Council Approves Tax Break for HMOs

The Los Angeles City Council gave final approval Friday to new rules that give health-maintenance organizations a break on their annual tax bills.

Council members voted 9 to 5 in favor of amending the tax code to allow HMOs to pay taxes only on income from work done by doctors and clinics operating within city limits, exempting income from those working outside Los Angeles.

The council had tentatively approved the new tax code in December.

Under the new rules, HMOs would see a collective savings of $7 million to $25 million annually.

But the amendment does not change the rate at which the companies pay. That will remain at the top level, $5.91 per $1,000 in gross receipts.

As part of the agreement, the HMOs will pay about $8 million in back taxes and interest that they had withheld.

The revisions, introduced last year by Councilwoman Laura Chick, were the result of a threat from five HMOs--four of which are based in the Valley--to move out of the city if their tax burden was not significantly reduced.

The five companies who lobbied for a change were CareAmerica, HealthNet, Maxicare, Prudential and WellPoint, all of which now say they intend to stay in the city.