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Blue Cross of California Stripped of Non-Profit Tax Exemption

Following an audit by the California Franchise Tax Board, health insurer Blue Shield of California is no longer eligible for tax-exempt status as a non-profit entity. The reasons cited in the audit report included stockpiling "extraordinarily high surpluses” and failing to advance social welfare.

As detailed by the Los Angeles Times, Blue Shield is the state's third-largest health insurer with 3.4 million customers, 5,000 employees and $13.6 billion in revenue last year. The company’s cash reserves topped $4 million in 2012. The auditors specifically noted that the surplus nearly doubled from $2.26 billion in 2006 to $4.15 billion in 2012, the last year examined.

"We assert that the extraordinarily high surpluses set aside as reserves by Blue Shield are not kept for the purposes of stabilizing the organization but rather for the commercial purpose of increasing competitiveness," the audit report states. "We observed that Blue Shield far exceeded the reserves required either by law or the best practices and standards of the healthcare industry."

The auditors also found that Blue Shield’s emphasis on maximizing profitability was “inconsistent with an organization organized as a nonprofit which desires tax-exempt status." They further found that Blue Shield was not doing enough to benefit the community, citing that it does not provide any free or significant below-cost healthcare plans to the general public.

The public release of the California Franchise Tax Board’s report has subjected Blue Shield to greater public scrutiny, with many consumer advocacy groups calling for further action. "These dollars should be dedicated to the public welfare through reduced-price insurance and serving the health needs of vulnerable populations to truly differentiate the nonprofit from for-profit companies," Betsy Imholz, special projects director for Consumers Union in San Francisco, stated. “The public is the 'shareholder' of every nonprofit, including Blue Shield."

As San Diego medical fraud lawyers, we will continue to monitor this issue. We are hopeful that the California Insurance Commissioner and other state regulators will conduct a full investigation.

If you or someone you love has fallen victim to medical fraud, don’t hesitate to contact a San Diego personal injury attorney at the Law Offices of Robert Vaage for a free consultation.