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Read Making a Killing

home / healthcare / in the media

Los Angeles Daily News
Jul 08, 2004

by Evan Pondel, Staff Writer

Officials look into Blue Cross tax loophole

State officials are calling on insurance regulators to examine a little-known tax loophole that could have saved Blue Cross of California hundreds of millions of dollars.

Most insurance companies are required to pay premium tax in California on PPO products. But those groups that operate as nonprofit entities are exempt from such taxes, a loophole Blue Cross continues to enjoy even though the company has operated with for-profit status for nearly a decade.

A 1990 law enables Blue Cross to avoid paying the premium tax, but now state Sen. Deborah Ortiz, D-Sacramento, is determined to close that loophole before Blue Cross parent WellPoint Health Networks Inc. is acquired by Anthem Inc.

"We are asking that no merger go forward until we determine if the state is owed $1 billion in premium taxes," Ortiz said.

The Department of Managed Health Care convenes a public hearing today in Sacramento to discuss the proposed merger. The transaction has stalled in California as regulators determine whether the combination of the two companies would hurt the state's health care system.

Ortiz is calling on the state attorney general to investigate Blue Cross' premium tax exemption.

Assemblyman Keith Richman, R-Granada Hills, said it is due time for regulators to consider eliminating the loophole. Hundreds of millions of tax dollars are essentially withheld from the state, and "that money could be used for programs like Healthy Families," a state-funded low-cost insurance program for children, Richman said.

However, the assemblyman doesn't believe premium tax provides any basis for halting the $16 billion merger between WellPoint and Anthem.

The Department of Managed Health Care is responsible for overseeing premium tax as it relates to several health care companies in California. The department has yet to consider amending the law.

"And it's under the authority of the Legislature to change the statutes if they feel the need," said Lynne Randolph, spokeswoman for the department.

Richman struggled for about a year to voice his concerns about the legislation, but was met with little support from fellow party members. "And now we are well past the deadline for bills so it's hard, next to impossible, to consider anything," he said.

The Foundation for Taxpayer and Consumer Rights, a Santa Monica-based consumer advocacy group, continues to dredge up information about Blue Cross' premium tax exemption. WellPoint responded Thursday afternoon saying the foundation is providing information without "factual accuracy."

"Blue Cross is the largest payer of taxes of any California managed care company. In fact, our biggest competitor, Kaiser, pays no premium or income taxes," WellPoint said in a statement.

Oakland-based Kaiser Permanente operates the nonprofit Kaiser Foundation Health Plan and Hospitals, which is legally exempt from taxes.

Michael Chee, a Blue Cross spokesman, said even though Blue Cross of California doesn't pay a premium tax, the company paid $89.6 million in income taxes last year.

Despite these figures, industry executives do not believe WellPoint should have preferential tax treatment. James Garrison, president of Glendale-based Pacific Federal, said the tax exemption reduces competition in the state.

"When there is a disparity like this it hinders competition. One company shouldn't have to pay a premium tax when another company doesn't," said Garrison, whose company sells insurance to unions.
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Contact the author Evan Pondel at: (818) 713-3662 or evan.pondel@dailynews.com

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