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Obamacare Closed a Loophole for CEO Pay—And Won Taxpayers $72M

The savings from 2013 alone could pay for dental care for 262,000 Americans for an entire year.

This article originally appeared at OtherWords.org.

You’ve surely heard many things about the Affordable Care Act, including the website headaches that embarrassed the Obama administration during the new program’s rollout.

When you pay your premium today, you can rest assured that it’s paying for health care and not a CEO’s new yacht.

But you probably didn’t realize that when you pay your premium today, you can rest assured that it’s paying for health care and not a CEO’s new yacht. You can thank the way ACA treats CEOs—and other executives—in the health care industry for that.

When lawmakers debated this landmark legislation, some members of Congress worried that it might produce a bonanza for health insurers by delivering millions of new customers to them practically overnight. Who would hold those companies accountable as all this new cash rolled into their coffers?

A major concern was that health insurance executives might fatten their own paychecks instead of investing in health care. One way these companies benefit from high executive pay is to deduct the cost of so-called “performance pay” from their federal income taxes. Corporations use that loophole to avoid billions of dollars in taxes every year.

Why not close this performance pay loophole as a requirement for health insurance companies under the Affordable Care Act?

That’s exactly what Congress did.

A new Institute for Policy Studies report I co-authored takes a first look at the impact of closing this loophole for health insurers. We found that for the 10 largest health insurance companies, the share of executive pay that could be deducted as a business expense fell dramatically from nearly 100 percent to only 27 percent after the Obama administration rolled out the ACA.

For 2013, that translated into $72 million in additional tax dollars.

In the future, this amount will likely be much higher. Why? Because most health insurer executive stock options exercised last year pre-dated the ACA and were therefore exempt from the new rules. From now on, such exemptions won’t be an issue.

Of course, once corporate boards realize how much excessive pay is adding to their corporate tax burden, they may decide to stop doling out extravagant compensation packages altogether—freeing up money to be invested in care. But even if high pay continues, at least health insurers will have to pay taxes on it—like the $72 million they had to pay for 2013.

And what could that $72 million pay for?

Dental care for 262,000 people for an entire year. Or the annual deductible for 28,000 Americans for an entire year.

In addition to closing the pay loophole, the Affordable Care Act also requires health insurers to spend at least 80 percent of customer premiums on health care.

More than 10 million Americans have already gained coverage because of the new law. That it’s also holding the profit-making side of the health care industry accountable is a great bonus for all of us.


Marjorie E. Wood wrote this article for OtherWords.org, where it originally appeared. Marjorie is an OtherWords columnist, a senior economic policy associate at the Institute for Policy Studies, and the managing editor at Inequality.org.

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