NJ’s largest health insurance company looking to restructure

Horizon says changing way it does business will let it better serve residents, but opponents question company’s endgame

New Jersey’s largest health insurance company is once again seeking state permission to overhaul its corporate structure and modernize its business practices. Doing so, it says, will allow it to make greater investments in new technology, seek additional partnership opportunities and explore other steps designed to reduce the cost of care.

The renewed move by Horizon Blue Cross Blue Shield of New Jersey — last attempted in December 2019 and under discussion for years — comes at a critical time with the nation’s struggle to respond to COVID-19 highlighting the need for new treatments and models of care.

The transition depends on legislation now being drafted by Assemblyman John McKeon (D-Union) to create a process by which Horizon could separate its health insurance operations, which cover some 3.6 million New Jerseyans, and the accompanying risk, from other aspects of the business. The bill is expected to be introduced by Monday, if not sooner.

While it continues to evolve, a recent draft of the legislation suggests all the entities would be controlled by a nonprofit mutual holding company that Horizon said would retain the company’s current charitable mission to provide affordable health insurance, support efforts to better integrate care, and promote innovation. The proposal would also revise Horizon’s tax liability and calls for the company to provide the state an additional $1.25 billion over 18 years to offset the impact of the change.

Working with familiar map

“The COVID-19 pandemic continues to remind us that when it comes to health, things can change very quickly and the healthcare system must be able to rapidly adapt to protect the people of New Jersey. Becoming a not-for-profit mutual has always been about one thing: making sure that Horizon, a company uniquely focused on New Jersey, is best positioned to adapt to the changing needs and expectations of our members and the communities we serve,” company officials said in a statement Wednesday. They noted a similar road map was used to reform Blue Cross Blue Shield plans in 18 other states.

But patient advocates have raised multiple concerns about the complex process, which they insist is a veiled attempt to convert the company into a for-profit entity, something that has been proposed several times in the past. If that were to happen, state law requires Horizon to set up a charitable trust based on the full value of the company, which appears to have more than $7 billion in assets, according to the most recent documents filed with the state.

“This is basically a shell game,” said Maura Collinsgru, health care policy director for New Jersey Citizen Action, one of several advocacy groups that have joined forces to oppose the transformation. “This appears in every way to set this company up for acquisition, and to pit private investment against the good of the people of New Jersey.”

Horizon insists that this push is not about becoming a for-profit company and said language has been added to the draft bill to make this clear. If that were to happen in the future, the existing law would still govern the process and would require placement of certain assets in the public trust, the draft bill suggests.

An old argument

The debate is rooted in the decades-old state statute that created Horizon, a unique New Jersey entity called a “health service corporation” that can sell insurance and must conduct business in ways that benefit policyholders. Previous attempts to reform this structure have involved lawmakers or state officials pressing Horizon to provide funds for public health measures, often in return for pledges to change its corporate structure or governance. These subjects also surfaced in 2017, when former Gov. Chris Christie tried to extract up to $300 million in annual payments from the company during budget negotiations in an effort to fund state opioid addiction programs.

The potential reform reemerged in December 2019 at the end of the two-year legislative session, a time when lawmakers traditionally seek to push through challenging measures before new members are sworn in and the legislative process must begin anew. Despite Horizon’s carefully crafted public campaign and McKeon’s efforts behind the scenes, the outcry from advocates led lawmakers to table the measure until they could gather additional input, possibly through public hearings. But within three months, COVID-19 had grabbed everyone’s attention and the process was set on the back burner.

Under the 2019 proposal, Horizon would have evolved within existing state law from a health services corporation into a separate mutual holding company that controlled several entities, including an insurance operation that would write policies and maintain the associated risk. It also called for Horizon to provide up to $1 billion over eight years to offset reduced taxes and support public health initiatives; last year the company said it paid $210 million in state taxes, some at rates far higher than its competitors.

Additional assets in public trust?

According to Horizon, the 2020 draft legislation was crafted to address the concerns raised by a variety of stakeholders, including those covered by its insurance policies. As written, it would essentially create a new path to reform by allowing the company to remain as a health services corporation — with the same unique mission to its policyholders — while also transitioning into a mutual holding company that includes a health insurance arm. The draft bill repeatedly stresses this change does not constitute a for-profit conversion, which would require Horizon to place additional assets in a public trust.

“New language specifically preserves all of the essential elements that protect Horizon’s historic not-for-profit focus and mission while enabling the modernization of our corporate form to give the Company the flexibility to accelerate the pace and scale of investments that will ensure we are there for our members when they need us most in the future,” Horizon said in a statement.

Patient advocates remain wary of what the change could mean for Horizon policyholders and the public at large, given the company’s statutory responsibilities to support affordability, integrated health systems and innovation. New Jersey Citizen Action and others plan to host a teleconference today to discuss the impact of these reforms in other states, like California, where they claim the public lost out when Blue Cross Blue Shield entities overhauled their business practices in similar ways.

“Other states where these moves have happened have been setups for acquisition,” Collinsgru said, noting that in some cases the reformed companies had later been sold to for-profit operators. “What does this really mean for the 3.4 million people who are insured by them?” she asked.