Could Horizon Reform Bill Derail State Budget? It’s Down to the Wire

Vitale accuses Horizon Blue Cross Blue Shield of New Jersey of ‘trying to whip up a wave of hysteria’ over proposal to reform the insurance company

With the state’s budget deadline quickly approaching, a controversial proposal to reform Horizon Blue Cross Blue Shield of New Jersey remains a stumbling block in the Democrats’ quest to secure Gov. Chris Christie’s support for their revised spending plan for fiscal year 2018.

The Horizon bill, approved by a key Senate panel on Monday, is scheduled for a final vote today before the full Senate, but it did not appear on the list of items to be considered by the Assembly as of Wednesday evening; Assembly Speaker Vincent Prieto (D-Hudson) has strongly opposed the plan and there was no indication Wednesday that his stance had changed.

The measure has become a lynchpin in the ongoing budget negotiations, which must be resolved by midnight tomorrow (June 30) and today is the last day the Legislature could pass the bill before that deadline. The proposal grew out of a campaign Christie launched in February to secure some $300 million from Horizon for use in his highly public battle against opiate addiction and he has continued to rail against the company ever since.

Effort to appease Christie

Sponsored by Sen. Joe Vitale (D-Middlesex), the longtime health committee chairman, the bill has been crafted as a sort of compromise seeking to appease Christie’s thirst for Horizon’s resources without triggering the immediate “raid” on its reserves that he originally outlined. Assemblywoman Eliana Pintor Marin (D-Essex), who represents Newark, where the company is based, has signed on as a sponsor in that house.

Vitale and Senate President Steve Sweeney (D-Gloucester) have hoped that the Assembly would support the revised plan and pass it today so that Christie does not retaliate by line-item vetoing priorities they added to his original spending plan — like additional money for school districts, domestic violence, and cancer research. Budget committees in both houses passed the Democrats’ $34.7 billion plan Monday.

As approved on Monday, the Horizon bill (S-4) would require greater financial disclosure at the nonprofit company, the state’s largest health insurer with 3.8 million policyholders, and alter how board members are selected. It would also create a public process to determine if Horizon was holding an “inefficient” — or excess — level of reserve funds and would allow state officials to require this surplus to be spent on other public health needs or returned to policyholders, among other options. The bulk of the proposal would not take effect until February 2018, after Christie leaves office.

“This is not a money-grab, it does not create a slush fund, and it does not put any undue operating costs upon Horizon that would drive up premiums,” Vitale said, responding to criticism from Horizon and its allies. “It simply creates a fair and equitable system that will benefit Horizon and protect policyholders from unnecessary premium increases.”

Unlike for-profit insurance companies, Horizon is the state’s only health services corporation,” a unique not-for-profit entity created by the Legislature in 1985. As a result, it is subject to some, but not all, of the same requirements that govern other insurance providers; and it has traditionally played a central role in covering the state’s most vulnerable — and costly-to-insure — residents. The law requires Horizon to act on behalf of its policyholders, not shareholders or owners. While it is exempt from some taxes, Horizon reported paying $543 million last year in various federal and state taxes.

Weeks of escalating tensions

Today’s voting session follows weeks of escalating tensions over the proposal, which Christie has said is needed to increase transparency at Horizon, and has triggered an all-out public-relations assault from the insurance company and a growing list of allies. One group, Hands Off Healthcare, held a series of “telephone town halls” Wednesday in an effort to lobby legislators against the bill; the organization, a campaign of the Latino Alliance, parked a truck with a giant screen running ads against the bill at the State House on Monday. Horizon also launched newspaper ads against the plan Wednesday that claim it will raise premiums, unfairly saddle the company with new responsibilities, and allow for special interests to disrupt its operations.

