No. 34

HMOs Cut Tax Deal With L.A.

On Dec. 9, after months of wrangling, five health maintenance organizations Blue Cross of California, CareAmerica Health Plans, Health Net, Maxicare Health Plans and Prudential HealthCare struck a deal with city officials that should keep them in town.

Under the agreement, the HMOs will pay taxes solely on income from work done within L.A. city limits. They would not be taxed on income from work done by doctors and clinics outside the city, as they are under the current tax structure.

The change lowers the five organizations’ business license taxes from $25 million a year to about $7.5 million, according to the City Clerk’s Office. The agreement must still receive final approval from the City Council, which is expected this month.

In addition to lowering taxes for the five HMOs, the deal gave concrete evidence that city officials are willing to work with businesses that claim they are being treated unfairly by the city’s tax code. The HMOs had threatened to leave town unless there were an adjustment in the code.