Blue Shield Loses State Tax Exemption
In a stunning blow to one of the state’s largest insurers, the California Franchise Tax Board has stripped Blue Shield of California’s tax exemption as a not-for-profit organization.
The revocation, first reported on Wednesday by the Los Angeles Times, came after years of criticism against the San Francisco-based insurer. The exemption was apparently revoked last August, and Blue Shield was ordered to file tax returns beginning with the 2013 calendar year.
A Blue Shield spokesperson did not respond to a request seeking comment.
The insurer, which has about 3 million health plan enrollees, had come under fire for high executive salaries, an enormous cash reserve and an opacity far higher than most not-for-profits. An example was Blue Shield’s refusal in 2010 to disclose to Payers & Providers its list of highest-paid executives, saying that it was not obliged to do so as a mutual benefit non-profit organization, even though most non-profits make such disclosures through its annual 990 form that is filed with the Internal Revenue Service. Although Blue Shield later disclosed some salary information after pressure from other media organizations, it later only disclosed general information as to how many executives earned more than $1 million per year.
Meanwhile, Blue Shield had amassed a $4.2 billion reserve, up $1 billion over the past six years.
“Blue Shield will have to pay its fair share back to taxpayers,” said Jamie Court, executive director of Consumer Watchdog, a Santa Monica-based organization that has been a relentless critic of the plan’s often double-digit premium hikes, its $2.5 million purchase of a luxury box to view San Francisco 49ers football games and its opposition to a ballot proposition last year that would have more closely regulated premium increases.
California Insurance Commissioner Dave Jones also praised the decision to yank Blue Shield’s exemption. He said at a press conference on Wednesday that the company has long behaved like a for-profit organization and repeatedly referred to it as a “tax dodger.” He cited a legal loophole Blue Shield has used to avoid paying about $100 million a year in premium taxes by migrating many of its policies to the regulatory purview of the Department of Managed Health Care. Jones noted that his agency collects the premium tax, but the DMHC collects corporate taxes -- something it could not do of Blue Shield as a not-for-profit.
Jones urged lawmakers to pass AB 1434, which would close that loophole for both Blue Shield and Anthem Blue Cross of California.
