Health insurers no longer will be able to take federal tax deductions for executive compensation greater than $500,000, including performance-based payouts, under a little-noted provision of the Patient Protection and Affordable Care Act.
Bloomberg News reports that lowering the deductible level from $1 million a year to $500,000 and ending the exemption for stock options, bonuses, and tax-deferred compensation will raise $600 million in tax revenues from insurers over seven years, according to Congress' Joint Committee on Taxation.
The provision's intent was to discourage insurers from substantially boosting executive pay with the additional premium dollars the companies will receive when all Americans are required to carry insurance in 2014. But experts say similar tax provisions to curb executive pay have failed in the past.
In 2009, the existing tax deduction exempted 99 percent of pay received by CEOs of the five largest U.S. health insurers; the new law would trim that to 67 percent, Bloomberg calculated. The insurers may face total taxes of $45.7 million on executive pay in 2010, compared with $245,000 in 2009.
CEOs of the 10 largest for-profit health insurers earned $228.1 million in 2009, up from $85.5 million the year before, according to a new report by the pro-health reform group Health Care for America Now. Cigna paid outgoing CEO H. Edward Hanway and his successor, David Cordani, a total of $136 million last year. UnitedHealth Group chief Stephen Hemsley received $107.5 million. Aetna CEO Ron Williams collected $18.1 million. And Wellpoint CEO Angela Braly pocketed $13.1 million.
The pay figures included base salaries, bonuses, stock awards, and pension packages, but not the value of exercised stock options. 2009 was a very profitable year for most publicly traded insurers, and that's continued through the first half of 2010.