I’m of the opinion that things that look like ducks, quack like ducks, and taste like ducks are probably ducks even if they are called something else. The tax exemption was yanked because the California Franchise Tax Board thought Blue Shield of California had been acting like a for-profit company under its tax exempt status, so now it can act exactly like it has been operating for years but under a different tax status.
California tax authorities have stripped Blue Shield of California, the state’s third largest insurer, of its tax-exempt status in California and ordered the firm to file returns dating to 2013, potentially costing the company tens of millions of dollars….
One likely explanation, however, is the $4.2 billion the company reports it is holding in financial reserves. That’s four times larger than the national trade organization, Blue Cross and Blue Shield Association, requires members to hold in surplus to pay out member claims….
If Blue Shield of California was acting like a for-profit entity under its tax advantaged status in 2013 and 2014, it will act like a for-profit entity under its taxable status in 2015 and 2016. I don’t think it will significantly change behavior or pricing as its current set of overpriced premiums that led to the reserve accumulation were sufficiently competitive with other for-profit and non-profit insurers pricing that people still bought their policies at a profitable rate. Their cost structure will change a bit, but the basic cultural push of the enterprise will be the same profit or retained earnings maximization.
I think it may have a deterrant effect on some other smaller medical non-profits as it could be enough of a shock to the boards that they focus on their mission and core values for several years or at least spend some serious time discussing what those core values are and should be. The successful, large and efficient non-profit insurers and medical providers are the ones that are extremely concerned about their values which becomes their mission. Mission drift is the concern not the tax status of large entities.
geg6
If only PA would do the same to UPMC…
Nuhguhhappen.
jonas
I was fortunate enough to have Kaiser for several years when I lived in CA. Was really bummed to have to move to the other coast and give that up.
ruemara
Cue my Nelson Munz: “HaHa!”
About time that grift stopped.
MomSense
I wish this would start happening to some of the non-profit providers.
The Moar You Know
The story outlines a much larger problem with nonprofits in general. I have yet to encounter one that did not act as a tax-free slush fund for the people who owned it.
The CEO of the local world-famous nonprofit animal shelter near me pulled down over a million dollars in income in 2013, and the nonprofit paid not one dime of taxes on that revenue.
Of course, for scamming on a truly massive scale, the trick de jour is the “educational nonprofit”, running a charter school near you.
Jake Nelson
Here in Minnesota, all insurers are required to be non-profits. It helps a little (we usually have the lowest premiums in the country), but only goes so far (United Health’s old CEO made over a billion (with a b) a year, but it was still a “non-profit”).
pseudonymous in nc
@The Moar You Know:
In the US, non-profit is fundamentally a tax status; in most other developed nations, charitable status is tied to what you actually do.
Local megahospitals are usually non-profit with lavishly-paid executives. They keep in their states’ good books by building new facilities, providing a tiny bit of pro bono healthcare, and by slushing around some of that money to other orgs.
College athletics departments are non-profit. The NCAA is a non-profit.
MobiusKlein
Even Kaiser does the non-profit / for-profit dance.
From a guy I know who works there, Kaiser actually has two wings. The not-for-profit one and the For Profit one. It’s tricky to keep things in line, keep it kosher.
Rand Careaga
My Kaiser premium has more than tripled in the last seven years, and they’ve boosted the fees and added a raft of new deductibles. I’ve had no issues with the level of care they provide (although, fortunately, I have seldom had to call upon them for anything serious), but I get the impression that earlier in the century they stacked their board of directors with a lot of former Enron officers.
Villago Delenda Est
Core Values?
Hookers and blow for the executives.
Next!
Villago Delenda Est
@pseudonymous in nc: The NFL is a non-profit.
No, really!
jl
Thanks for post on this. I was going to email RM and ask about it.
My opinion (and it is mere opinion and hunch, since I have to research to link to) is that wrt to insurance market self-destruction, large organizations like BC/BS etc., all act like for-profits, driving the very underegulated health insurance market towards no or under insurance. Even the non-profits who are allowed to skate by even though they act like for-profits. They may operate at different margins, but adverse selection and cream skimming drives them all in same way towards the same destination.
Back in the day, when I talked with executives, you couldn’t tell from how they talked and how they made decisions, whether they were for-profit or non-profit, other than what they were trying to maximize: profits or output (given revenue constraints). Fear of adverse selection drove their pricing and benefits design and that was that.
Betty
Blue Cross and Blue Shield were created for the benefit of their members. That had changed dramatically by the 80s. All the CEOs wanted to be “players”. Downhill ever since.
JustRuss
Our local non-profit hospital is investing in real-estate like crazy, I can’t see how that squares with their mission. Strangely, Obamacaregeddon doesn’t seemed to have slowed them down at all.
Adam Lang
This is interesting because, having had seven different insurance companies in the last 15 years in California, Blue Shield was one of the two best. It makes me sad to think that they were more or less abusing their tax deductible status and yet were still the best option available.
I do like Kaiser to a certain extent, but they are ruthless when it comes to keeping costs down. I have a lot of questions about my health, and roughly 90% of the answers I get from Kaiser are ‘I don’t know, but I’m sure it’s nothing to worry about” [and so I won’t refer you to an expert who might be able to answer the question].
My entire sleep apnea situation, from beginning to end, is being done under the auspices of a ‘sleep technician’ (not a physician, not a PA or NP, not an RN, not an LPN, just some guy who has some training in sleep apnea) and at no point in the process after my PCP (who said ‘well I don’t really now much about sleep apnea’) referred me does anyone else come into the equation. Unless the technician finds something in my data that he doesn’t like, there will at no time be anyone knowledgable for me to ask questions of. It’s a bit dispiriting, although I am a big fan of evidence-based medicine, so if this really does WORK I guess I have no cause to complain too loudly.