Group Opposes Giving City Tax Break to HMOs

A health-care watchdog group Friday blasted a proposal by Los Angeles city officials to give five health-care organizations a tax break of up to $15 million, saying the companies pay very little in federal and state income taxes.

Consumers for Quality Care said a study by a nonprofit research group last year found that the state’s top health-care corporations benefit from millions of dollars in state and federal tax breaks.

“HMOs have been generous recipients of the corporate welfare system,” said Jaimie Court, director of the Los Angeles-based group.

Considering the income tax breaks that HMOs get, he said the city should reject a proposal to provide a business tax break. The proposal will be considered in two weeks by the council’s budget and finance committee.

“I think it’s shameless that these HMOs, which are the most profitable corporations on Wall Street, are trying to hold the city hostage,” he said.

The five HMOs that are headquartered in Los Angeles--CareAmerica, Maxicare, Health Net, Prudential and WellPoint--have joined forces and lobbied the city for a tax break of up to $15 million, saying the existing tax formula is unfair.

Several of the HMOs have threatened to relocate to neighboring cities that could provide lower business taxes and lease rates.

City officials and HMO representatives defend the proposed tax break, saying the tax formula unfairly taxes them for fees that they simply pass on to members to doctors and other health-care providers.

Councilwoman Laura Chick, who has championed the tax break, and represents the west San Fernando Valley district that is home to four of the five HMOs, said the city calculates its taxes on what is equitable, not on how much an industry pays in income taxes.

“When we figure out the gross receipts taxes, we don’t look at what taxes they paid to the IRS or the state,” she said. “We just don’t do that.”

Michael Gagan, a lobbyist representing the five HMOs, said the firms already pay millions of dollars in sales taxes, utility fees and other taxes.

He also argued that if the HMOs leave Los Angeles, they would take more than 6,500 jobs with them.

But Court pointed to an October study by the Institute for Health and Socio-Economic Policy that said the state’s top five HMOs paid less than 2.48% of their total net sales in income taxes.

The study was based on U.S. Security Exchange Commission filings and other financial data.