Blue Shield of California: Not For-Profit?

On Tuesday, the California Franchise Tax Board’s August decision to revoke Blue Shield of California’s tax exempt status was revealed. California Insurance Commissioner Dave Jones issued a statement yesterday in response:

The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is also dodging the payment of premium taxes, by taking advantage of a legal loophole that allows Blue Shield to move its health insurance products from Department of Insurance regulation to Department of Managed Health Care regulation.

The Department of Insurance collects premium taxes from all for-profit and non-profit health insurers. Blue Shield has moved most of its health insurance policies over to Department of Managed Health Care, to dodge my Department’s strong consumer protection regulation and our collection of premium taxes. We need to pass AB 1434 by Assemblymember Kevin McCarty to close the loophole that allows Blue Shield to move its health insurance products to the Department of Managed Health Care to avoid the strong consumer protection oversight of the Department of Insurance and avoid paying premium taxes.

Currently, the Blue Shield loophole costs the state $100 million in premium taxes annually. As a tax-exempt company with surplus of $4.2 billion Blue Shield was able to accumulate an enormous amount of money on which it did not pay state taxes by evading the tax on the premiums it collects.

– Dave Jones, California Insurance Commissioner (Source: Press Release)

The insurer has long been in Commissioner Dave Jones’s crosshairs for the reasons above. We’ll be tracking this story to see how Blue Shield of California will challenge the for-profit status designation, as it means tens of millions of dollars in state income tax payments. Blue Shield of California responded last night:

Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community. A longtime supporter of healthcare reform, we limit our net income to 2% of revenue and have contributed $325 million to our foundation’s efforts to improve the health safety net and address domestic violence.

“We pay federal income taxes, state gross premium tax and Affordable Care Act taxes and fees. We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state income tax returns beginning in 2013.

“The FTB decision has no bearing on our ability to continue to meet the needs of our members and community, and we remain in strong financial health. Regardless of whether we prevail in our tax dispute, we will continue as a not-for-profit.”

– Sean Barry, Spokesman for Blue Shield of California (Source: Email)