When is a Health Insurer Not a Health Insurer?

It seems that if a health plan is regulated by the Department of Managed Health Care instead of the Department of Insurance, it is not an insurance company and does not need to pay taxes on the premiums. The article below describes the case against Kaiser, Anthem, Blue Shield and Health Net.

California’s Largest Health Plans Could Owe Billions in Back Taxes

In two cases involving the four largest health plans in California, courts could decide that the plans owe billions of dollars in taxes on the premiums they collect, the San Jose Mercury News reports.

Details of Cases

The cases involve four health plans which, together, account for 70% of the state’s health insurance market:

• Anthem Blue Cross;
• Blue Shield of California;
• Health Net; and
• Kaiser Permanente.

The cases center around part of the state 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.

The four plans have been regulated by the state Department of Managed Health Care and are 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.

Health care and consumer advocates argue that 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. They say the health plans should be treated as insurers and, as such, should be liable for $10 billion in back taxes and at least $1 billion annually going forward.

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

Implications

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, according to the Mercury News.

State Sen. Bill Monning (D-Monterey) said the cases are “clearly … monumental” for the state, adding that a ruling against the health plans would “level the playing field so that everyone participating in the insurance market is held to the same standard.”

However, Gov. Jerry Brown’s (D) administration contends that the health plans should not be on the hook for the premium tax. A ruling against the health plans could result in higher premiums for consumers to offset the costs of paying the premium tax, state attorneys argue.

Kaiser spokesperson John Nelson in an email said the health plan’s “focus is on providing health care services through our hospitals and contracted medical groups — not providing insurance” (Seipel, San Jose Mercury News, 1/21).