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Read Making a Killing

home / healthcare / in the media

The Indianapolis Star
Nov 24, 2004

by JEFF SWIATEK

Group sues WellPoint for $500 million;

Watchdog says unit shortchanged taxpayers in California, skirted tax for for-profit PPOs.
A consumer group has gone to court in California to make WellPoint Health Networks pay $500 million in state taxes.

The lawsuit, filed Monday against the California state controller, becomes the latest potential hurdle to Indianapolis-based Anthem Inc.'s proposal to buy WellPoint and create the nation's largest health benefits company.

The Foundation for Taxpayer and Consumer Rights charged that WellPoint's Blue Cross of California unit has shortchanged California taxpayers by not paying the 2.35 percent state tax on premiums collected by for-profit preferred provider organizations.

"California citizens and taxpayers have a substantial right and interest in requiring those outstanding taxes to be collected," the lawsuit says.

WellPoint, the largest health benefits company in California, and Anthem had no comment on the lawsuit. California State Controller Steve Westley also would not comment.

The merger had been held up for months by objections from California's insurance commissioner. Anthem reached a compromise with the California regulator earlier this month, and the company now is working to reaffirm other state approvals of the WellPoint purchase, valued at $18 billion.

The consumer group's lawsuit in Los Angeles Superior Court wants to force California's controller to collect the tax on WellPoint going back eight years.

Instead of paying the premium tax for its Blue Cross unit, WellPoint pays a tax on net profits. But that leads to smaller tax payments than owed under the premium tax, the lawsuit says.

Earlier this year, a California assemblywoman introduced a bill that would have required payment of the premium tax by Blue Cross of California. The bill died at the committee stage, said Jamie Court, president of the California consumer group.

Court said the fact that Blue Cross of California doesn't pay the premium tax gives the company a competitive advantage and may make it a more attractive acquisition for Anthem.

"Anthem needs to get a good lawyer and take a close look at this," he said.

Steve Tough, president of the California Association of Health Plans, said the tax question raised in the lawsuit has not been an issue among members of the state's trade group for health plans.

"It's not something that's come up in our organization at all," he said. "I am sure they (WellPoint) have thoroughly investigated their tax obligation."
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Contact Star reporter Jeff Swiatek at (317) 444-6483 or JEFF.SWIATEK@INDYSTAR.COM


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