The California Franchise Tax Board had a lot to say about Blue Shield in its 16-page report following its audit of the third-largest health insurer in the state last year, but none of it was nice. The said audit led to Blue Shield losing its state tax exemption, the LA Times has learned. Moreover, the LA Times also reports that the said result was only made public recently as the tax board previously rejected their public records request, saying that they have to keep the confidentiality of taxpayer information.
Meanwhile, Consumer Watchdog is protesting against the lack of transparency on the tax board’s audit report of Blue Shield.
In a letter sent to the Franchise Tax Board, including its chair Betty Yee, Consumer Watchdog Jerry Flanagan wrote, “These records are of utmost importance. Millions of Californians who purchased and renewed their health insurance with Blue Shield during the last Obamacare open enrollment period late last year believed Blue Shield was nonprofit. The public has the right to know why the Franchise Tax Board revoked Blue Shield’s tax-exempt status.”
According to tax board officials Christie Maddox and Eddie Murillo-Corona, “Blue Shield is not operating exclusively for the promotion of civic betterment or social welfare.” Moreover, State Insurance Commissioner has told SFGate, “Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is dodging taxes that other legitimate businesses and individuals pay.”
Another issue at the heart of tax exemption revocation is that tax officials have found that Blue Shield’s surplus has reportedly almost doubled. In fact, what was once $2.26 billion back in 2006 reportedly grew to $4.15 billion in 2012. Blue Shield has reportedly justified this, stating that they required an extra cash cushion during the extreme volatility of the health insurance market following the rolling out of the Affordable Care Act.
Nonetheless, tax officials would have none it. Instead, they retorted that the said market “has not been particularly unpredictable.” Moreover, they had also stated, “We assert that the extraordinarily high surpluses set aside as reserves by Blue Shield are not kept for the purposes of stabilizing the organization but rather for the commercial purpose of increasing competitiveness.”
Furthermore, they added, “We observed that Blue Shield far exceeded the reserves required either by law or the best practices and standards of the healthcare industry.” Meanwhile, Blue Shield responded to this, stating that the reserves in question are expected to go down to $3 billion upon the company’s acquisition of Care1st Health Plan.
Meanwhile, the tax board also thinks that Blue may owe as much as $110.5 million in potential taxes between the years 2009 and 20012. However, the said board had only ordered tax payments for years 2013 to 2014. Moreover, Blue Shield said it has already paid $62 million for the said tax payment.
Even today, Blue Shield asserts that they are a company “for care, not profit.” In fact, they are continuously pledging to put a cap on its annual net income, amounting to 2% of its revenue. Moreover, it promises to return anything excess of the said 2% to their customers and community. In 2014, Blue Shield reported that it returned $19 million to the community, following a 2014 net income of $162 million, which was down slightly compared to its 2013 net income of $171 million.
Meanwhile, an Associated Press report published by the Sacramento Bee reports that Blue Shield is continuing to appeal its revocation. Moreover, Blue Shield spokesman Stephen Shivinsky has also told SFGate, “Regardless of whether we prevail in our dispute, we will continue to fulfill our not-for-profit mission.”