By: Amy Yurkanin
State tax regulators revoked the tax exempt status of Blue Shield of California several months ago, a rare step that could have implications in Alabama and other states because of a class action lawsuit that has been consolidated in a Birmingham court.
Blue Cross Blue Shield companies operate independently in different states, but are represented nationally by the Blue Cross Blue Shield Association. A lawsuit consolidated in the Northern District of Alabama alleges the companies conspire to decrease competition and drive up market share. The Blues then use that market advantage to amass large reserves and increase the size of executive salaries, according to the lawsuit. The original lawsuit was filed in 2012 by a Birmingham chiropractor, but has since grown to include several medical providers and Blue Cross Blue Shield affiliates all over the country.
One of the defendants is Blue Shield of California. The California Franchise Tax Board stripped that insurance company of its tax exempt status last year, according to the Los Angeles Times. California Insurance Commissioner Dave Jones told the paper Blue Shield acts like a for-profit company, echoing the argument submitted in the lawsuit. The tax board has not yet released the reasons for stripping the insurance company of its status, but the decision did follow an extensive audit of the company, according to the LA Times. Blue Shield of California has about $4.2 billion in reserves, and Blue Cross and Blue Shield of Alabama has about $2.6 billion in reserves, according to the Alabama Department of Insurance.
“There is an important relationship between what is happening in California and what is happening in our case,” said Joe Whatley, an attorney for the parties suing Blue Cross Blue Shield-affiliated insurers. “While they claim to be non-profit, they charge their insured more than they should and they pay their providers less than they should. They build up these huge reserves, more than are needed under any circumstances.”