California's Largest Health Plans Could Owe the State Billions in Back Taxes

Whether Anthem Blue Cross, Blue Shield of California, Health Net and Kaiser Permanente, which account for nearly 70% of California's health insurance market, could owe the state billions of dollars on the premiums they collect, rests on two cases currently before the courts.

The cases center around part of California's Constitution that requires nearly all insurers to pay a 2.35% tax on the premiums they collect. Anthem, Blue Shield, Health Net and Kaiser argue that they are not insurers, but "health care service plans" that offer medical services that only are available through a restricted provider network. The plans say they do not reimburse enrollees for medical expenses and require providers to assume the financial risks for health care.

Regulated by the state Department of Managed Health Care, the health plans have traditionally been assessed a corporation tax and an annual fee based on business volume -- which opponents argue are millions of dollars less than the premium tax under the state Department of Insurance.

Under a 1968 California Supreme Court ruling, health plans must pay the tax if traditional insurance accounts for a large financial portion of their business. Health care and consumer advocates argue that the health plans should be treated as insurers and, and as such, should be liable for $10 billion in back taxes and at least $1 billion annually going forward.

A state appellate court had already has ruled against Anthem and Blue Shield in one of the cases. Meanwhile, the case against Health Net and Kaiser recently went to court.

If the court in the pending case also rules that the health plans must pay the premium tax, the funding could go to Medi-Cal, the state's Medicaid program.

However, Governor Jerry Brown's administration contends that the health plans should not liable for the premium tax, arguing that a ruling against the health plans could result in higher premiums for consumers to offset the costs of paying the premium tax.

( 1/25/2016)