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Explainer: The Horizon Law that Helped Trigger a State Shutdown, up Close

The law as enacted helps protect Horizon policyholders, a key element missing in earlier versions

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The new law regarding Horizon Blue Cross and Blue Shield that was at the center of the state’s shutdown this past weekend borrows elements from insurance overhauls in other states, but was shaped in the end by local priorities.

Sen. Joe Vitale, (D-Middlesex) who spearheaded the legislation, said the measure is modeled on a law Pennsylvania enacted more than a decade ago to establish a range of reserves for Blue Cross Blue Shield plans operating in that state. Maryland, Michigan, and Rhode Island have also implemented regulations designed to control the level of surplus accumulated by these health insurance providers.

Horizon, the state’s largest health insurance company with 3.8 million policyholders, had nearly $2.4 billion in reserve at the end of 2016, enough to pay for 75 days worth of emergency care for all members. This amount is 620 percent of its risk-based capital, or RBC, a calculation of risk, and well within the 550 percent to 725 percent range established by the new law.

Critical stakeholder concerns

But the final details of the law reflect key goals outlined by critical stakeholders in the negotiations, which dragged on for five days as the state shut down its beaches, parks, and non-essential services while action on the budget stalled. Lawmakers eventually voted on the $34.7 billion budget early Tuesday, along with the Horizon bill, and Christie signed both measures in time for state facilities to re-open for July 4th celebrations.

“We wish we didn’t have to do this, but it was part of getting the deal done,” said Senate President Steve Sweeney (D-Gloucester) at a late-night press conference Monday, after the parties reached an agreement.

The approved Horizon bill (S-2) reflected the insistence of Assembly Speaker Vincent Prieto (D- Hudson), who had adamantly refused to post earlier versions for a vote, that any additional funds be returned to policyholders — not siphoned off for state services, as was first proposed.

“I wanted to make sure we didn’t hurt those subscribers,” Prieto said at the Monday night press conference; the speaker even signed on as a sponsor, along with four of his colleagues.

Compromise solution

The compromise also excluded language that would have made the nonprofit Horizon the state’s “insurer of last resort,” a designation it held years ago that required it to issue policies to anyone, regardless of their health. Horizon officials, who had vehemently opposed earlier versions of the reform plan along with a growing cadre of supporters, insisted that responsibility nearly bankrupt the company.

“The compromise reached today with Speaker Prieto's and Senate President Sweeney's leadership achieves a goal we established when the governor first introduced the idea of taking our reserves: Horizon could only agree to legislation that is reasonable, avoids higher costs for our members, and that does not impose unfair or excessive obligations,” Horizon chairman and CEO Robert Marino said Tuesday, after the dust settled.

Christie had railed against Horizon for months, blasting them for what he termed excessive executive compensation and insisting they should do more to address public health needs across the state; he initially tried to secure $300 million from Horizon’s reserves to use in his campaign to combat opiate addiction. Horizon is the state’s only ‘health services corporation,’ a unique entity created by the legislature to operate in a charitable manner in exchange for certain tax breaks.

That led to an initial bill to reform health benefit corporations, which, among other things, would have established a public process to determine the appropriate level of reserves. That bill, also sponsored by Vitale, would have required any excess to be returned to policyholders or used to benefit public health.

Keep it simple

But the measure approved by lawmakers and signed by Christie was much simpler. It set the rate range based on criteria developed by Pennsylvania, which has become a model for other states, and calls on the state Department of Banking and Insurance to hire an independent auditor, at Horizon’s expense, to review the company’s books each year.

If reserves are found to top 725 percent of RBC, Horizon would need to devise a plan — to be approved by DOBI — to use these dollars to reduce future premiums or otherwise benefit policyholders. The law does not enable the state to tap into these funds, as Christie had initially insisted.

As approved, the law clarifies Horizon’s charitable role but reiterates that it must operate for the benefit of its policyholders, not state residents in general, as an earlier version would have required. It also forces the company to file information about its finances and compensation packages for certain executives with DOBI, to be posted on the agency’s website.

The law also calls on the Senate president and Assembly speaker to appoint two additional members to the now 15-member board, both of whom must have experience in finance, insurance, or healthcare delivery. This element is designed to increase the public accountability of the board, which is currently appointed entirely by Horizon leadership.

The law takes effect immediately, except for the section that prompts DOBI to conduct an annual audit. That review is scheduled to come in January 2018, when the company is slated to file annual regulatory filings to the state.

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