California Yanks Blue Shield’s Tax-Exempt Status

California Yanks Blue Shield’s Tax-Exempt Status Photo (cc) by 401(K) 2013

The nonprofit tax-exempt status of insurer Blue Shield of California has been stripped by the state’s tax board. The move could cost the insurer tens of millions of dollars in state taxes, dating back to 2013.

According to the Los Angeles Times, Blue Shield has been exempt from state taxes since it was founded in 1939.

Although the California Franchise Tax Board has not disclosed why it yanked Blue Shield’s tax-exempt status, the health insurer has long faced criticism about its repeated rate hikes and high executive salaries. The insurer also has $4.2 billion in financial reserves, four times more than Blue Cross and Blue Shield requires its members to hold in surplus to pay claims.

Critics of Blue Shield say the organization operates like a for-profit business, not a nonprofit group. Its premium rates are similar to its for-profit competitors, the Times noted.

Anthony Wright, head of the consumer advocacy group California Health Access, applauded the tax board’s decision. It’s “good for the state and it’s good for taxpayers,” Wright told NPR.

According to the San Francisco Chronicle, as a nonprofit, the 76-year-old San Francisco health insurer gets tax breaks in “exchange for providing a public benefit, such as financial aid to support health care in impoverished areas.”

“Blue Shield officials tout the company’s early support of the federal health care law, its decision to limit net income to 2 percent of revenue, and the $325 million its foundation donates to improve health in poor communities and combat domestic violence as evidence of its public good will,” the Chronicle said.

Still, last year alone, Blue Shield generated $13.6 billion in revenue. It also paid $2.5 million for a luxury box at the San Francisco 49ers’ new Levi’s Stadium, the Chronicle said.

California state insurance commissioner Dave Jones said in a Wednesday press call:

“Blue Shield charges excessive rates and acts like a for-profit health insurer. Shield is dodging taxes that other legitimate businesses and individuals pay.”

Blue Shield is the third-largest health insurer in California, just trailing Kaiser Permanente and Anthem Blue Cross. The insurer has 3.4 million members.

Blue Shield plans to appeal the ruling.

What do you think of California’s decision to pull the tax-exempt status of Blue Shield? Share your comments below or on our Facebook page.

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