California’s Four Largest health Plans Could Owe State $10 Billion in Back Taxes

California’s four largest health plans may be on the hook for $10 billion in state back taxes — and at least $1 billion every year going forward — if a closely watched legal case does not break their way.

Should that happen, insurance industry critics say, it would end one of the biggest tax code abuses in state history — one that for decades has allowed Kaiser Permanente, Anthem Blue Cross, Blue Shield of California and Health Net to avoid paying a state tax on health insurance premiums. The health plans, however, say they aren’t insurers and thus shouldn’t be subject to the tax.

If they lose in court, it could mean a huge windfall for the state’s coffers, potentially pouring much-needed funds into the state’s overwhelmed Medi-Cal program — and perhaps an El Niño-like deluge into Gov. Jerry Brown’s Rainy Day Fund.

Yet some worry that such a defeat for the four plans — which control almost 70 percent of California’s health insurance market — means consumers will end up footing their behemoth tax bills through higher premiums.

“This is clearly a monumental case for California and Californians,” said state Sen. Bill Monning, D-Monterey, a member of the Senate Health Committee. “The reason it would be a good decision — from a public policy point of view — is that it would level the playing field so that everyone participating in the insurance market is held to the same standard.”

Blue Shield and Blue Cross already lost a key round in a state appellate court. The case against Kaiser and Health Net heads to a Los Angeles court Friday.