Evolving HMO business practices can threaten tax-exempt status

HMOs are developing new lines of business and fashioning changes to operations that enable them to compete and react to market demands. Executives of tax-exempt HMOs should be aware that some of these new functions could pose a threat to their organization's tax-exempt status or create a Federal income tax liability. Activities that resemble indemnity insurance operations, barriers to eligibility for individuals or groups, and even the composition of its board of directors can affect an HMO's tax-exempt status.