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Blue Shield loses tax exempt status in California

March 19, 2015

Health insurance giant Blue Shield of California has been stripped of its tax exempt status in California.

The surprising move came following a backroom investigation by the California Franchise Tax Board. Apparently the company was notified in August but the news was kept secret until being reported on Tuesday.

Though extremely rare, this action is not completely without precedent. In 1986, tax reform passed by Congress targeted Blue Cross and Blue Shield, stripping them of their federal exemption.

Some number of years following this move, Blue Cross went on to convert to a for-profit organization in California.

However that was voluntary, setting it apart from the case at hand.

Though no reasons have officially been cited, there are many speculated possibilities as to why the tax board felt compelled towards this, the center of which is the question: would California tax payers be better served with Blue Shield of California as a for, or not-for profit entity?

The answer starts becoming clear if one looks into the financial reports for the company.

Over the last decade, Blue Shield has contributed a fraction of their current financial holdings – around $325 million. Sounds like a lot, but not when considering that the company has around $4.2 billion in the bank, not so much.

This fact led the company’s director of public policy, Michael Johnson, to step down from his post last week and go public with his concerns over the disconnect.

“We’re talking about a $10 billion public asset, and the only real return the public is getting is $35 million in charitable contributions each year? That’s just a lousy deal…It’s time to cash in that asset.”

Johnson went on to say that “for over 70 years, Blue Shield has been a tax exempt entity, subsidized by taxpayers in order to provide benefits to the public…but it’s demonstrated that it’s either unwilling or incapable of serving the public good.”

Blue Shield will be protesting the decision, but with all that cash in the bank, executive compensation packages into the multi-million dollars annually and premiums on an upward trend, they might find it difficult to garner sympathies.

Larry Bellomo is a Laguna Hills Bankruptcy and Family attorney who has become a trusted legal source over his 34 years of experience serving Orange County. If you are in need of legal help, give us a call, send us a message or visit our Laguna Hills offices and receive a 100% free, no obligation consultation.

Featured Image: KPBS.org

Words by: Jacob Wisdom