Lawmakers Grill State Officials on Plans to Dip into Horizon Reserves

Governor’s recent quest to force New Jersey’s largest insurance company to pay for certain public healthcare needs not the first time politicians have targeted it

New Jersey lawmakers tried in vain to pry from state officials more details on Gov. Chris Christie’s proposal to make Horizon Blue Cross Blue Shield pay for certain public healthcare needs, a plan that has sparked nearly unanimous opposition from legislators, business leaders, and public advocates of all kinds.

Members of the Assembly budget committee grilled Department of Banking and Insurance Commissioner Richard Badolato on Wednesday about his contribution to the governor’s proposal and its potential impact on the company and its policyholders. But Badolato had few details to offer and conceded his office was not involved with the development of the plan, which calls for Horizon, the state’s largest health insurance provider, to provide $300 million annually to help treat opiate addiction or tackle other public health challenges.

Unlike for-profit insurance companies, Horizon is a unique nonprofit entity, created specifically by statute as a “health services corporation” that is in some cases governed by different regulations than its competitors. (Christie’s proposal targets health services corporations specifically; Horizon is the only one in the state.) Its roots date back eight decades and, while its charge has evolved, its policies have often covered a large share of vulnerable patients in both public and commercial insurance plans.

Among other things, the health services corporation designation means the company is required to act for the benefit of its policyholders — not shareholders or owners — and its governance structure is dictated by law. The company is exempt from state sales and use taxes, but reported paying $543 million in 2016 to cover federal income and payroll taxes and state taxes on income, property and premium revenue.

Multi-billion-dollar reserves

Christie’s quest, made public during his budget speech in February, is hardly the first effort by Garden State leaders to dip into the insurance company’s multi-billion-dollar reserves or restructure its executive operations. Over the past two decades there have been at least half a dozen efforts to reshape Horizon’s corporate structure or reform how it is governed.

Legislators have driven several of these efforts, but others have come from within the company as Horizon leaders considered transforming it into a for-profit entity. While this change would give Horizon new ways to raise money for major investments, reducing its reliance on policyholders, economic and political considerations have derailed these attempts in the past.

Christie’s plan has prompted widespread criticism and triggered a massive public relations response from the company and its allies. But Sen. Joe Vitale (D-Middlesex), the longtime leader of the Senate health committee, said that while the governor’s plan doesn’t now have any legislative support, it might be wise to examine some of these questions raised about the company in the past. Vitale and Sen. Ray Lesniak (D-Union) sponsored a bill in 2006 that would have addressed several of the changes Christie outlined, including expanding Horizon’s charitable role to benefit the wider public.

“I want to take a fresh look at Horizon,” Vitale said Wednesday, noting there has been no action on the draft proposal provided by the governor’s office recently. “I am examining his proposal to see if any of it has merit, or see if there are other bills we need to consider,” he added.

The Christie campaign

Horizon BCBS, which insures 3.8 million New Jerseyans, reported holding nearly $2.4 billion in reserves at the end of 2016. (The governor termed this “surplus” and pegged it at $2.9 billion.) The company said this is inline with industry standards, which call for insurance providers to maintain reserves that equal between 550 percent and 700 percent of their readily available capital in order to pay out a sudden glut of claims and maintain some financial flexibility.

But Christie has targeted these dollars for other uses and has waged a growing campaign against Horizon, using unrelated public appearances to blast what he calls “excessive” executive compensation at the company and question its commitment to public health. Horizon CEO Robert Marino received nearly $4.5 million in salary and other compensation in 2016, according to state records; other top executives collected between $1.3 million and $2.3 million.

Christie has asked lawmakers to revise the statute that governs Horizon’s operation to expand the board of directors to 19 members, with four additional appointments to better represent the public. His plan would also give state officials the right to review its budget — including executive compensation — to determine the proper level of reserves, and to appropriate funds they consider excess. As drafted, the bill would also make Horizon responsible to the public at large, not just to those it insures, and would establish the “New Jersey Quality Health and Wellness Fund” to distribute the excess funds to address healthcare needs.

Christie’s attempt to access Horizon’s funds has triggered significant pushback from lawmakers in both parties and Assemblyman Gary Schaer (D-Bergen), the budget chairman, made clear his own concerns when questioning DOBI commissioner Badolato on Wednesday. Schaer said that if the state took $300 million from Horizon’s reserves, the company would be forced to replenish the fund, most likely by raising the cost of premiums for its policyholders.

Schaer: ‘I call that a tax’

As a Horizon member himself, Schaer said that raised a number of concerns. “That’s bad enough because it’s a way for the state to collect additional money from me, forcing Blue Cross Blue Shield to charge me additional money and, whatever you want to call that, I call that a tax,” the assemblyman said.

