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State auditors slam Blue Shield of California

Insurer lost tax-exempt status because it focuses more on profits than social welfare, officials claim

The California Franchise Tax Board shed some light on why the state revoked Blue Shield of California's tax-exempt status in a biting report it sent to the insurer in June, the L.A. Times reports.

Blue Shield lost its tax exemption, which it had enjoyed since 1939, because the company "is not operating exclusively for the promotion of civic betterment or social welfare," according to documents obtained by the newspaper.

When news first broke in March about the insurer's loss of its tax-exempt status, its former public policy director spoke out against Blue Shield, saying "the public is not getting its money worth" out of the company, FierceHealthPayer reported. But the advocacy group Consumer Watchdog argued that the state should publicly release the documents related to its audit of Blue Shield, saying they could help other states take similar steps against nonprofit insurers.

When reached by FierceHealthPayer, a spokesperson for the California Franchise Tax Board said audit files are confidential and thus are not able to be publicly released. 

In the documents obtained by the L.A. Times, state auditors pointed to the fact that Blue Shield of California boasts more than $4 billion in "extraordinarily high" surpluses and that job descriptions for its top executives emphasize profitability rather than the public good. Furthermore, the company does not provide any free or significantly low-cost health plans to the public, they said.

The company continues to appeal the loss of its tax exemption, arguing that it gives about $30 million annually to charity and enforces a voluntary 2 percent cap on its profits. Blue Shield CEO Paul Markovich also has said the company's assets would be distributed to its enrollees if it were to dissolve, though the company's lawyers have seemed to contradict this statement, according to the article.

State officials have also scrutinized Blue Shield's plan to purchase the Medicaid nonprofit insurer Care1st, saying it may not be able to use its reserve funds to buy the smaller insurer if those funds are subject to charitable trust obligations.

To learn more:
- read the article

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