ACA's Health Insurer Deduction Limit Saved Taxpayers $72M-Plus in 2013, Report Says

The Affordable Care Act's compensation deduction limit for health-care insurance providers generated at least $72 million in additional public revenue from some of the largest providers in 2013, its first full year of applicability, the Institute for Policy Studies said in a report.

The Aug. 27 report by Washington-based IPS is the first to analyze the effect of the $500,000 limit on compensation deductions for tax years beginning on or after Jan. 1, 2013—ACA provisions under tax code Section 162(m)(6). The report focuses on compensation paid to 57 executives at the 10 largest publicly held health insurance companies.         

Key findings include:

• The $72 million in savings from the deduction limitation imposed on compensation paid to the 57 executives is equivalent to the cost of dental insurance for 262,000 Americans or enough to cover the cost of the average deductible under the ACA's “silver” plan for 28,000 people.

• The 10 companies paid their top executives nearly $300 million in taxable compensation in 2013. Without the ACA, as much as 96 percent of that amount, or $289 million, could have been claimed as deductible performance-based pay, compared with the 27 percent that actually was. That amounted to $207 million in lost deductions. On average, the companies owed an extra $1.3 million in taxes per executive.

• Actual taxpayers savings amounted to much more than $72 million in 2013 since, while health insurers only must public disclose compensation for their top five executives, more would be over the $500,000 limit.

• If Section 162(m)(6) were expanded to all public corporations, taxpayers would save $50 billion over the next 10 years.         

IPS's global economy project director, Sarah Anderson, one of the report's authors, told Bloomberg BNA on Aug. 26 that “the most significant element of this reform is that it closes the ‘performance pay' loophole for health insurance companies.”         

“For more than 20 years, this loophole has encouraged excessive compensation,” Anderson said in an e-mail. “In some cases the loophole has also been an incentive to manipulate performance metrics—to ensure that the executive gets a bonus and the corporation gets a tax deduction,” she said.         

According to Anderson, “the next logical step would be to apply the Obamacare limit on executive pay tax deductions to all corporations, not just health insurers.”         

The report said there is growing support in Congress for applying the limit to all major U.S. corporations.

Excerpted from a story that ran in Pension & Benefits Daily (8/28/2014).