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Quality of Life

Blue Shield Of California Loses State Tax-Exempt Status

Blue Shield of California is protesting a state decision to strip the nonprofit health insurer of its tax-exempt status, which the company has held since its founding in 1939.

The California Franchise Tax Board quietly revoked the tax break last August, the Los Angeles Times reported Wednesday.

The decision could put San Francisco-based Blue Shield on the hook for tens of millions of dollars in state taxes each year. The insurer has paid federal taxes for years.

A spokeswoman for the tax agency declined to comment on why the insurer lost its status. The highly unusual action came after a lengthy state audit reviewed the justification for Blue Shield's taxpayer subsidy, according to the newspaper.

Blue Shield said Tuesday that it's protesting the decision, but state officials have ordered it to file tax returns back to 2013 in the meantime.

California's third-largest health insurer has faced criticism over its rate hikes, executive pay and financial reserves.

In 2011, facing a backlash over rate increases, the insurer capped its profits at 2 percent of annual revenue and returned about $560 million to customers and community groups from 2010 to 2012, the Times reported. Blue Shield also has given more than $325 million over the last decade to its own charitable foundation.

But some consumer advocates and health policy experts told the newspaper that those moves aren't enough in light of the company's huge cash stockpile. Blue Shield's surplus of $4.2 billion at the end of 2014 is four times as much as the Blue Cross and Blue Shield Association requires its member insurers to hold to cover future claims.

Critics also note that the company has not served the state's poorest residents and frequently has run afoul of state regulators. The 2011 disclosure that its former chief executive earned nearly $5 million stirred protests.

Some consumer groups have questioned whether certain Blue Shield spending is out of line with its nonprofit mission.

The company defended its work for California residents, citing its longstanding support of health reform and efforts to make coverage more affordable.

"Blue Shield as a company and management team firmly believes it is fulfilling its not-for-profit mission and commitment to the community," company spokesman Steve Shivinsky told the newspaper.

Blue Shield has about 3.4 million customers and 5,000 employees and posted $13.6 billion in revenue last year.

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