers could claim as deductible dropped from 96 percent in 2012 to 27 percent," the report reads. "On average, these 10 corporations owed an extra $1.3 million in taxes per executive."
The ACA's executive pay deductibility provision did generate taxpayer savings beyond the estimated $72 million, according to the report. That's because the IPS' analysis only looked at readily-available executive pay data for the 10 largest insurance firms' CEO, CFO and their next three highest-paid officials. Health insurers have to publicly disclose compensation information for their top five officers, however, "many more than five executives at major health insurance firms make over $500,000 per year, the current Obamacare deductibility limit," the report adds.
Some of the 10 major health insurers had more than five top employees last year due to turnover, which is why 57 executives are cited in the report.
Taxpayers, meanwhile, can expect to see even more savings in the future.
For example, an estimated $23 million in additional tax revenue will be generated in the coming years once the executives listed in the IPS report excercise stock option grants worth about $66 million that they collected between 2010 and 2012, the report states.
"Obamacare offers a remedy for a healthier executive pay system," Sarah Anderson, one of the report's co-authors and IPS' Global Economy Project director, said in a statement. "Now all corporations should get the same medicine."
If all U.S. corporations were required to follow the ACA's limits on executive pay-related tax deductions, taxpayers would save $50 billion over a 10-year period, according to the report.
Federal legislation introduced by Democrats that would curb taxpayer subsidies for corporate executive pay has been pending in Congress for some time now.
Last year, for example, U.S. Sens. Jack Reed (D-RI) and Richard Blumenthal (D-CT) introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, S. 1476, which would restrict the tax deductibility of executive pay for all employees of publicly traded corporations to $1 million and eliminate the exception for commission- and performance-based compensation. U.S. Rep. Lloyd Doggett (D-TX,35) introduced a companion bill in the House, HR 3970, in January.