State's deal with Blue Shield of California angers consumer advocates

By Annette M. Boyle

A state agency has approved Blue Shield of California's controversial $1.2 billion acquisition of Care1st, a Medicaid health plan, but consumer advocates are critical of the deal's failure to resolve other outstanding complaints against the company, the Los Angeles Times reports.

The California Department of Managed Health Care claims the deal secured important provisions that benefitted consumers. For example, Blue Shield agreed to spend $200 million to improve patient care and $50 million for the creation of two new healthcare databases, including a statewide provider directory that all California health plans could use, according to the article.

The insurer also agreed to take steps to improve its poor health plan ratings and offer more accurate provider directories for consumers.

State regulators allowed Blue Shield to use its financial reserves for the purchase, a decision heavily criticized by consumer groups that argued the nonprofit insurer had accrued those reserves in part because of exemption from state taxes. In addition, critics said that the insurer had promoted its public mission for years and that its reserves were public assets that should be subject to charitable trust obligations.

Blue Shield lost its tax-exempt status in August 2014, but has been appealing the revocation by the California Franchise Tax Board. Under the new agreement, the insurer will drop that appeal, but it continues to fight the state's order that the insurer must pay about $150 million in taxes and interest due from 2009 to 2012, the article adds.

The insurer's loss of its tax-exempt status came amid accusations that it failed to act exclusively to promote social welfare. Critics pointed to the fact that Blue Shield of California held more than $4 billion in surpluses, and its executive job descriptions focused on profitability rather than promoting the public good. However, the group known as Consumer Watchdog viewed the insurer's loss of its tax exemption with skepticism, calling for the state to release public records related to the decision.

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