Last week, executive compensation turned up in an unlikely place—the Senate Finance Committee’s health care reform bill. As part of the mark-up process, the committee approved an amendment to its bill that would limit a health insurance provider’s compensation deduction. Specifically, the amendment would limit an insurer’s compensation deduction for any officer, employee, director or other service provider (e.g., a consultant) to $500,000 per year, but such limitation would only apply to insurance companies that have 25% or more of their premium income attributable to the minimum coverage standards stated in the committee’s bill. In addition, and perhaps most notably, there is no exception for performance-based compensation and the deduction limit is designed to encompass deferred compensation.
The amendment’s deduction limit draws from the deduction limitation Congress imposed on recipients of assistance under the Troubled Asset Relief Program (TARP). Since passage of the Emergency Economic Stabilization Act (EESA) last year, commentators have predicted that its executive compensation restrictions would spread beyond TARP assistance recipients. This amendment evidences that such prediction may prove to be true.
The Senate Finance Committee’s bill will have to be reconciled with other health care reform legislation, so the health insurer deduction limitation may not survive in its current form. However, companies should take note that executive compensation remains a target of congressional interest.
The most recent version of the Senate Finance Committee’s health care reform bill is available here.