California's four largest health plans — Kaiser Permanente, Anthem Blue Cross, Blue Shield of California and Health Net — may owe up to $10 billion in back taxes pending the outcome of a historic court case, reports San Jose Mercury News.
Below are 10 things to know about the lawsuit brought against Kaiser, Health Net, Blue Shield and Anthem Blue Cross that could cause the health insurance giants to pay back taxes.
1. The case centers around the state's Constitutional provision that requires insurers to pay a 2.35 percent state tax on premiums.
2. Kaiser Permanente, Anthem Blue Cross, Blue Shield of California and Health Net have traditionally avoided paying the tax. The health plans argue they are not insurers, but rather healthcare service plans that provide medical services for fixed monthly fees. As healthcare plans, they say they are not subject to the state insurance tax.
3. The plans contend they are regulated under the Department of Managed Health, and pay a tax based upon their volume of business. Critics argue this fee is millions of dollars less annually than the traditional insurance tax.
4. The four health plans account for 70 percent of the state's health insurance market.
5. The allegation the plans are essentially gaming the system underlies a lawsuit filed in July 2013 against the state by Michael Myers, MD, a California family physician. Mr. Myers argued Blue Cross and Anthem Blue Shield should be considered insurers, and the state should collect eight years of back taxes from each.
6. The lawsuit was originally dismissed by a superior court judge. However, a 2nd district state court of appeal in Los Angeles upheld the legal claims against Blue Shield and Anthem Blue Cross in 2015, and allowed the case to proceed to trial.
7. The lawsuit was expanded to include Kaiser and Health Net, at which point Consumer Watchdog joined the case in favor of the plaintiff.
8. Should the court rule against the health plans, they will be required to pay $10 billion in back taxes and $1 billion annually going forward. The back taxes could go to funding California's overwhelmed Medi-Cal program.
9. Some industry experts worry consumers will end up footing the behemoth tax bills through significantly higher premiums.
10. Court proceedings officially began Jan. 22.