Critics of Proposed WellPoint-Anthem Merger Question Blue Cross Tax Status
Blue Cross of California, a subsidiary of California-based WellPoint Health Networks, "enjoyed a unique and unfair loophole" that exempted the company from about $48 million in state taxes in 2003, consumer advocates said on Wednesday in a letter that criticized the proposed merger between WellPoint and Indianapolis-based Anthem, the Los Angeles Times reports (Girion, Los Angeles Times, 7/8). The proposed merger, announced last October, would combine the companies under the name WellPoint and create a headquarters in Indianapolis. The combined company would have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states. The California Department of Managed Health Care and the state Department of Insurance must approve the proposed merger. State Insurance Commissioner John Garamendi (D) cannot block the merger, but he has the ability to deny a request by Anthem to acquire the license of Blue Cross of California, which represents the largest part of WellPoint operations in the state. The 10 other states with direct regulatory authority and the federal government, as well as Anthem and WellPoint shareholders, have approved the proposed merger (Kaiser Daily Health Policy Report, 7/7).
Tax Exemption
Under state law, Blue Cross of California is exempt from taxes on health insurance premiums because the company was founded as a not-for-profit "public benefit institution," according to the Times. Blue Cross retained eligibility for the tax exemption after WellPoint acquired the company in 1994. In a letter to Garamendi and state DMHC Director Cindy Ehnes, the consumer advocacy group Foundation for Taxpayer and Consumer Rights recommended that California regulators and lawmakers remove the exemption from the state tax code. "While legislators and patients grapple with the challenge to pay for public health care programs and skyrocketing insurance premiums, it is absurd that the state's most profitable insurer is allowed to flout state tax laws," the letter said. WellPoint spokesperson Ken Ferber said that the allegations in the letter lack "foundation and factual accuracy," adding that Blue Cross of California and a second Blue Cross company paid a combined $89.6 million in state income and premium taxes in 2003. Ferber said, "They are saying we're not paying a required premium tax. But under the law it is not required. There is no violation of tax laws" (Los Angeles Times, 7/8).
