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.