“What’s happening in Trenton now is that lawmakers are ignoring the facts and treating Horizon’s reserves as free money for political pet projects,” said David R. Huber, Horizon’s senior vice president and CFO. “They have cloaked these intentions within a Senate bill that purports to ‘reform’ the way Horizon operates and is governed. In fact, the bill would jeopardize Horizon’s financial stability and independence.”

Horizon insists the nearly $2.4 billion it keeps in reserves are well within regulatory and industry norms and appropriate given the number of people it insures. These funds are held as a cushion against “catastrophic health events” like flu epidemics, and weather emergencies such as hurricanes and floods, when premium dollars may not be coming in, but costs continue to rise, the company said.

‘…frenzied atmosphere in Trenton’

“The bottom line is that when claims costs run higher than expected, we turn to our reserves so that we can pay all legitimate claims without increasing premium rates,” Huber said, noting that these funds are maintained “on behalf of its 3.8 million members, and (the discussion of these dollars) belongs nowhere near the frenzied atmosphere in Trenton.”

But, according to NJ Spotlight’s review of annual financial statements the company filed with the National Association of Insurance Commissioners, roughly 1.6 million of these members are enrolled in Horizon plans through self-insured entities, like large companies and the State Health Benefits Plan, that are eventually on the hook for this claims risk. Horizon is fully responsible for the expenses associated with the other 2.2 million policies, including nearly 1.3 million people with commercial policies and another almost 900,000 covered by Medicaid HMO policies the company provides through New Jersey’s FamilyCare program.

Horizon spokesman Tom Vincz said that, despite this distinction, Horizon must reserve for all 3.8 million members, since the insurance company is the one that contracts with individuals and promises to pay their providers. While self-insured entities may be forced to pay these costs in the end, Horizon must be prepared to shell out for at least 75 days worth of medical claims for everyone — without collecting premiums from individuals or employers.

“When consumers purchase a Horizon BCBSNJ policy, we guarantee that their eligible medical and prescription drug claims will be paid, no matter what,” Huber said. “It’s called providing our customers with “peace of mind,” and we have been providing that for the last 85 years as a New Jersey company.”

The NAIC statements note Horizon had $2.39 billion in “capital and other surplus” at the end of 2016 to cover unexpected costs for the nearly 1.3 million commercial policyholders and another $998 million in reserve for the almost 900,000 Medicaid policies. But Vincz said the $2.39 billion actually includes both reserve pools and represents the entire surplus.

Vitale’s bill would force the Department of Banking and Insurance to gather expert input and hold public hearings to determine what is an “efficient” level of surplus for a health services corporation and require the DOBI commissioner to use this process to decide on an appropriate range of reserves.

If the DOBI determines Horizon has surplus beyond this range, the company would be required to defend this level of funding or create a plan to either redistribute it to policyholders or invest it in ways to “improve the overall health of New Jersey residents,” by expanding access to mental health care, cancer screenings, or other programs. The department would then need to approve this plan, and if Horizon did not follow through accordingly, it could suspend the company’s license.

If the state and Horizon could not agree on the best course of action within several months, the bill would require the additional dollars to be deposited into a new account, the New Jersey Quality Health and Wellness Fund; these monies would then be appropriated by the Legislature based on recommendations from the state health commissioner. The bill would prohibit the company from charging higher premiums to recoup funds absorbed by the state.

In addition, the measure would codify Horizon’s charitable mission, require the company to file new disclosure statements similar to other nonprofit organizations, and change how board members are chosen; three of the 15 members would now be elected by subscribers, based on a process to be created by Horizon. The bill also re-instates its former standing as the “insurer of last resort” — something the company said could lead to its economic downfall if it is forced to cover the costliest patients who can’t get coverage elsewhere.

“Unfortunately, Horizon is spending millions of dollars to try to whip up a wave of hysteria about threats to health care costs and coverage,” Vitale said. “Nothing could be further from the truth. What we are doing is using the window of opportunity created by the Governor to bring some smart and long-needed reforms to New Jersey’s largest health care insurer.”