Even worse, Schaer said, was the fact that that tax would not be borne equally among New Jersey residents, but paid only by those who have Horizon healthcare plans. “It seems to me to be some level of discrimination,” he added, asking Badolato and his executive staff to explain the rationale behind the plan.

But Badolato had few answers for Schaer and others, suggesting instead they contact the governor’s office directly for more information on Christie’s plan and referring them to documents on the DOBI website for financial details on Horizon and other insurance companies. “I speak to the governor on a number of topics but I haven’t spoken to him on this precise topic,” the commissioner said.

No longer ‘insurer of last resort’

With roots in a 1930s-era system for helping patients pay for hospital care in Essex County, the company was created in 1986 as Blue Cross Blue Shield. The law defined the new company as a “charitable and benevolent institution” that was required to cover patients that other companies refused to insure — a role it has played over the years in various commercial markets and through the plans it offers to publicly funded Medicaid and FamilyCare patients, among others.

BCBS’s role shifted in 1992, when the New Jersey Health Care Reform Act was adopted to strengthen the struggling market for individual coverage. Among other things, the law required all insurance companies to “play” in this difficult market or “pay” an assessment to help other carriers cover these costs. With other companies forced to compete in this market, Horizon was no longer the “insurer of last resort” — a phrase Christie often repeats — although it has picked up a growing number of patients as other companies pull out.

Horizon explored becoming for-profit

By the mid-1990s, Horizon was exploring its options to convert to a for-profit company and began talks with Anthem, a for-profit Blue Cross Blue Shield program now operating in more than a dozen states. At the time, the company hoped the conversion would allow it to access new capital for technology and other efforts.

The possibility quickly triggered a discussion among state leaders about the process and the disposition of the company’s wealth. A 1996 ruling from the state Attorney General found the company’s unique mission required that a charitable trust be established for its assets; a court ruling later agreed with this finding and Anthem soon walked away from the negotiations.

The conversion path was clarified in 2001 when the state passed a law that spelled out the process. The law requires the company to file an application to the DOBI, submit to the attorney general a foundation plan for expanding access to affordable care, appoint an advisory committee to oversee the transformation, and hold public hearings on both requests.

Horizon chose to explore this option again soon after the conversion law was in place and state leaders set their sights on its assets as a way to offset a multi-billion-dollar budget shortfall. The conversion plan fizzled and, in 2004, the company launched the Horizon Foundation and provided it $35 million over the first three years. Since then, the foundation has doled out nearly 1,300 grants to local organizations totaling more than $45.5 million for programs to address everything from asthma to health literacy to addiction.

Tap into Horizon’s revenue

But another revenue shortfall in 2004 prompted lawmakers, led by Assemblyman Louis Greenwald (D-Camden) and then-Assemblywoman, now Sen. Loretta Weinberg (D-Bergen), to propose a plan that would allow the state to tap into Horizon’s revenue on an annual basis. At the time, the goal was to use the funds to help pay for charity care, which was costing the state hundreds of millions of dollars each year.

Last month, Weinberg issued a statement that said while she would be willing to explore the level of reserves at some point, a recent rating from credit agency Standard & Poor’s made clear the plan Christie outlined was unwise. S&P said Horizon’s finances are in good shape, but diverting $300 million could cause them to downgrade the company’s rating in the future.

“The Governor’s latest approach would have the State permanently tap into the emergency reserves of Horizon is not something I can support,” Weinberg said in late April.

In 2006, Vitale and Lesniak decided to explore a similar reform. While their bill did not call for the state to siphon off reserve dollars, it reiterated Horizon’s responsibility to benefit the public at large. It also would have altered the structure of the board, enabling policyholders to vote on a number of members, instead of all appointments being made by state officials or Horizon leadership.

Controversial executive pay

Two years later, Horizon leaders were again exploring conversion, but as the process wound on the impact of the recession and uncertainty about the pending gubernatorial election made it untenable. Soon after Christie took office, in 2010, news accounts regarding executive compensation at Horizon sparked a new concern — the president and CEO reportedly collected more than $9 million the previous year, a figure the company disputed — and legislative leaders scheduled hearings on the matter.

The process led to another bill, co-sponsored by Weinberg, to revise the conversion process to require greater focus on public need. But by the end of the year Horizon officials announced they had again abandoned the conversion attempt. The issue did not resurface again until this year, when Christie suggested it as an option to help the state access Horizon’s funds. Insurance experts said the issue is currently a non-starter, given the shifting policy landscape and the current gubernatorial election.

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