Trumpcare’s Massive Tax Cut for Health Insurance Executive Pay

Last week, details emerged showing that the American Health Care Act, or AHCA—the Republican replacement for the Affordable Care Act, or ACA, otherwise known as Trumpcare­—would provide a massive tax break for health care executives’ compensation by repealing the ACA’s $500,000 cap on deductions for compensation.

So while the AHCA would cost ACA enrollees $1,542 more per year, on average, it would also provide a tax cut of up to $63 million for health insurance executive pay. And that’s for just five health insurance companies that the Center for American Progress Action Fund examined. This massive tax benefit represents a significant rate of return on the nearly $3.4 million in campaign contributions that these health insurance companies made to Republican candidates and political action committees, or PACs, during the 2016 election cycle.

CAP Action applied the AHCA’s provisions to 2015 executive compensation at five health insurance companies to estimate how massive the tax break could potentially be for UnitedHealth Group, Aetna, Cigna Corp., Humana, and Anthem Inc.

Methodology example: UnitedHealth’s CEO

Under the ACA, the amount of executive compensation that health insurance companies were able to deduct from their tax liability was capped at $500,000 per executive. But under the AHCA, health insurance companies would be able to deduct: 1) up to $1 million for executives’ salaries and 2) all executive performance pay. CAP Action’s estimates for tax savings were calculated by finding the difference between the tax liability for executive pay under the ACA and the tax liability for executive pay under the AHCA.

In the example using UnitedHealth’s executive pay, below, UnitedHealth would get a nearly $15.5 million tax cut for its CEO and executives, based on 2015 compensation. Specifically, CEO Stephen J. Hemsley would receive a $4,732,869 tax cut, which is enumerated below. All calculations assume a marginal tax rate of 35 percent.

Compensation of CEO Stephen J. Hemsley:

  • Salary: $1,350,000
  • Stock awards: $7,012,546
  • Option awards: $2,337,939
  • Non-equity incentive plan compensation: $3,672,000
  • All other compensation: $145,679

Tax liability for Stephen J. Hemsley under the ACA = $4,906,356

  • Salary, can deduct up to $500,000: ($1,350,000 – $500,000) x 0.35 = $297,500
  • Stock awards, cannot deduct: $7,012,546 x 0.35 = $2,454,391
  • Option awards, cannot deduct: $2,337,939 x 0.35 = $818,278
  • Non-equity incentive plan compensation, cannot deduct: $3,672,000 x 0.35 = $1,285,200
  • All other compensation, assuming it is not deductible: $145,679 x 0.35 = $50,987

Tax liability for Stephen J. Hemsley under the AHCA = $173,487

  • Salary, can deduct up to $1 million: ($1,350,000 – $1,000,000) x 0.35 = $122,500
  • Stock awards, can deduct all: $0 x 0.35 = $0
  • Option awards, can deduct all: $0 x 0.35 = $0
  • Non-equity incentive plan compensation, can deduct all: $0 x 0.35 = $0
  • All other compensation, assuming it is not deductible: $145,679 x 0.35 = $50,987

Other UnitedHealth executives:

  • David S. Wichmann, president and chief financial officer: tax cut of $3,775,483
  • Larry C. Renfro, vice chairman and CEO, Optum: tax cut of $3,775,483
  • Marianne D. Short, executive vice president and chief legal officer: tax cut of $1,783,478
  • Ellen Wilson, executive vice president, human capital: tax cut of $1,403,327

Total tax cut for UnitedHealth executive compensation under the AHCA: $15,470,639

Summary of health insurance company tax cuts for executives’ compensation under the AHCA

UnitedHealth Group

  • Total tax cut: $15,470,639
  • CEO and PAC contributions to Republican candidates in 2016: $863,700

Aetna

  • Total tax cut: $14,726,161
  • CEO and PAC contributions to Republican candidates in 2016: $649,500

Cigna Corp.

  • Total tax cut: $10,381,817
  • CEO and PAC contributions to Republican candidates in 2016: $394,700

Humana

  • Total tax cut: $12,759,262
  • PAC and CEO contributions to Republican candidates in 2016: $666,500

Anthem Inc.

  • Total tax cut: $9,702,448
  • CEO and PAC contributions to Republican candidates in 2016: $787,750

Note: Campaign contribution data was found at OpenSecrets. Executive compensation data was found through the U.S. Securities and Exchange Commission’s EDGAR database, using DEF 14A filings.

Molly Cain is a Senior Researcher in the Center for American Progress Action Fund War Room.