Health Care Reform Bill Would Restrict Health Insurers' Compensation

 A provision in America’s Healthy Future Act, passed by the Senate Finance Committee on Oct. 13, would limit deductible compensation for health insurers. If the provision makes it into the final legislation, it will establish a special rule under section 162(m) to cut the deductible compensation limit in half — from $1 million to $500,000 — for “covered health insurance providers.” The provision is targeted at the health insurance industry — employers with self-insured plans are excluded.

The compensation restriction does not appear in any other health care reform proposal. The Senate is currently reconciling the Finance Committee’s proposal with the one approved by the Senate Health, Education, Labor and Pensions Committee.

The proposal defines covered providers as those that derive at least 25 percent of their gross premium revenue from providing health care plans that meet the minimum requirements of the act. In general, such coverage would have to pay at least 65 percent of covered charges, cover a defined category of benefits, limit out-of-pocket costs and meet other requirements.

The compensation limit would apply to all officers, directors and employees of a covered health insurance provider. In addition, it would apply to those who “provide services for or on behalf of” a covered provider — although it is not clear how the limit would apply in such cases. Compensation paid by all companies within the corporation’s controlled group would be aggregated to determine total compensation for the taxable year. Similar to the rules for Troubled Asset Relief Program participants, there would be no exceptions for performance-based pay, commissions or existing contracts.

Senator Blanche Lincoln (D-Ark.) introduced the amendment during committee debate earlier this month. A number of technical aspects — as well as the probable outcome — remain unclear.