Did Blue Shield lie to tax authorities?

In its bid for state approval of its pending $1.2 billion acquisition of Care1st Health Plan, Blue Shield has submitted to regulators written statements that contradict what it told authorities who audited its tax exemption.

The inconsistency regards Blue Shield’s public benefit obligations. Seeking to fend off a requirement to show that the acquisition would benefit the public, Blue Shield's general counsel wrote to the Department of Managed Health Care in April that Blue Shield’s organizational structure makes clear that the nonprofit has no public service duty.

However, in defending its tax exemption as a “social welfare” organization, Blue Shield assured state auditors that its structure guaranteed that it would function exclusively for the benefit of society. (Full details on the inconsistency are in my letter to the DMHC.)

Telling tax authorities one thing and health plan regulators another is part of a double game Blue Shield has been playing for a long time. The object is to reap the tax benefits and other privileges of being a nonprofit without having to serve the public good.

Evidence of Blue Shield's scheming is visible also in the difference between how the health plan describes itself publicly and in legal filings. On Facebook, Twitter and Instagram, Blue Shield is “Not-for-profit, for community.” That’s also what its customers hear, like CalPERS did last year. Blue Shield has even used its most prominent board member, former Secretary of Defense Leon Panetta, to trumpet the message that “Blue Shield is focused on the long-term welfare of the entire community.”

But in legal filings, such as the recent letter to the DMHC, there’s no mention of commitment to the community. Instead, Blue Shield describes itself as a "mutual benefit" corporation whose only obligation is to its own members, not the public. (Never mind the fact that Blue Shield's bylaws provide that the corporation has no official members.)

What's the real story? Getting to the truth is going to require that Blue Shield, for starters, publicly release its written communications with the state tax agency, including the audit findings that resulted in revocation of its tax exemption. Since Blue Shield is "for community" its executives should be happy to help clear things up. 

But if Blue Shield won’t do it voluntarily the DMHC should force them to. And until those documents are in hand, the DMHC should put the review of the Care1st acquisition on hold.

(See the article on this from the Los Angeles Times here.)