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Los Angeles
Friday, Sep 29, 2023

Letter HMO


HMO taxation

On behalf of the five Los Angeles-based health maintenance organizations represented by the Health Care Headquarters Association, we appreciate the Business Journal’s attention to our recent discussion with the City of Los Angeles.

However, your Feb. 10 story asserted that our association is seeking to rescind a $57 million determination of back taxes. We disagree with your characterization that back taxes are owed by our companies.

In point of fact, the HMOs have not received a $57 million tax bill. What the story failed to report is that the $57 million is an estimate, that such an estimate is far off the mark, and that the methodology for such an estimate is currently under review by the City Clerk.

The figure is based on the most generous interpretation of taxable revenue, in which all revenue is taxed, including earnings from activities outside the city’s boundaries, and dollars that are immediately paid out to health care providers.

In pursuing this issue, the Health Care Headquarters Association is seeking from the City of Los Angeles fair treatment that reflects the current status of a relatively new industry. Far from seeking a tax cut, as some have characterized it, we are trying to avert a 400 percent retroactive tax increase on an industry which already pays a substantial amount of dollars in city taxes (of which approximately $4.6 million was in business license taxes).

We are not aware of any other singular group of five companies that has made a similar, disproportionate contribution to the city’s coffers.

The city tax code was last updated in 1990, at which time the HMO industry as we know it today did not exist. For this reason, the current tax code does not adequately address the complexities of this industry.

We are simply seeking a tax structure appropriate to our business. In your story, you indicate the HMOs are seeking “preferred tax status.” Usage of this term mischaracterizes the situation. In seeking a specific category for HMOs, we are only seeking what is currently afforded to 42 other industry and business categories doing business in Los Angeles.

While we do not seek to move out of the city of Los Angeles, at the same time, we cannot afford to stay here unless our local tax circumstance is addressed fairly by the city. We applaud Councilmember Laura Chick and Mayor Richard Riordan for advocating measures that would make two equitable changes to the municipal tax code:

First, to retain Los Angeles’ competitiveness as a headquarters for the HMO industry by establishing a specific taxation category for HMOs, rather than placing the industry, by default, in the miscellaneous “professions and occupations” category, which happens to be the city’s highest business tax rate category.

Second, to avoid double-taxation by removing all revenues HMOs pass through to health care providers from the HMO gross receipts calculation.





President and CEO

Health Net


Maxicare Health Plans



Prudential Health Care of California


Chairman and CEO

WellPoint Health Networks

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