Amednews.com REPORTS HERE that "as part of health system reform, insurance companies are facing limits on how much they can deduct executive pay from their taxes -- limits similar to what the government put on troubled banks that took TARP money."

"Until the March enactment of the Patient Protection and Affordable Care Act, health plans, like other companies, could deduct up to $1 million in salaries paid to top executives, with the Internal Revenue Service not touching stock options, deferred compensation and other noncash payments."

"However, health plans now can deduct only the first $500,000 of what they pay executives -- including all of the compensation, not just the cash part. The new rule is expected to raise $651 million in the next 10 years for Medicare."

"The rule is similar to one put in place under the Troubled Asset Relief Program in 2008. In one sense, however, the health plans were hit with a heavier hammer than banks."

"The deduction limits under TARP applied only to the chief executive officer, chief financial officer and the three other highest-paid executives, according to a review by the law firm McDermott Will & Emery. For health plans, the coverage is broader: Any employee, board member, outside consultant or outside broker is subject to the deduction limit."

"The top 10 publicly traded health plans paid out $228.1 million in 2009 compensation to their chief executives, up from $85.8 million in 2008, according to a report issued in August by Health Care for America Now, a health system reform advocacy group. That excluded stock option exercises, such as the $98.5 million earned in such a manner in 2009 by UnitedHealth Group CEO Stephen Hemsley.

The new rule not only changes the guidelines for shareholder-owned plans but also applies to private insurers."

"The deduction limits apply to any company that collects health insurance premiums between 2010 and 2012. In 2013 and beyond, the limits apply to any company that collects 25% or more of its premiums for 'minimum essential coverage'."

"Experts say the law not only will raise insurers' tax bills but also could push them to re-examine and restructure how their executives are paid.

In a related story Amednews.com REPORTS HERE that "physician and hospital organizations have expressed general support for a proposal from state insurance commissioners on what health insurers should be allowed to consider medical spending under new health system reform regulations."

"Starting next year, insurers will be required to spend 80% of the premiums they collect for individual and small-group policies on patient care and quality improvement -- 85% of premiums for large-group policies. The latest draft proposal from the National Assn. of Insurance Commissioners (NAIC) gives an idea of how the federal government might classify particular types of spending when determining the medical-loss ratio, which is the portion of premium revenue spent on actual medical services compared with the portion that goes toward administrative costs, plan profits and other expenses."

"If plans have not spent enough premium dollars on patient care, they will be required by the health reform law to provide rebates to subscribers."

"By setting specific criteria for what can be considered quality improvement expenses, the NAIC effectively has proposed definitions for what constitutes a medical expense. It will issue the final report on these recommendations this fall. However, the Dept. of Health and Human Services still must give final approval to the criteria, meaning the rules could become more or less restrictive on insurers before they take effect in 2011."

"Health plan activities that would count as quality improvement include comprehensive discharge planning, case management, care coordination, chronic disease management, and health information technology expenses related to preventing hospital readmissions and reducing medical errors. Insurers would be able to consider costs associated with certain public health education campaigns to be in the wellness and health promotion category, also a medical expense."

"But health plans would not be able to consider fraud prevention and detection efforts when it calculates its medical expenses. Also excluded would be insurer costs associated with the implementation of the new International Classification of Diseases code sets, or ICD-10, the next generation of diagnostic codes that physicians and health plans will need to adopt."

"In addition, the NAIC has proposed excluding the costs of concurrent and retrospective utilization review, which requires physicians or hospital staff to relay clinical information during or after the active management of patient conditions to insurers, who then determine if the administered care is covered. Prospective utilization review still would be considered a medical expense under the quality improvement heading."

"'The top state insurance regulators from across the nation voted to put patient care above insurance company profits,'" said Ethan Rome, executive director of Health Care for America Now!, a grassroots coalition that supported the new health reform law."

"'For too long, health insurance company CEOs have been pocketing astronomical salaries all the while denying care and coming up with foolish reasons to kick people off their insurance policies,' Sen. Jay Rockefeller (D, W.Va.) said....'If we want to change the culture of health insurance companies and how they treat individuals and families in need of health care, then we need to change the way they do business.'"