Obamacare has a CEO tax — and it just raised $72 million

A little-known Obamacare tax on health insurance executives’ salaries raised $72 million in new revenue last year.

For decades now, the United States has limited the corporation tax deduction for executive pay to $1 million for the company’s top four employees. That deduction cap, however, excluded performance bonuses, creating a massive loophole allowing companies to pay their top employees more than $1 million without facing a higher tax burden.

Obamacare quietly changed the rules for health insurance executives. It lowered the cap to $500,000 — and, in that amount, now includes all forms of compensation. The health insurers’ regulation also widens the scope of who it hits: while the general deduction cap only applies to the company’s top four employees, the Obamacare rule hits any executive earnings more than $500,000.

These new limits kicked in last year. The Institute for Policy Studies ran the numbers and found that this one change resulted in the 10 largest insurers paying an additional $72 million in taxes in 2013.

For a government that spent $3.5 trillion in 2013, an additional $72 million is something akin to a rounding error. But Sarah Anderson, a co-author of the study, argues that this is near certainly an under-estimate of how much revenue this provision is generating.

“It’s only relating to the paychecks of 57 executives in our pool, and it will near certainly go up in future years,” Anderson says. “One thing you saw this year was compensation, in the form of stock options, that were granted before 2010 and exempt but cashed them in lsat year.”

And if you put the new tax revenue in terms of health care, it’s definitely not nothing. An additional $72 million could, the Institute for Policy Studies estimates, buy dental insurance for a quarter-million people.

What the ISP report didn’t see was health insurance plans limiting executive pay because of the provision; all the chief executives made well over $500,000. Stephen Hemsley, the best-paid health plan executive, earned $27.6 million last year.

But here’s what’s different this time around: the $26.6 million of Hemsley’s salary that was a “performance bonus” gets taxed — and that amounts to an additional $5.9 million in revenue for the federal government.