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Read Making a Killing

home / healthcare / in the media

Los Angeles Times
Jul 09, 2004

by Marc Lifsher, Times Staff Writer

Tax Probe of WellPoint Is Sought

SACRAMENTO -- The chairwoman of the state Senate Health and Human Services Committee on Thursday said she wanted the California Department of Justice to investigate allegations that the corporate parent of Blue Cross of California saved millions of dollars in state taxes over the last decade by using a loophole not available to most other insurers.

Sen. Deborah Ortiz (D-Sacramento) made the request to Atty. Gen. Bill Lockyer on the eve of a key regulatory hearing. The state Department of Managed Health Care is taking public testimony today on the proposed $17-billion sale of WellPoint Health Networks Inc. to Indianapolis-based Anthem Inc.

"If the state of California is owed" taxes, Ortiz said, "we ought to get that before we talk about an acquisition by Anthem."

WellPoint said it was in full compliance with all laws covering insurers and health maintenance organizations and owed no past debt to the state.

"There is no tax loophole. We are not exempt from any taxes. Any accusation to the contrary is a lie," WellPoint spokesman Ken Ferber said.

"Blue Cross already pays more taxes than any other California insurer, and as our tax payments are already audited by the state, any investigation would be duplicative and a waste of taxpayer money."

The planned sale of WellPoint and its Blue Cross subsidiary, which has been endorsed by stockholders of both companies, would create the nation's largest health insurer.

The planned sale has generated widespread opposition from consumer groups, the California Medical Assn., minority healthcare advocates and public officials including state Treasurer Phil Angelides, Insurance Commissioner John Garamendi, Senate Insurance Committee Chairwoman Jackie Speier (D-Hillsborough), Ortiz and Assemblyman Manny Diaz (D-San Jose).

Ortiz, echoing allegations from the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said she wanted to know whether WellPoint and Blue Cross, which was a nonprofit organization until converting to for-profit status nearly a decade ago, benefited from a tax loophole not enjoyed by similar health insurance companies in California.

Unlike other preferred provider organizations, Blue Cross of California doesn't pay a 2.35% tax on gross premiums, although it does pay a corporate net income tax.

Ortiz also said she asked Lockyer to look into whether WellPoint stockpiled excessive reserves against claims that should have gone back to enrollees in the form of lower premiums or improved medical services.

Lockyer spokesman Tom Dresslar said the attorney general's office would review Ortiz's letter and "take appropriate action."

Ortiz and other critics said they were wary about Anthem's plans to pay executives up to $356 million in severance and other special compensation.

Angelides called the executive pay proposal "egregiously excessive."

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