Should Pennsylvania’s Nonprofit Insurers Remain Tax Exempt?

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April 7, 2013; Source: MedCity News

Two state senators want to review the state-tax-exempt status of Pennsylvania’s four Blue Cross companies, saying that, under the Affordable Care Act (ACA), they are no longer going to be the “insurers of last resort.”

The four Blues are exempt from state and local taxes under state law, but they are not charities under the federal tax code. They pay federal income tax and Highmark pays property taxes on all its real-estate holdings. They also pay taxes on for-profit subsidiaries.

When the ACA goes into full effect, some feel that the companies should work to rejustify their tax exemptions. “Insurer of last resort is their essential purpose,” said State Sen. Michael Stack (D-PA). “The way they do business, the way they function, will clearly change…. It’s something that absolutely lawmakers should take a look at.” Nonprofit insurers are also designated the insurers of last resort in Rhode Island, Virginia, and Washington, D.C.

Pennsylvania has been scrutinizing its whole scheme of nonprofit health care providers,with the most recent gauntlet thrown down by Pittsburgh’s mayor on the issue of PILOT payments from UMPC. But this particular challenge to the Blues may flow from the issue of reserves. Among the four nonprofits, including Highmark Inc., Capital Blue Cross, Independence Blue Cross, and Blue Cross of Northeastern Pennsylvania, more than $7 billion in reserves were built by the end of 2012. State Senator Don White (R-IN) comments, “With Highmark sitting there with $4 billion in reserves, that could solve a few health care issues.” To put this in perspective, among the four organizations, only $1.1 billion will have been been spent on charity care between 2008 and the end of 2014.

In Michigan this year, state lawmakers converted a nonprofit Blue Cross insurer to a member-owned mutual insurance company. –Ruth McCambridge