Coverage: Insurance companies and the new health care plan

Republican politicians introduced a proposal to overhaul the Affordable Care Act, better known as Obamacare, and the business news media explored how it would affect health insurances.

Dan Mangan of CNBC.com had the news:

Health insurance companies could realize a $1 billion or more windfall over the next decade — and end up paying their CEOs even more money — because of a simple tweak in the GOP’s proposal to replace Obamacare.

That tweak, buried in cryptic language on page 67 of the bill, would end the $500,000 cap that health insurers currently have under the Affordable Care Act on deducting the cost of executives’ compensation as business expenses on their taxes.

The Republican proposal to eliminate that cap means that insurers would be able to deduct nearly the full value of their CEOs’ compensation, and not pay taxes on it.

For a company such as Aetna, whose CEO Mark Bertolini earns more than $17 million annually, ending the cap would add to its bottom line, and encourage insurers to pay executives more money, critics say.

Michael Hiltzik of the Los Angeles Times notes that the health insurers have made millions off of Obamacare:

It’s proper to observe that in corporate America, generally, the executive pay restrictions haven’t achieved their goal of reining in executive pay. The main reason is the “performance-based” pay loophole — it’s a rare company that can’t set its CEO performance benchmarks so low that they can’t be met.

Some might say that the executive pay limit on insurers turned out to be a bad bargain, considering how much the companies have been whining about ACA-related losses. But that would be incorrect. As we’ve reported in the past, the major insurance companies have actually made a mint from Obamacare — though perhaps not on the individual insurance exchanges. Their profits have come from the expansion of Medicaid, in which the largest insurers play a major role.

UnitedHealth Group, for instance, managed its individual insurance so poorly that it withdrew entirely from the business this year; but it loved Medicaid. Last year, its chief financial officer, Dave Wichmann, called managed Medicaid “the ultimate long-term sustaining solution for states” and said United would compete for that business aggressively.

Anders Melin of Bloomberg News reports that health insurance CEO pay has risen despite the provision:

It’s difficult to discern whether the mandate has helped curb executive payouts because compensation levels are set based on a myriad of factors. Reported pay for UnitedHealth GroupInc.’s Stephen Hemsley grew by 20 percent over the two years after the $500,000 deduction limit was put in place as the company’s revenue doubled. Pay for Cigna Corp.’s CEO David Cordani rose by 28 percent over the same period while Joseph Molina, CEO of Molina Healthcare Inc., saw his pay fall by almost 14 percent. In 2015, Hemsley received a pay package of $14.5 million, Cordani $17.3 million and Molina $10.3 million.

Also, the tax breaks companies can receive under the ACA provision are relatively small when measured against tens of billions of dollars in revenue the industry reaps. The topic therefore tends to get more attention publicly than in boardrooms.

The idea to reduce the deductibility of executive compensation was first hatched in the early 1990s and signed into law by President Bill Clinton. The move was intended to curb the rise in executive pay and ensure company bosses only got paid if their businesses and shareholders did well. Instead, it made $1 million the default salary for public company CEOs and helped spur the use of stock options and other equity awards, which sent executive pay soaring during the bull market of the 1990s.