Blue Cross Loses Its State Tax Exemption in California

indexLittle Rock     The state of California in an unusual and precedent setting move withdrew the state tax exempt status of Blue Cross Blue Shield of California.  The Los Angeles Times said they did so “quietly,” but trust  me on this one, their action will reverberate with a loud roar  throughout the soft chairs and well-appointed executive suites of highly  paid, supposedly nonprofit hospital and insurance executives all around the country.  In the short term, barring appeals, this will cost the Blues  tens of millions of years in state tax payments in California.  In the long term this may toughen the backbones of many state tax authorities  and the IRS, now charged with regularly assessing the charitable contributions of nonprofit hospitals, to finally separate the herd,  making the wolves in sheep’s clothing who have for profit style hearts and pay stubs, either really be mission driven or really be all about  the money.

God knows, the California Blues were asking for it!  They had $4 billion in reserves.  They had to be forced by the legislature to reveal the fact that their chief executive was being paid over $4 million per year in 2011 and 2012, and then still with impunity didn’t disclose his pay after that but simply said the top three executives all were paid over
$1 million per year.  This was not a new problem for the Blues.  Their reserves didn’t suddenly surge to $4 billion plus, but have been working  their way up from $3 billion over the last couple of years.  Incidentally,  the level of their reserves was almost four times the industry recommendation for what any outfit might have possibly needed for any conceivable circumstance or calamity.  In some ways in California this is a footnote in a long series of chapters where for profit practices operating with nonprofit protections have been scrutinized and questioned.  One part of California’s Blue Cross operation had already been lopped off as for profit earlier, and with this movement by the California taxman, the company will have to put up or shut up on its charity obligations.  The company’s earlier strategy had been to calf off $30 or $40 million to a separate foundation to handle their charitable obligations, but they must have missed the memo that to be tax exempt the whole operation has to be operating for charitable purposes not just a branch off the main trunk.

Are they alone? Hardly! Looking at the similar problem in nonprofit hospitals, our researchers would only nod at the Cali-Blues pay stubs.  Certainly big nonpro hospital execs at outfits in Houston for example are making in the $4 and $5 million range.  The Partners’ nonprofit hospital behemoth based in Boston lists a small army of  executives making more than a million on their IRS 990.  Children’s in Houston is over a billion dollar operation and even with its creative accounting only claims to spend $6 million in charity care, making the California Blue Cross look like a big spender. It goes on and on and on like this from city to city, state to state.  Looking through our researchers’ spreadsheet you can’t tell what hits you first, the headache at reading all the big numbers, or the heartache at seeing how miserly the charity care continues to be.

As California just made clear, a day of reckoning is coming on the state level as desperate legislators have to balance their budgets and are less willing to pretend these slicksters can get away with being something they aren’t.  These insurers and hospitals have to hear the footsteps of state and federal tax folks heading towards their doors now.  The party is coming to an end.  It’s time for them to pay the piper.  Luckily, that means a better day for all of the rest of us!

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Using Local Property Taxes to Push Hospitals on Charity Care

shriverNew Orleans      John Bouman, the President of the Sargent Shriver Poverty Law Center based in Chicago was my guest on Wade’s World recently on KABF/FM talking about a number of subjects but especially the handles for pushing nonprofit hospitals to provide care for lower income families as part of their nonprofit status and especially their federal tax exemptions under the 501c3 classification of the Internal Revenue Service.  He continues to have hope that the Affordable Care Act can decrease inequality and particularly can advance racial equality since African-Americans and Hispanics have gotten such short shrift from the health care system of the country.  He argued vigorously, and correctly, that the Affordable Care Act was the most significant piece of social legislation passed and implemented over the last fifty years.

Bouman mentioned that in Illinois, thanks to unions and community pressure including from the old ACORN affiliates, they had enjoyed a version of the new national rule that forces nonprofit hospitals to actually deliver more free and reduced price health care to lower income families for some years.  Their rule seems like it might even be a model for best practices for all of the hospitals now under the federal mandate to produce a rule that would allow them to keep their tax exemptions.  The Illinois standard is transparent.  A family would be eligible for such care at 200% of the poverty level.  I like a “no ifs, ands, and buts” standard, and that’s what we need to push for everywhere.  The Illinois standard also was clear about remedial practices before more strenuous collection efforts.

Almost in passing, Bouman mentioned that in Illinois the state and some cities and counties also had the ability to punish hospitals that were scofflaws on the act or really just wolves in the sheep’s clothing of nonprofits.  I asked Bouman how could they do that, and he said of course they could take away any local or statewide property or revenue tax exemptions or allowances that they were getting as nonprofits with their charitable status.  Whoa, I thought!  We had overlooked the obvious handle there that could help us bring the fight to a very local level.

In Louisiana, where we might not have a chance with the state, the local assessors at the parish or county level are elected and often very close to the ground in terms of their responsiveness to community pressure and organizing.  Furthermore, there are absolutely property tax exemptions enjoyed by all of the big, and many of the small, tax exempt organizations from the huge outfits like the universities and colleges as well as the small housing operations holding properties for development.  Immediately, I could see organizationally how we could challenge a host of property tax exemptions that are worth millions.

In Arkansas, a quick look comes down to a test of how “public” the service or facility might be.  My point is that in each state and in many local jurisdictions there might be handles available to increase the pressure for hospitals to do right. The fight itself might be enough to force some change, as we have already seen in the reaction of St. Joseph, Missouri’s Heartland Hospital and its jump to attention when they received an inquiry from Iowa’s Senator Charles Grassley asking them to defend their exemption given their collection practices.

It might be one thing for nonprofit hospitals to turn their backs on community organizations and unions asking about their policies and asking them to do better, but it would be a whole different problem if they had to defend such inadequate programs and cutthroat collection efforts in public before a board of adjustment, an assessor, a tax equalization board or any other public forum.

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Please enjoy The Danielle Nicole Band’s You Only Need Me When You’re Down, thanks to KABF.

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