The Health Insurance CEO Preaching Accountability — While Evading It

Blue Shield of California’s chief talks up the need for reform while the insurer maneuvers to deprive the public of the right to benefits worth billions of dollars.

Paul Markovich, CEO of the parent company of Blue Shield of California, where I worked for a dozen years, has a message for everyone who supports reforming health care to put people over profits: he’s our champion.

In January, he launched what he calls a “movement” for reform, with the goal of “rebuilding health care from the inside out, bringing greater transparency, accountability, and a renewed focus on people.” The movement, which Markovich has dubbed “Worthy,” consists primarily of a website outlining a range of reform ideas, from digitizing health records to providing “affordable coverage for all.” As ambitious as the goal is, his website says there’s reason to hope for success: “We’ve got a man on the inside.”

In a campaign-style video, that man is presented as a health insurance CEO boldly taking on his own industry. It shows Markovich testifying before Congress, declaring our health care system “broken” and unaffordable, and pledging to work “to create a system that is truly worthy of us.” It ends with a montage of newspaper clippings lauding his comments.

“Every movement has to start somewhere,” a headline on the website says, followed by another announcing: “Meet Paul Markovich.” Below that is a personal essay in which he describes his career as a mission since early adulthood “to make the health care system better” in order “to help everyone.”

But Markovich is also someone who collects over $11 million a year in salary paid for by policyholders, many of them struggling to afford coverage. And the insurer he runs has been denying medical care so aggressively and improperly that only 18.5% of its denials in 2024 for alleged lack of medical necessity were upheld after independent medical review – the worst rate of any major insurer in California.

And while many health insurers claim to prize the health of enrollees while they deny care to protect profits, Blue Shield of California does that as a nonprofit health plan. Even worse, it has gone to extraordinary lengths to avoid accountability for its core obligation as a nonprofit — to do good for the public.

Nonprofit Blue Shield claims no duty to benefit the public

Under the law of charitable trusts, an organization holds its assets in trust for public benefit if it was formed as a nonprofit and has declared that its purpose is to serve the public good. If both conditions exist, the organization can use those assets only to benefit the public. Blue Shield, however, says the law imposes no obligation on it because it has never officially declared that its purpose is to benefit the public. It claims it has only ever promised to serve its policyholders.

At issue is not only the question of whether Blue Shield must operate in a way that benefits the public, but also what would happen to its nearly $6 billion in assets if it were converted through a merger or acquisition into a for-profit company. Under charitable trust law, the assets of a nonprofit health plan or hospital that turns for-profit have to be surrendered to a charitable public benefit foundation or otherwise put to use for public benefit. If the law doesn’t apply to Blue Shield, as its leaders claim, it is free to do whatever it pleases with those billions.

Blue Shield has succeeded in getting Gov. Gavin Newsom’s administration to back up its position. Newsom’s health plan regulator, whose job it is to enforce the public benefit obligations of nonprofit health plans, has accepted Blue Shield’s claim. And the governor, who has received over $25 million in support from Blue Shield over the years, has stood by his regulator’s determination. Blue Shield’s claim, however, is clearly false.

How we know the claim is bogus

Proof that Blue Shield has a duty to benefit the public lies partly in documents Blue Shield sued me to keep confidential. In 2015, after a dozen years advising senior executives on public policy, I resigned after Markovich dismissed concerns I’d raised about our failures to act like a true nonprofit. It was especially troubling to me that at the same time Blue Shield was claiming to its regulator that it had no public benefit duty under charitable trust law, it was telling tax authorities in defense of its state tax exemption the exact opposite – that it was all about serving the public good. So I revealed to the regulator and the Los Angeles Times some of what Blue Shield had told the tax officials, and the company then sued, successfully, to shut me up.

View the Affidavit submitted by California Physicians’ Service (Blue Shield’s legal name) to California officials in support of its original application for tax exemption here.

But Blue Shield has taken the fight over its tax exemption to a state appeals board, and in doing so–to its misfortune–has turned its communications with the tax authorities into public records. Among those communications are a multitude of statements directly contradicting its claim that it has no charitable trust obligation. They include declaring in its original application for tax exemption that it was a “charitable” corporation and describing its mission to the tax appeals board as being of a type that courts have “‘considered a charitable purpose under the traditional law of charitable trusts.’”

Read the full appeal from Blue Shield arguing it still operates for “social welfare” here.

Additional proof of the existence of Blue Shield’s charitable trust obligation lies in historical fact. Shortly after it was founded in 1939, Blue Shield proposed to the Legislature that it be regulated as a charitable trust rather than a traditional insurance company. The Legislature then enacted that regulatory structure. Several years later, the California Supreme Court confirmed the law indeed subjects Blue Shield to regulation as a charitable trust.

Read the memo detailing allegations that Blue Shield has violated its legal obligation as a nonprofit to serve the public good here.

The public could be robbed of billions

In the face of this overwhelming evidence of its charitable trust obligation, Blue Shield has claimed to the Newsom administration that “no such obligation exists or has existed for Blue Shield.” Accepting that claim, Newsom’s regulator allowed Markovich and his fellow Blue Shield board members last year to transfer ownership and control of the nonprofit, including its $6 billion in net assets, to a parent company they incorporated in Delaware.

View Blue Shield of California’s Proposed Corporate Restructuring Filing here.

What comes next is unclear. According to Markovich, the purpose of creating the parent company is to enable “major strategic, bold initiatives” that require “more scale.” A quick way to achieve that scale – not to mention a more lucrative, more powerful job for Markovich – would be to merge with a large for-profit company. What then would happen with Blue Shield’s billions in net assets? Freed of their charitable trust obligation, Markovich and his fellow board members could do almost anything they want with the money short of embezzling it. They could, for example, use it for political advocacy, funneling billions of dollars into election support for Newsom and other candidates of their choosing.

Accountability is critical

Markovich is right that we need more accountability in our health care system. But the place to start is with his own organization. The first set of reforms of his “Worthy” initiative ought to be:

• Formally acknowledge Blue Shield has a legal duty as a nonprofit to serve the public good, and that its billions in assets have to be devoted to that purpose.

• Disclose how salary bonuses, which make up the vast bulk of his pay – and that of other top executives – are determined. Are they based more on how much Blue Shield makes than how affordable it makes the coverage it offers?

• Commit to provide benefits to the public every year that are worth a minimum of 5% of net assets ($300 million based on current finances). Five percent of assets is what charitable health care foundations are required to grant out every year. Blue Shield should provide at least as much public benefit as a liquidated nonprofit health plan of its size would.

If Markovich truly is ‘our man on the inside’ championing reform, he’ll bring this basic level of accountability to his own organization first.