Blue Shield of California's $4 billion reserves and an executive mandate to increase profits are some of the reasons the California Franchise Tax Board gave in a June 2014 audit that revoked the insurance company's tax-exempt status.
Blue Shield lost its tax exemption, which it had since 1939, because "Blue Shield is not operating exclusively for the promotion of civic betterment or social welfare," according to the Los Angeles Times. Though the Franchise Tax Board has refused to release the full audit, the paper obtained documents related to it.
Despite years of criticism about lavish perks, excessive executive pay, the large reserves, and huge premium increases, Blue Shield seemed to be reaping in profits while enjoying the tax avoidance status. But the FTB quietly placed Blue Shield on a list in August 2014 for companies that have lost their tax-exempt status. The Times discovered the decision seven months later. The news opened the door for consumer advocates to find out what criteria the agency uses to revoke nonprofit status, and if they are holding others to the same standard.
The auditors slammed the reserves as "extraordinarily high" surpluses and wrote that executives "stated objectives, particularly those which stress profitability, are inconsistent with an organization organized as a nonprofit which desires tax-exempt status."
In a June hearing, the Department of Managed Health Care, while focusing on Blue Shield of California’s $1.2 billion bid to acquire a for-profit Medi-Cal HMO in Southern California, also questioned its nonprofit status. Blue Shield claims it is a “nonprofit” mutual benefit corporation that serves its members or policyholders.
Consumer Watchdog soughts details behind the state's decision to revoke tax exemption. It filed public records requests with the FTB to gain access to the information, but the board has refused to produce its records. California health care consumers who purchased Blue Shield plans believing Blue Shield was “non-profit” deserve to know the whole truth. Taxpayers too deserve to know how Blue Shield has been spending their tax dollars.
Read Consumer Watchdog's letter to Franchise Tax Board directors:
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