California's four largest health plans could owe $10B in back taxes

Depending on how pending lawsuits play out in court, California's four largest health plans could owe the state $10 billion in back taxes--and be subject to a hefty tax bill in the future, according to the San Jose Mercury News.

The cases hinge on whether the four health plans, which control almost 70 percent of California's health insurance market, are "insurers" and should be subject to state law that requires almost all insurance companies to pay a 2.35 percent state tax on health insurance premiums they collect each year. The tax is paid in lieu of almost all other state taxes.

To date, the four companies--Kaiser Permanente, Anthem Blue Cross, Blue Shield of California and Health Net--have avoided paying that state tax, saying they aren't insurers but rather "healthcare service plans" providing medical services for a fixed monthly fee through a provider network, according to the article.

That argument is now being challenged by lawsuits. If the health plans lose, they will owe back taxes to the state going back eight years, which is the statutory limit, that total $10 billion. They will also be subject to pay at least $1 billion each year going forward, the newspaper said.

If the courts rule against the health plans, California could get a huge windfall in owed back taxes that could help the state's Medi-Cal program. However, such a decision could ultimately cost California consumers as it is expected the health plans will pass the cost onto members with higher premiums.

"This is clearly a monumental case for California and Californians," Democratic state Sen. Bill Monning told the newspaper. "The reason it would be a good decision--from a public policy point of view--is that it would level the playing field so that everyone participating in the insurance market is held to the same standard."

The lawsuits aren't the first challenge when it comes to California health plans' tax status. State officials in 2014 revoked nonprofit Blue Shield of California's tax-exempt status, a move the company is protesting. The decision may mean the company must pay tens of millions of dollars in state income taxes annually. It could also lead other states to scrutinize the status of their large nonprofit insurers.

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