Blue Shield of California's plan to spend $1.25 billion to acquire Care1st Health Plan is a prime example of the underlying problem with the organization: It’s leaders are using nonprofit assets to build a business empire and further their careers rather than serve the public.
Fortunately, the deal is subject to regulatory review. But without public vigilance, it's doubtful the California Department of Managed Health Care will require, as a condition of approval, that Blue Shield demonstrate the purchase would benefit the public. To shine some light on the review, I’ll post here regular updates, analysis, and media coverage, as well as deal-related documents I've obtained through Public Records Act requests.
Updates, analysis & Media Coverage
Is Blue Shield complying with own bylaw requirement that enrollees comprise board majority?
July 16, 2015
A cornerstone of Blue Shield's argument to the DMHC about why it has no "charitable trust obligation" to the public is that it is a "mutual benefit" organization owned by and operated for the benefit of its enrollees. But Blue Shield gives short shrift to the only provision in its bylaws giving enrollees representation in its governance: a requirement that a majority of its board of directors be enrollees. Here's my letter to the DMHC raising the issue.
Blue Shield's public benefit duties to be determined by regulator
June 9, 2015
As reported in the Los Angeles Times, the Department of Managed Health Care made clear at a public hearing yesterday that it would carefully scrutinize Blue Shield’s proposed $1.2 billion acquisition of Care1st Health Plan. Most importantly, DMHC Director Shelley Rouillard said the review would include a detailed examination of Blue Shield’s "charitable trust" obligation or duty to work for public benefit. More-->
Did Blue Shield lie to tax authorities?
June 5, 2015
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. More-->
Blue Shield faces more heat over nonprofit status, $1.2-billion deal
Los Angeles Times, Chad Terhune, June 5, 2015
Health insurance giant Blue Shield of California is facing more questions over its loss of tax-exempt status as it tries to win state approval of a $1.2-billion acquisition. A former Blue Shield executive is accusing the nonprofit insurer of giving contradictory answers to state officials about its corporate structure. And consumer advocates are calling on Blue Shield to disclose details of a state audit that examined the company’s taxpayer subsidy. More-->
DMHC should require a showing of public benefit
June 4, 2015
Should Blue Shield have to demonstrate that their proposed acquisition of Care1st would benefit the public before the deal is approved by the Department of Managed Health Care? The answer seems obvious, but the DMHC has not yet made clear that approval will be conditioned on a showing of public benefit. Here’s my letter to the DMHC arguing that they have both the authority and duty to screen the deal on that basis, especially in the case of a nonprofit health plan whose tax exemption the state just revoked.
Deal structured to enable Blue Shield to avoid taxes
May 25, 2015
The public has all sorts of reasons to be skeptical about Blue Shield’s proposed $1.25 billion acquisition of Care1st Health Plan, including those I’ve written about previously. Buried in the regulatory filings is another one deserving mention: Blue Shield has structured the deal so that despite the recent revocation of its tax exemption it would escape state and federal taxes on its new business. The tax avoidance would even extend to a special assessment used to fund coverage expansion under the Affordable Care Act, which Blue Shield claims to strongly support. More-->
Thanks to whistleblower, Blue Shield's $1.25 billion California acquisition under review
San Francisco Business Times, May 7, 2015
The state Department of Managed Health Care is reviewing Blue Shield of California's $1.25 billion bid to acquire Medi-Cal specialist Care1st, after complaints from whistleblower Michael Johnson, a former Blue Shield executive, and several consumer groups. A hearing on the deal is scheduled for early June. More-->
Blue Shield's $1.25-billion deal for Care1st faces more state scrutiny
Los Angeles Times, May 7, 2015
State regulators will hold a hearing next month on Blue Shield of California's proposed acquisition of Medicaid insurer Care1st for $1.25 billion.The California Department of Managed Health Care said both companies will explain their rationale for the deal at the June 8 hearing in Sacramento. The public will also have a chance to chime in. More-->
Planned hearing on Blue Shield acquisition is good news because the deal is suspect
May 6, 2015
California regulators just agreed to hold a public hearing on Blue Shield’s proposed acquisition of Care1st Health Plan on June 8. The Department of Managed Care, which has approval authority over the transaction, scheduled the hearing in response to requests by a coalition of consumer groups and me. The hearing is good news because based on what we know now the acquisition looks like a bad deal for the public. More-->
Blue Shield seeks to avoid disclosing its price for Care1st
Los Angeles Times, March 20, 2015
Nonprofit insurer Blue Shield of California, already under scrutiny for its huge cash reserves and lack of disclosure, is refusing to say how much it's spending to acquire a Monterey Park insurance company and is seeking confidentiality from state regulators. The California Department of Managed Health Care said Friday it was still weighing Blue Shield's request for confidentiality after receiving a public-records request from The Times and being asked to hold a public hearing on the deal by a former company official. More-->
Planned acquisition needs scrutiny
March 20, 2015
Late last year Blue Shield announced a deal to acquire Care1st, a California-based health plan with over 500,000 members. In announcing the deal, Blue Shield refused to disclose how much it had agreed to pay for Care1st or other terms of the deal. Today, I sent the the letter below to the California Department of Managed Care, which must approve the transaction, to request immediate disclosure of the deal terms and a public hearing on the proposed acquisition. More-->