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It's time to make Blue Shield of California a for-profit insurer


As a native of the Boston area, I often view California with a mix of awe, intrigue and bewilderment.

What's it like to have cities laid out in a sensible grid? Why isn't everyone in the same hurry I am? Doesn't all that sunshine get just the slightest bit annoying? How can you drive for eight hours and still be in the same state?

Lately, I've cast that awe, intrigue and bewilderment away from the folksy foibles of Left Coast life and toward a story quickly becoming a tornado in a teapot: Blue Shield of California.

The latest chapter in the insurer's saga sounds like something straight from a Hollywood writer's meeting room. Blue Shield of California sued previously fired Chief Technology Officer Aaron Kaufman, claiming he charged more than $100,000 to his corporate card to impress his girlfriend, actress Tara Reid.

Kaufman's questionable charges allegedly include a vacation to Florida exceeding $17,000 and a $900 night of shirtless bowling that got the attention of London tabloids. (In contract, my latest expense report featured such extravagances as a $6.81 smoothie at Jamba Juice and a $9.34 sandwich at Al's #1 Italian Beef.) Kaufman's wrongful termination suit, filed last month, suddenly seems to lacks merit.

These types of scandals sure are fun. I still giggle every time I read about the limestone bath and enclosed rain shower in the Paris hotel room Salomon Melgen, M.D., allegedly bought for Sen. Robert Menendez (D-N.J.), as described in a Department of Justice indictment.

However, such ridiculousness often symbolizes something bigger. With Melgen and Menendez, it's the thin lines between friendship, political favor and bribery. With Kaufman, Reid and Blue Shield of California, it's an embattled insurer trying to salvage its image.

The year 2015 has not been kind to the Golden State's third-largest insurer. In March, Blue Shield of California lost its tax exempt status, then faced scrutiny for a $1.2 billion acquisition, the cost of which it only revealed after public pressure. All this while a former executive campaigns to turn the nonprofit insurer into a for-profit company.

That executive, former Director of Public Policy Michael Johnson, has focused his argument on Blue Shield of California's $10 billion in assets and $13 billion in 2014 revenue--none of which the state of California has been able to tax since the insurer was formed in 1939.

Now he has more fuel for the fire: A corporate culture where executives think it's perfectly OK to charge $100,000 to the corporate card and claim wrongful termination when they get caught. A corporate culture where executives receive lavish bonuses--Kaufman's suit notes that he was fired the day before he was due a $450,000 bonus. A corporate culture where, according to Kaufman's suit, at least, a $4.6 million contract for an IT project is better than a $1.6 million contract.

Sure, not all nonprofits subsist on donated furniture, low salaries and food left over from the last fundraiser. Nor should they; it's unfair to their employees and the communities they serve. But they shouldn't be spending recklessly, either--especially when, as Johnson argues, for-profit competitors serve their customers better.

Shirtless bowling on the company dime falls pretty far down the list of alleged transgressions by Blue Shield of California. It didn't directly impact members, no lives were lost and the executive at fault is already gone.

At the same time, it's a very public shaming on top of several previous public shamings, and it points to a situation poised to spiral out of control.

Making Blue Shield of California a for-profit insurer won't solve the problems described here. It won't make them go away, either. However, it will demonstrate that the insurer intends to atone for its past and operate in a manner that befits the way it does business. It's not without precedent, as Anthem Blue Cross did it in California in 1993, and it will ultimately benefit the people of California, not to mention Blue Shield of California members.

Besides, as FierceHealthPayer reported on Friday, life is pretty good at for-profit health insurers these days. - Brian (@Brian_Eastwood and @HealthPayer

Related Articles:
Fired Blue Shield of California exec faces scrutiny for lavish spending
Former Blue Shield of California exec files wrongful termination suit
How Blue Shield of California could redeem itself
Secretive Blue Shield of California acquisition faces scrutiny
Blue Shield of California loses tax exempt status