Will ACA Repeal Efforts Impact Executive Pay Practices?


The House Republican health-care proposal, the American Health Care Act (H.R. 1628), would modify or repeal in part the Affordable Care Act tax provisions impacting executive pay for health insurers, among other changes.  See related story, How Will The Proposed AHCA Be Different From the ACA For Employers?

Health insurers and executive compensation experts are keeping a close eye on American Health Care Act developments.  The proposed repeal of the ACA-mandated tax provisions would be effective for tax years beginning after Dec. 31, 2017.

Executive Pay Deduction Limit

Under Section 162(m) of the tax code, public companies generally can take a business expense deduction of up to $1 million for certain executives.  The ACA-mandated tax provision under Section 162(m)(6) further limits the deduction that health insurers can take for executive pay to $500,000.  The intent of Section 162(m)(6) is to deter companies from utilizing company revenue to provide excessive executive pay.

The American Health Care Act proposes to repeal the $500,000 cap on the deduction health insurers can take for executive pay.  Betsy Field, of Willis Towers Watson, told Bloomberg BNA March 22, “The large publicly traded insurers would be back on the same footing as other publicly-traded companies with respect to tax deduction limits on executive compensation (i.e., still subject to IRC Section 162(m)) and other for-profit insurers would no longer have a limited tax deduction for executive compensation.” Field added, “This proposed change is obviously inconsequential for tax-exempt health insurance organizations.” 

Other Provisions Impacting Executives

The American Health Care Act proposes to repeal two additional ACA-mandated tax code provisions impacting wages over statutory thresholds as follows:

  • Net Investment Income Tax: The American Health Care Act proposes to eliminate the additional 3.8 percent tax on net investment income of certain highly compensated individuals.
  • Additional Medicare Tax: The American Health Care Act proposes to eliminate the additional 0.9 percent Medicare tax on wages paid to certain highly compensated individuals.

Key Takeaway 

Executive compensation experts shared that executive pay practices won’t be impacted by the proposed ACA repeal efforts. Field said, “This proposed change is a financial win for for-profit health insurers, but not likely to have a material impact on executive pay programs in the industry.”  Field added, “Overall, we did not see a shift in the design of executive compensation programs when Section 162(m)(6) was added through the ACA and we do not anticipate any significant changes in the structure of executive compensation packages if it is repealed.”

“As health-care continues to evolve, it will be even more critical for health insurance companies to ensure they have the right leaders and the right pay plans to ensure success for all of their stakeholders,” Field said.

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