The California Franchise Tax Board recently revoked the tax-exempt status of Blue Shield of California, the state’s third-largest health insurer. The company has held this status since its founding in 1939. Already facing criticism over its rate hikes, executive pay, and $4.2 billion in financial reserves, the loss of its tax-exempt status could now leave Blue Shield of California on the hook for tens of millions of dollars in state taxes each year. It should be noted that the insurer has paid federal taxes for years. While the State requires the insurer to keep a rainy-day fund, Dena Mendelsohn, a health policy analyst for the Consumers Union in San Francisco, estimated that Blue Shield’s reserve is around 1500 percent, three to four times what is required.
It is most unusual for the Tax Board to revoke a tax-exempt status, but the decision was made after a lengthy state audit looking into the justification for Blue Shield’s taxpayer subsidy. A spokeswoman for the tax agency has declined to comment on the reason behind the status change. Blue Shield is protesting the decision, but has been ordered to file tax returns back to 2013 in the meantime.
Blue Shield of California has about 3.4 million customers and 5,000 employees and posted $13.6 billion in revenue last year. Kaiser Permanente and Anthem Inc. are the only two insurers in California with higher enrollment. Michael Johnson, who resigned as public policy director last month after 12 years with the company, agreed with critics saying the insurer has been “shortchanging the public” for years by shirking its responsibility to Californians and operating too much like its for-profit competitors.
In 1996, Blue Cross of California, which is now part of Anthem, switched to a for-profit status and generated $3 billion to establish the California Endowment and the California HealthCare Foundation. Johnson, who estimates the company could be worth as much as $10 billion, says he plans to launch a public campaign calling on executives to convert Blue Shield of California to a for-profit company. If that happens, Blue Shield would return billions to the public that could be used to bolster the state’s health care safety net. It will be most interesting to see what develops. We will monitor the situation closely.
Sources: http://www.npr.org/2015/03/19/393982147/blue-shield-of-california-loses-its-tax-exempt-status; http://www.latimes.com/business/la-fi-blue-shield-california-20150318-story.html#page=1
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