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California Tax Auditors Yank Blue Shield's Non-Profit Status

Blue Shield's operations are indistinguishable from those of its for-profit healthcare competitors, the auditors found, and it should be stripped of the tax break it has enjoyed since its founding in 1939.
California Tax Auditors Yank Blue Shield's Non-Profit Status
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I know here in Pennsylvania, our Blues hide the for-profit subsidiaries in a vast array of "independent" spin-offs. I'm sure the same thing is going on in every state, not just California:

In a scathing audit, state tax officials slammed nonprofit health insurer Blue Shield of California for stockpiling "extraordinarily high surpluses" — more than $4 billion — and for failing to offer more affordable coverage or other public benefits.

The California Franchise Tax Board cited those reasons, among others, for revoking Blue Shield's state tax exemption last year, according to documents related to the audit that were reviewed by The Times. These details have remained secret until now because the insurer and tax board have refused to make public the audit and related records.

Blue Shield's operations are indistinguishable from those of its for-profit healthcare competitors, the auditors found, and it should be stripped of the tax break it has enjoyed since its founding in 1939. The insurance giant does not advance social welfare, the key test for preserving its tax exemption, according to the records.

"Blue Shield is not operating exclusively for the promotion of civic betterment or social welfare," tax board officials Christie Maddox and Eddie Murillo-Corona wrote to the insurer in a 16-page report sent June 3, 2014.

The August 2014 revocation came to light when The Times reported the news in March. The tax board rejected a public-records request for the audit and related information on Blue Shield, citing the confidentiality of taxpayer information under state law.

Since the revocation became public, Blue Shield has come under increasing scrutiny from regulators, lawmakers and consumer groups over its massive financial reserves and its proposed purchase of a Medicaid insurer for $1.2 billion.

Blue Shield is the state's third-largest health insurer with 3.4 million customers, 5,000 employees and $13.6 billion in revenue last year.

The health insurer argued in favor of its tax exemption, pointing to charitable giving of about $30 million annually and its voluntary 2% cap on profits.

The auditors were unimpressed. They also expressed concern that job descriptions for top executives directed them to "maximize profitability."


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"These stated objectives, particularly those which stress profitability, are inconsistent with an organization organized as a nonprofit which desires tax-exempt status," officials wrote.

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