Blue Shield Of California Loses Its Tax-Exempt Status

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One of California's largest health insurance companies is appealing a decision that leaves it with tens of millions of dollars in tax bills. The state has revoked its tax-exempt status. Blue Shield is a nonprofit company, but it's been criticized for operating like it's for-profit. NPR's Richard Gonzales has more.

RICHARD GONZALES, BYLINE: Blue Shield of California is this state's third largest health insurer, covering 3.4 million customers. It lost its state tax exemptions in a quiet action last August. Neither the state regulators nor the company breathed a word of that decision. But the revelation this week, first reported by the Los Angeles Times, highlights a simmering controversy over the role and function of a nonprofit health insurer.

MICHAEL JOHNSON: The taxpayers have subsidized Blue Shield through a tax exemption to do good for the public.

GONZALES: That's Michael Johnson. Until last week, he was a public policy director for Blue Shield of California. But he resigned, he says, because management did not take its public mission to heart.

JOHNSON: And if all Blue Shield is doing is the same thing that its for-profit competitors are doing, the public's getting a lousy deal.

GONZALES: He describes that lousy deal as a push for rate hikes, excessive executive pay and a lack of transparency. For example, the company reported $13 billion in revenue last year and has more than $4 billion in financial reserves. Dena Mendelsohn is a health policy analyst for the Consumers Union in San Francisco. She says the state requires Blue Shield to keep a rainy day fund.

DENA MENDELSOHN: But in the case of Blue Shield, the reserve is significantly larger than what's required.

GONZALES: And how much larger?

MENDELSOHN: We estimated that it was around 1,500 percent.

GONZALES: Fifteen hundred percent.

MENDELSOHN: So I would say it was at least three times or maybe four times more than what they needed.

GONZALES: Consumer groups say that surplus of cash instead should pay for health care for low income Californians. They also complain had Blue Shield spent $10 million last year to defeat a ballot measure designed to regulate insurance rates. It also spent more than $2 million for a luxury box at the new football stadium for the San Francisco 49ers.

Company spokesman declined to be interviewed. In a statement, the company says the public has benefited, too. Blue Shield has given more than $325 million over the past decade to its own charitable foundation, and it pays other federal and state taxes. The statement didn't directly address its critics. But the company insists that it is a mission-driven, not-for-profit health plan with a demonstrated commitment to the community and that regardless of how the tax dispute shakes out, Blue Shield intends to remain a nonprofit company. Richard Gonzales, NPR News, San Francisco. Transcript provided by NPR, Copyright NPR.