Healthy to Wait on HMO Tax

The Los Angeles City Council demonstrated admirable restraint last week by delaying a vote on whether to give health maintenance organizations a hefty tax break. Now, the council must stand firm in that position, despite Mayor Richard Riordan’s calls to cut a deal immediately. Councilwoman Laura Chick wanted to lower taxes to prevent HMOs in her West San Fernando Valley district from fleeing to neighboring cities where rates are lower, such as Calabasas or Thousand Oaks. Under her proposal, the business tax on the city’s HMO industry would drop by as much as $15 million a year.

Citing an upcoming big-picture study on citywide tax rates the council opted to shelve Chick’s proposal until it can be considered in a broader context. That’s a prudent approach. Even though his office is sponsoring the study, Riordan wants to give the HMOs the break without delay. The council is right to wait the extra couple of weeks so it can make an informed decision. In efforts to appear friendly to business, cities all over Southern California are tempted to bend over backward in everything from tax breaks to land giveaways. Unless managed carefully, though, these efforts can amount to little more than financial shell games in which desperate cities end up losing even bigger bucks. Bottom-line business owners don’t help matters much with their brinkmanship threats of packing up.

Chick points out that the HMOs are unfairly taxed on money they simply pass between members and doctors rather than what they keep in fees. Adjusting the tax structure may well be the fair course in this case, but it deserves to be considered as part of a wider framework--not piecemeal. The mayor’s tax study is expected to be completed in the next month. That’s the appropriate time to discuss breaks for individual industries.