LOS ANGELES (CN) - A taxpayer demands that California tax Blue Cross and Blue Shield as the profit-making organizations they are, not, as they fictionally describe themselves, as nonprofits.
Michael D. Myers sued the State Board of Equalization et al. in Superior Court, seeking writ of mandamus for them to "perform their respective ministerial duties."
Defendants include Insurance Commissioner David Jones and state Controller John Chiang.
Defendants as real parties in interest are California Physicians' Service dba Blue Shield of California, and Blue Cross of California dba Anthem Blue Cross, a wholly owned subsidiary of Wellpoint.
(Anthem Blue Cross provides insurance benefits to Courthouse News Service employees.)
Myers claims the state defendants' ministerial duties include collecting a gross premium tax on the billions of dollars Blue Cross et al. collect in California each year.
The California Medical Association incorporated Blue Shield in 1939 as a nonprofit, for the purpose of arranging health case for low-income Californians, Myers says in the complaint.
In those early years, Blue Shield assumed no risk to provide or pay for medical treatment; it existed to connect its underserved subscribers to physicians willing to treat them.
In the 1960s, Blue Shield abandoned its original mission and began selling health care indemnity contracts to anyone, regardless of income. Despite its shift - and its offering of indemnity contracts - state officials required Blue Shield to register only as a pre-paid health plan. This allowed Blue Cross to continue operating with minimal government oversight or regulation, Myers claims.
Blue Shield has more than 2.8 million customers for its PPO and HMO plans, making it the third-largest insurer in California. It generates $7 billion a year in premiums, and reported a net equity of nearly $3.9 billion in 2012, Myers says in the complaint.
Nearly two-thirds of Blue Shield's members have PPO plans, which the company acknowledges constitute traditional health insurance and are subject to the state gross premium tax, according to the complaint.
In fact, for at least 10 years the PPO contracts have contained a clause acknowledging this tax liability, informing members that "additional dues may be charged in the event that a state or any other taxing authority imposes upon Blue Shield of California a tax or license fee which is calculated upon base dues or Blue Shield of California's gross receipts or any portion of either," Myers says in the complaint.
While Blue Shield has always enjoyed bureaucratic accommodation, Blue Cross was at one time regulated by the California Department of Insurance. But in 1993, a series of legislative acts designed to save Blue Cross from bankruptcy handed oversight to the Department of Corporations - allowing it to continue selling PPOs while receiving the pre-paid health plan tax exemption.
Blue Cross changed its status to for-profit in 1996, when Wellpoint Health Networks purchased it and later merged with Anthem Holding Corp. It issues more PPO plans in California than any other insurer and - like Blue Shield - pays nothing in gross premium tax, according to the complaint.
California's Constitution mandates gross premium taxes, which are designed to "approximate the volume of business done in this state, and thus the extent to which insurers have availed themselves of the privilege of doing business in California," Myers claims, citing Metropolitan Life Insurance Co. v. State Board of Equalization.
