Blue Shield of California has had a rough couple of weeks. First, the California Department of Managed Health Care stripped the nonprofit insurer of its tax-exempt status in the state. Then, a public records request by the Los Angeles Times discovered that Blue Shield refused to disclose how much it spent to acquired Monterey Park-based insurance company Care1st, which further called into question Blue Shield's nonprofit status. The San Francisco Business Times subsequently reported that the deal is worth $1.2 billion.
In light of recent events, Blue Shield's former Director of Public Policy, Michael Johnson, shed light on the drama surrounding the insurer and provided insight into how Blue Shield could pull itself back up.
Johnson resigned two weeks ago because he believed the insurer was "neglecting its responsibilities to the public," he wrote in a post on HealthInsurance.org. Following his resignation, Johnson launched a campaign urging Blue Shield to give back approximately $10 billion in community assets. That's what Blue Cross of California did when it converted to a for-profit insurer in the 1990s, with $3 billion going to two new public health endowments.
Blue Shield's state tax exemption, which dates back to 1939, lets the company act like a for-profit insurer, Johnson said. For instance, the insurer has reaped over $4 billion in profits, provided its executives with multi-million dollar salaries and charged its members rates similar to what for-profit insurers charge.
Blue Shield could redeem itself by "relinquishing to the public all of the profits and other wealth it has accumulated while claiming a tax break to do good for the community," wrote Johnson. Ultimately, the insurer needs to officially convert to a for-profit company, selling itself to private investors and using the proceeds to establish healthcare safety net programs.
Today, Johnson said, Blue Shield fails to provide greater benefit to the public than for-profit competitors such as Anthem Blue Cross--the successor to Blue Cross of California. Unlike Anthem, for instance, Blue Shield doesn't serve low-income residents through the state's Medicaid program. If Blue Shield remains a nonprofit, Johnson said, it needs to operate with the intention to better serve the community.