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State Insurance Commissioner Calls Out Blue Shield for ‘Second Tax Dodge’

California Insurance Commissioner Dave Jones (D) on Wednesday said Blue Shield of California has been dodging taxes for years.

Jones spoke Wednesday after the Franchise Tax Board revealed it had revoked Blue Shield’s tax-exempt status in August 2014.

“The second tax dodge we have known about for some time,” Jones said, “and it costs California $100 million in premium taxes annually.”

Jones said Blue Shield avoids payment of premium taxes through a loophole in state law that allows Blue Shield to choose its regulator, and it chooses the Department of Managed Health Care, he said.

Sean Barry, communications manager for Blue Shield of California, said “the issue raised by Commissioner Jones is unrelated to our disagreement with the Franchise Tax Board.”

“The vast majority of our policies are already regulated by DMHC — including those sold on the Covered California exchange — and consolidating policies under DMHC was an operational decision not related to tax liability,” Barry wrote in an email. “The requirements for plans sold under DMHC have also historically been more rigorous than CDI regulations,” Barry added.

According to Jones, DMHC collects only corporate taxes (which Blue Shield did not have to pay because of its previous exempt status, he said) while the Department of Insurance collects taxes on premiums.

“Blue Shield is dodging taxes,” Jones said. “It’s fundamentally unfair and corrosive to our system of tax collection.”

Jones is pushing for passage of AB 1434 by Assembly member Kevin McCarty (D-Sacramento), a bill introduced this year to repeal the choice of regulators offered to two insurers, Blue Shield of California and Anthem Blue Cross. AB 1434 will be heard in committee for the first time next month.

Jones said he has long advocated withdrawing the tax-exempt status of Blue Shield of California. “It repeatedly charges excessive rates and operates like a for-profit company so the not-for-profit status has not benefited consumers in any way,” he said.

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