Insurance commissioner rips Blue Shield for alleged tax dodge
Blue Shield of California, which has had its tax-exempt status stripped by the California Franchise Tax Board, also took a hit late Wednesday from state Insurance Commissioner Dave Jones, a frequent foe.
Jones said the tax agency’s move — which took place in late August, but became public today — “confirms what I have said for years — that Blue Shield charges excessive rates and acts like a for-profit health insurer.”
The insurance commissioner added a new charge to a growing pile of troubles for the San Francisco-based health care giant, arguing that it has been using a “legal loophole” to avoid paying $100 million in insurance premium taxes annually. It has done so, Jones said, by positioning various insurance products so they fall under the jurisdiction of the state Department of Managed Health Care, rather than the Department of Insurance, which he heads as elected commissioner.
Blue Shield repositioned the insurance products “to dodge my department’s strong consumer protection regulation and our collection of premium taxes,” Jones said.
Although Blue Shield and CEO Paul Markovich didn’t respond directly to Jones’ comments, spokesman Sean Barry told me late Wednesday that the the insurer “is not shifting our business to DMHC to avoid paying taxes.”
Rather, Barry said, “the vast majority of Blue Shield’s business — and increasingly so — is regulated by the Department of Managed Health Care, including all of our Covered California products.”
Blue Shield also argues that “it’s unusual and inefficient” for the state of California to have two separate regulatory agencies that regulate health insurance plans, Barry said. Most Blue Shield HMO and PPO products fall under the jurisdiction of the managed care agency, he said, while some life and health policies administered by its Blue Shield of California Life & Health subsidiary are regulated by the Department of Insurance.
An attempt last November to put all health plans under the DOI’s control failed at the polls, with many voters buying opponents’ oft-stated proposition that they shouldn’t give all that power “to one Sacramento politician.”
In making his argument, Jones effectively dissed the DMHC — also a state agency — as a toothless regulator. Blue Shield is under fire for allegedly charging too much for premiums, paying executives too much and otherwise acting like a for-profit company while disguised as a non-profit.
As the Business Times reported earlier, the Franchise Tax board has revoked Blue Shield’s tax-exempt status, which could make it liable for tens of millions of dollars a year in state taxes. Denise Azimi, a spokeswoman for the tax agency, confirmed Wednesday afternoon that the Franchise Tax Board made that ruling last Aug. 28, but said she couldn’t give any further details about the case.
Blue Shield has $13.6 billion in 2014 revenue and 3.4 million enrollees, and is the state’s third-largest health plan after nonprofit Kaiser Permanente and for-profit Anthem Blue Cross. It has a huge reserve fund, which at $4.2 billion is four times larger than the amount required by the national Blue Cross Blue Shield Association.
Critics say it doesn’t need such a huge surplus, and could have used much of its reserve to pay higher reimbursement rates to doctors and hospitals, and to have lowered premiums to its enrollees.
The Los Angeles Times broke the story on March 18, nearly seven months after the Franchise Tax Board rendered its ruling. The tax board doesn’t publicize its decisions, even when they affect millions of taxpayers and enrollees, except to list them on its web site. In this instance, the ruling on Aug. 28, 2014 is listed as affecting California Physicians Service, Blue Shield’s official but rarely used moniker.
