Blue Shield loses tax exemption

State tax regulators have pulled the exempt status of health-care giant Blue Shield, one of the major participants in California’s Obamacare operation.

Blue Shield logoThe move came in August, but was only publicized in mid-March. The story broke in the Los Angeles Times.

Blue Shield of California said it was appealing the decision. It has not paid state income taxes since 1939, but does pay federal taxes. The health-care provider reportedly has $4.2 billion in financial reserves.

Blue Shield said it continued to be a “mission-driven not-for-profit health plan with a demonstrated commitment to the community.” It said it had paid taxes for 2013 and 2014 in response to the tax board’s ruling.

The state Franchise Tax Board did not detail reasons for its decision.

The group Consumer Watchdog said the move followed years of Blue Shield’s “lavish perks, excessive executive pay, padded bank account, and huge premium increases.”

“Blue Shield has raised rates unconscionably, spent $10 million in nonprofit dollars to stop Prop 45’s rate regulation and its (pro football) 49ers sky box was a dramatic symbol of its flouting of nonprofit tax laws,” Consumer Watchdog president Jaime Court blogged in response.

Kaiser Permanente, another nonprofit participating in the state Obamacare operation, reportedly has $21.7 billion in financial reserves.

Meanwhile, the Nonprofit Quarterly said of the action: “It behooves Blue Shield of California, if it contends it is a nonprofit, to adopt a regime of nonprofit-like transparency and disclosure, and it equally behooves the California Franchise Tax Board, as part of its public service mission, to do the same.”

Covered California, the state private health-care marketplace, said recently that 19 percent of consumers bought Blue Shield policies during its second open enrollment period. That’s down from 27 percent in the first enrollment, with rival Kaiser picking up most of the business. “Kaiser captured 28 percent of the total, compared with 17 percent during the 2014 open-enrollment period,” Covered California reported.

The move comes as U.S. taxpayers face their first payments of penalties for being uninsured for health services. Covered California customers who received excessive subsidies also will be paying back money via their tax returns.

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