Health and Science

Health insurance companies would get $1 billion or more windfall under GOP Obamacare replacement plan

Speaker Ryan defends GOP health care plan at press conference

There's a sweet deal for insurers buried in the GOP's new Obamacare bill.

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.

Language in Republican Obamacare bill that would result in windfall to insurers

At the same time, revenue to the federal government would drop.

The left-leaning Institute for Policy Studies think tank in 2014 estimated that for the prior year the government received at least $72 million in additional tax payments from insurers as a result of the compensation deduction cap.

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"For sure, that number has gone up," said Sarah Anderson, director of the Global Economy Project at the IPS, on Tuesday.

Asked how much getting rid of that cap, as the GOP wants, would cost the U.S. Treasury in lost taxes over the next decade, Anderson said, "I think a conservative estimate would be a billion dollars."

"The way the tax code works [under the GOP plan] the more [insurance] companies pay their CEO, the less they pay in taxes, because they just increase their deductions," Anderson said.

"And when corporations get to lower their tax bill in that way, other people need to make up for that. Either taxpayers need to pay more, or we have reduced public services," she said.

The billion dollars in potential lost revenue didn't worry Craig Garthwaite, director of the health care program at Northwestern University's Kellogg School of Management. He said that amount of money would have a negligible effect on either federal health spending or the budget deficit.

But Garthwaite blasted Republicans for including repeal of the compensation cap in the Obamacare replacement bill, saying it would give opponents of the bill political ammunition.

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"They're already having enough trouble with people thinking they're on the side of industry, on the side of the wealthy people," Garthwaite said. "Most of this bill sort of transfers resources from the poor and sick to the rich and relatively wealthy."

"If you then tag that [provision about compensation] onto that — you're making it easier to pay people more than a half-million dollars a year — politically it's pretty stupid," Garthwaite said.

He noted that he had also believed that the original idea of Obamacare singling out health insurance company executives for that tax deduction cap was also "stupid."

"Why not hospital executives? Why not orthopedic surgeons?" Garthwaite scoffed.

But he also criticized the overall replacement bill for having been drafted 'in secret," and without first undergoing an analysis from the nonpartisan Congressional Budget Office. The CBO eventually will estimate the plan's costs to the budget, and its effect on the number of people insured nationally.

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"I don't know what they're doing at this point," Garthwaite said, referring to the overall GOP replacement plan. "And I say that as a lifetime Republican.

"What we're getting is a poorly thought out program that appears to be written by people that have no knowledge of how the health insurance market or system works," he said.

Putting in the elimination of the compensation cap is an example of that, Garthwaite said.

"You can't actually accomplish your bad goals because you can't even get out of your own way," he said.

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