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Blue Shield of California fights to keep state tax exemption

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Health insurance watchers are wondering why the state Franchise Tax Board decided to revoke the tax-exempt status of Blue Shield of California.

The board, which affects only state income taxes, not federal income taxes, made the move in August. The revocation drew little attention at the time, possibly because the company appears on the “revoked entity list” under its official corporate name “California Physicians’ Service,” rather than as Blue Shield of California.

Chad Terhune broke the news of the state tax exemption revocation story Wednesday, in an article for the Los Angeles Times.

Blue Shield of California — a company with no connection to Anthem Inc. (NYSE:ANTM), the parent of Blue Cross of California — is appealing the revocation.

The California Franchise Tax Board confirmed that the board revoked Blue Shield’s tax exemption Aug. 28, but officials declined to give any information about why the board revoked the exemption, or any information about the appeals process.

Blue Shield has publicly supported California and federal health insurance reform efforts, and it has voluntarily agreed to cap the amount of net income it keeps at 2 percent of revenue. The company also pays federal income taxes, a state gross premium tax, and taxes related to the Patient Protection and Affordable Care Act (PPACA).

Consumer groups have attacked Blue Shield for opposing a measure that would have given consumers standing to sue over health insurance rate increases.

See also: Insurers fight California rate measure

Dave Jones, the California insurance commissioner, has accused the company of putting some products under the jurisdiction of the California Department of Managed Health Care, rather than the California Department of Insurance, to reduce premium tax payments by $100 million per year.

Jones put out a statement welcoming news of the tax exemption revocation. The board’s move “confirms what I have said for years — that Blue Shield charges excessive rates and acts like a for-profit insurer,” Jones said in the statement.

California department officials said they could give no information about the revocation.

Blue Shield executives said in a statement that the company is in a strong financial position and will continue to be able to meet the needs of its members and community, no matter what happens with the tax status dispute.

“Blue Shield of California is a mission-driven not-for-profit plan with a demonstrated commitment to the community,” the company said.