Los Angeles Judge Dismisses Suit Seeking $500M in Back Taxes From Insurer
A Los Angeles Superior Court judge has dismissed a lawsuit by the Foundation for Taxpayer and Consumer Rights that sought to force the state to collect $500 million in alleged unpaid taxes from Blue Cross of California, the insurer said Monday, the Sacramento Bee reports (Rapaport, Sacramento Bee, 6/14).
In the lawsuit, which was filed in November 2004, FTCR alleged that Blue Cross parent company WellPoint Health Networks over the past 10 years has improperly claimed an exemption from the state gross premiums tax for health insurers. Representatives from FTCR in July 2004 said that WellPoint improperly claimed the state tax exemption after Blue Cross became a for-profit company.
The lawsuit also alleged that WellPoint had not paid the state gross premium tax on PPO coverage sold by Blue Cross. The lawsuit alleged that WellPoint had claimed the Blue Cross PPO coverage as an HMO and paid only an 8.83% state franchise tax on Blue Cross PPO revenue.
Under state law, HMOs are not considered health insurers and are exempt from the gross premium tax. According to the lawsuit, the gross premium tax rate is 2.35%, but because it is assessed on gross premiums, instead of net income, it results in insurers paying a greater share of premium revenue.
The lawsuit states that WellPoint over the past eight years would have paid an additional $300 million to $500 million in state taxes without the exemption.
Blue Cross is the only for-profit health insurer in California that does not pay the gross premium tax, according to the lawsuit. WellPoint was not named as a defendant in the lawsuit, which sought an injunction to order Controller Steve Westly (D) to collect the alleged owed taxes (California Healthline, 11/23/04).
Los Angeles Superior Court Judge Jane Johnson dismissed FTCR's lawsuit against the state Board of Equalization because Blue Cross is subject to the regulations of the Department of Managed Health Care -- which does not require taxes on premiums -- and not the Board of Equalization.
FTCR President Jamie Court said that in the next several weeks FTCR will consider appealing the ruling and asking state tax regulators to reconsider the state rules that exempt Blue Cross from premium taxes (Sacramento Bee, 6/14).