Blue Shield facing tax hit after losing ‘exempt’ status

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When is a non-profit organization actually a for-profit company?

That line can be blurry, but the California Franchise Tax Board says that Blue Shield has crossed it.

The Board has revoked the tax-exempt status of Blue Shield of California – judging the health insurer to be run more like a for-profit corporation than a non-profit. The move could leave the insurer on the hook for tens of millions of dollars in taxes each year.

hospitalsignThe Tax Board has not commented on its decision. But the move comes as Blue Shield faces increasing scrutiny over rate hikes, false promises, executive salaries, and financial reserves that total more than $4 billion. The L.A. Times reports the state recently completed a lengthy audit looking at the justification for Blue Shield’s tax-payer subsidy.markovich_paul

Blue Shield has more than three million customers in California and posted more than $13 billion in revenue last year. It’s the third biggest insurer in the state.

Blue Shield and its CEO Paul Markovich is protesting the Tax Board’s decision. The insurer released a statement saying that it believes it’s fulfilling its non-profit mission and its commitment to the community.

Meanwhile, a former high-ranking executive of Blue Shield has become one of its biggest critics. Michael Johnson – who resigned as public policy director last week – plans to launch a public campaign to convert the insurer into a for-profit company. Johnson says Blue Shield has been short-changing the state and should return billions of dollars to taxpayers.