US

California Strips Nonprofit Status From Health Insurer With Billions To Spare

Font Size:

California officials have revoked the tax-exempt status from nonprofit giant Blue Shield of California, which will likely force the top health insurance company to pay millions more in state taxes every year.

The California Franchise Tax Board issued the decision Tuesday, according to the Los Angeles Times, after a state audit of Blue Shield’s justification for its tax exemption. The state is requiring Blue Shield, the third-largest health insurer in California, to file tax returns dating back to 2013. The company already pays federal taxes and had its exemption from California’s income tax revoked last August.

The decision comes as Blue Shield is making money than ever. The insurer reported $4.2 billion in financial reserves at the end of 2014 — the largest in years. But the California company has held as least $3 billion in reserve every year since 2009.

Insurers are required to hold a minimum amount of reserves to cover future claims from customers, but Blue Shield’s $4.2 billion surplus last year is four times as much as the Blue Cross and Blue Shield Association requires.

The company’s contributions to its charitable foundation pale in comparison to its massive reserves. Blue Shield has contributed $325 million to its foundation over the past decade, but in 2013, the last year for which tax forms are available, Blue Shield gave only $37.5 million. In comparison, the company reported $4.14 billion in reserves that year.

The company’s large financial cushion and executive pay stubs in the millions have caught critics’ attention, as have the company’s political contributions. But the L.A. Times reports that even some of Blue Shield’s management do not think it deserves to be treated as a nonprofit.

Michael Johnson resigned as public policy director for Blue Shield last week after working at the company for 12 years. Johnson told the L.A. Times that Blue Shield has been “shortchanging the public” for years by functioning too much like a for-profit company while benefiting from its tax breaks as a nonprofit.

“The public is not getting its money’s worth out of Blue Shield now,” Johnson told the L.A. Times.

Johnson said he spoke to senior management about his concerns that Blue Shield wasn’t meeting standards as a nonprofit over the past six months, but his “proposals were dismissed.”

On its part, Blue Shield said its been buffeting its reserves out of caution over Obamacare. Officials also said the company needs to invest in new information technology.

“Blue Shield as a company and management team firmly believes it is fulfilling its not-for-profit mission and commitment to the community,” Blue Shield of California spokesman Steve Shivinsky said.

Follow Sarah on Twitter

Sarah Hurtubise