Senator Baldwin is right: AHCA is particularly great for health insurance CEOs, bad for almost everybody else

There are plenty of outrageously bad things about the American Health Care Act (AHCA), the recently proposed Republican replacement for the Affordable Care Act (ACA). The 24 million people who will lose their health insurance coverage by 2016. The $12,900 increase in premiums for older, low-income Americans who will get much shoddier insurance coverage in exchange. The $275 billion in tax cuts aimed directly at the richest Americans. The 7 million decrease in even employer-sponsored coverage under the plan. The $880 billion cut to Medicaid over the next decade. To get a near-comprehensive look at what the AHCA does to taxes, spending and insurance coverage, check out the recent Congressional Budget Office (CBO) analysis of AHCA.

But maybe the most gratuitous way that AHCA coddles rich people is its repeal of an ACA provision that limited the deductibility of executive pay for health insurance companies. The rationale for this provision was clear—the federal government was providing an enormous windfall to private health insurance companies by mandating that all Americans have insurance and by providing subsidies for them to purchase it. In return, we wanted these companies to use that extra money from subsidies and new customers to actually provide health care, not just fatten corporate executives’ salaries. So, the maximum amount that a health insurance company could deduct in an executive’s salary from their corporate income tax bill was reduced to $500,000. Under the AHCA, these companies could deduct up to $1 million in cash pay, and could deduct unlimited amounts of “performance-based” pay.

Two quick things to note: the “performance-based” pay carve-out is a bad loophole that should be closed generally. And $500,000 is an awfully healthy salary; presumably, companies should be able to hire decent people at this salary or less. This sounds like a shocking thought in modern America, I know, but the president of the United States earns less than this (or, if you’re unconvinced that our current president counts as an example of having “hired decent people”, I’d note that the Chair of the Federal Reserve earns well under half of this amount).

Senator Tammy Baldwin of Wisconsin recently criticized AHCA and mentioned these top executive pay deductibility provisions, and argued that the proposed legislation would greatly enrich health insurance CEOs. PolitiFact Wisconsin took odd exception to this. They’re wrong and Baldwin is right.

First, AHCA slashes tax rates faced by the richest Americans. Health insurance CEOs are in this group, so they will make enormous amounts of money from the tax cuts in AHCA. For top 0.1 percent income households in America (and top executives at large companies are extraordinarily over-represented in this group), the AHCA tax cuts will deliver an average tax cut of $165,000 annually.

Second, the executive pay provisions in AHCA clearly provide an incentive for firms to pay CEOs more. Given that these corporations can boost CEO pay by $500,000 in cash terms, and unlimited amounts in “performance-based” terms, this pay boost could be truly large. The best argument against expectations of this pay increase materializing is simply that top managers’ pay in corporations is already so distorted and non-competitive that top executives routinely ignore the best interests of their very own shareholders and give themselves raises all the time that reduce company profits—which is a funny argument to make in defense of CEOs and other top corporate managers.

Finally, the argument that because the executive pay deductibility provision does not directly reduce taxes for top executives, but only for the corporations they own, is a weak one indeed. It clearly increases the incentive to pay executives more, period. And given that most top executives own large chunks of their own companies’ stocks (or own options to purchase it), anything that boosts the profitability of these firms (say, a provision that increases the deductibility of top executive salaries) will boost their income directly.

PolitiFact Wisconsin seems sure that all of these provisions cannot possibly add up to health insurance CEOs seeing income gains in the “millions”. I don’t see why not—the Medicare tax cuts alone will get many of them nearly there before too many years pass. And in the end the essential point of the Baldwin critique is obviously right— among its other stupidities and cruelties, the specific provisions relating to health insurance executive pay will lead to substantial upward redistribution of income, further increasing economic inequality.