A little-known provision in the Affordable Care Act (ACA) could help rein in executive compensation at health insurance companies, according to The Institute for Policy Studies.
Corporations can deduct the costs of doing business from their tax bills, including the compensation of a firm’s top four executives. The deductions are capped at $1 million for each of those executives.
The Affordable Care Act made the limits stricter for health insurance companies, which stood to gain business as more Americans became insured under the law.
“Members of Congress were concerned that executives could use increased profits from their new customer base to line their own pockets,” says Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies.
Anderson says the ACA capped insurance companies’ pay-related deductions at $500,000 per employee, per year. It also eliminated loopholes for performance-based pay.
She says the new rules generated $72 million in taxpayer savings from the top 10 publicly traded health insurers alone.
But critics charge the limits are arbitrary and focus unfairly on the health care industry.
“It’s a bad[ly] thought out experiment that will not change compensation,” says Kevin Murphy, finance professor at the University of Southern California Marshall School of Business.
Murphy says insurers might just boost premiums to keep paying their employees’ high salaries.