Blue Shield of California loses tax-exempt status

March 18, 2015 | By Dori Zweig

The California Franchise Tax Board has revoked the tax-exempt status of the nonprofit Blue Shield of California, which may now owe tens of millions of dollars in state taxes annually, reported the Los Angeles Times.

California's third-largest insurer has been exempt from paying state income taxes since its founding in 1939, but the tax board quietly revoked this status last August after an audit looking into the justification for Blue Shield's taxpayer subsidy. The company does pay federal taxes.

As Blue Shield protests the decision, which mandates that the insurer file tax returns dating back to 2013, an individual close to the company has spoken out against the insurer.

Michael Johnson, who recently resigned as public policy director after 12 years with the company, claimed Blue Shield operated too much like its for-profit competitors. He told the Times that Blue Shield could be worth as much as $10 billion and said he wants Blue Shield to stop "shortchanging the public" and return billions of dollars to the state.

"The public is not getting its money's worth out of Blue Shield now," he added.

Other critics claim that the company neglects to serve the poorest residents on Medi-Cal. What's more, Blue Shield's surplus of $4.2 billion at the end of 2014 is more than four times what Blue Cross Blue Shield requires member insurers to hold to cover future claims, noted the article. The firm posted $13.6 billion in revenue in 2014.

This recent decision could impact Blue Shield's future. "It's important to have this debate over Blue Shield's public-service mission and how they are fulfilling it," consumer advocate Anthony Wright, executive director of Health Access, told the Times. "What would a white-hat insurer look like?"

Blue Shield sticks by its mission to support healthcare reform and make coverage affordable to all Californians. "Blue Shield as a company and management team firmly believes it is fulfilling its not-for-profit mission and commitment to the community," company spokesman Steve Shivinsky told the Times.

Recently, the insurer has been in the spotlight for misleading consumers with a "bait and switch" scheme by offering inadequate provider networks and incorrectly advertising which providers were in network. When consumers tried to switch plans, it was too late.

For more:
- here's the Times article