Regulators Mum on Blue Shield’s Revocation

Nearly a year after a state agency revoked Blue Shield’s tax exemption, the public still doesn’t know why the health insurance giant can no longer avoid state taxes and whether it has abused its past tax subsidies.  

Despite repeated attempts by Consumer Watchdog and others, the Franchise Tax Board (FTB) has refused to reveal any details about the lengthy audit of Blue Shield or why the insurance company was allowed to claim it was nonprofit for months without the public knowing. The FTB has also failed to give good reasons for why it’s ignoring government transparency laws, according to Consumer Watchdog lawyers. 

In a hearing last week, the Department of Managed Health Care, while focusing on Blue Shield of California’s bid to acquire a for-profit Medi-Cal HMO in Southern California, also questioned its nonprofit status. Few answers emerged. Blue Shield claims it is a “nonprofit” mutual benefit corporation that serves its members or policyholders.  But the FTB quietly placed Blue Shield on a list for companies that have had their tax-exempt status revoked in August 2014. The Los Angeles Times discovered the news seven months later.

Despite years of criticism about lavish perks, excessive executive pay, large reserves, and huge premium increases, the “nonprofit” Blue Shield seemed to be reaping in profits while enjoying the tax avoidance status. The decision by the FTB has opened the door for consumer advocates.

Consumer Watchdog wants to know the details behind the state's decision to revoke tax exemption and if it uses the same yardstick to measure other not-for-profit health companies in the state. 

Consumer Watchdog filed public records requests with the FTB to gain access to the information, but FTB has so far refused to produce its records. The problem for FTB is that under the state’s public records law all government records are open for public review unless a specific exemption applies.  The FTB has excuses but none of them hold up, and some are just silly:

The Board states that the audit is exempt, pointing to government code sections that provide a list of other things that are exempt, including “birth defects,” “blood tests,” “blood- alcohol percentage test results,” “parole revocation proceedings,” “passenger fishing boats licenses,” and “penitential communication between penitent and clergy.”

The Board keeps using IRS rules and federal Freedom of Information Act requirements to hide a state issue. 

The Board says that it’s the requirement of Consumer Watchdog to provide relevant code in order to prompt disclosure. That turns the California Public Records Act on its head. According to the PRA, records must be made available for public inspection unless the records are specifically exempted from production. 

Is the FTB hiding something? California health care consumers who purchased Blue Shield plans believing Blue Shield was “non-profit” deserve to know the 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:

Previous stories about Blue Shield:

Capitol Watchdog is owned and operated by nonprofit Consumer Watchdog. For more information about Consumer Watchdog visit