Murphy administration, consumer groups wary of Horizon conversion

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Consumer advocates and Murphy administration officials are seeking to slow down or even block legislation that they say would alter the business of the state’s largest health insurer and affect its millions of policyholders in the state.

A bill introduced by Assemblyman John McKeon,  D-27th District, would allow Horizon Blue Cross Blue Shield of New Jersey to become a not-for-profit mutual insurer. The proposed legislation is backed by Senate President Stephen Sweeney, D-3rd District.

Assembly Bill 6062 would allow Horizon, which provides health insurance for over three million state residents, to convert from a nonprofit charitable health insurance company to a newly created structure of a “not-for-profit mutual holding company.”

A senior Murphy administration official, who requested anonymity to speak freely on the matter, said the change would actually allow Horizon to generate profits, which might hurt state residents who use the insurer.

The official said the new structure could pave the way for a parent company of the health insurer to also create an “unlimited number of subsidiaries which can be for-profit companies.”

“So what you have is a situation where the mutual owns the insurance, it also owns a for-profit company that’s doing any other number of business activities, that can then influence the behavior of the mutual, which would then influence the behavior of the insurance company,” this person said.

“If you ask them ‘well how is that any different from you just becoming a stock-issuing insurance company,’ well they don’t have a great answer to that,” this person added.

The Murphy administration official also called the measure an “end-run” around existing laws governing how the insurance company can do business in the state.

“You could easily use this as a two-step process to get completely out of your obligation” under the current law, this person said.

Another administration official who also requested anonymity agreed with the assessment of two advocacy groups – New Jersey Citizen Action and NJ Appleseed Public Interest Law Center – that Horizon’s proposed change to its corporate structure needs much greater involvement of the courts and the attorney general.

“There is no reason to take away the function, no reason to eliminate the process of the AG’s office,” this person said. “The AG’s office should be reviewing this and the courts should be approving this. … Unless you’re trying to get something done without the scrutiny of the AG.”

Under current law, Horizon would have to seek approval from the attorney general to change its structure because the state has an obligation to oversee charitable organizations. Ultimately, a court would have to sign off on such a move.

The administration also questioned the timing of the bill’s introduction, which came during the afternoon of Nov. 25.

“We don’t introduce legislation at 5 p.m. on a Monday on a holiday week that affects the health care of 40 percent of the state,” this person said.

A Horizon spokesperson said sections of the bill and existing law address the concerns raised by the administration. The company pointed out, for example, that the conversion would still require approval from the Department of Banking and Insurance.

At an unrelated public even on Dec. 4, Sweeney said administration officials had been involved in discussions over the bill for about a year and that the participants believed they were in agreement. “It’s not that we just came up with a bill and just threw it out there, we had been working on this for quite some time,” he said. “And if the administration denies it, they’re not being honest.”

Impact on consumers

During a Dec. 3 news conference, New Jersey Citizen Action Health Care Program Director Maura Collinsgru said that the bill should not be rushed through the Legislature’s lame duck session.

“A change of this magnitude cannot be undertaken without all the facts. A comprehensive analysis of Horizon’s current assets and an independent health and rate impact assessment need to be done before legislators and the public can consider any such change,” Collinsgru said.

New Jersey Citizen Action Health Care Program and NJ Appleseed Public Interest Law Center noted that, unlike other insurers, Horizon has no owners and is accountable to the people of New Jersey. As a result, they claim that Horizon receives special consideration under federal and state law. Changing the business structure of the state’s largest insurer could have a massive impact on New Jersey health care consumers and taxpayers, according to the groups.

Horizon’s previous attempts to convert to a for-profit insurance company were unsuccessful and resulted in a 2001 law that requires Horizon to make a charitable trust payment for the full value of its assets should it convert in the future, according to NJCA and NJ Appleseed.

“The smallest change to Horizon’s structure could have a tremendous impact on the health care of millions of New Jersey families, as well as the broader health insurance market,” said Ray Castro, director of health policy at New Jersey Policy Perspective.

“This proposal is far too broad and complex to be fast tracked without a serious vetting process. It is critical that lawmakers commission an independent study to measure the anticipated impact on premiums, quality of care, and other carriers coming into New Jersey before any such proposal advances. Only then will administrative officials be equipped to make recommendations for Horizon’s corporate structure based on the facts, rather than conjecture,” Castro said.

“New Jersey Appleseed is somewhat puzzled why Horizon Blue Cross Blue Shield  is yet again seeking legislative approval to ‘materially change its form’ from a nonprofit, charitable corporation to a for-profit mutual insurance company–whose assets will be transferred to a nonprofit mutual holding company or one or more of the subsidiaries of such company— without involvement of the Attorney General, approval of the New Jersey Superior Court, and a charitable trust settlement payment at the time of conversion,” said Renee Steinhagen, New Jersey Appleseed’s executive director.

“In 2001, the Legislature set up a procedure to be followed in the event that Horizon sought to materially change its form and relinquish its charitable mission, even if it remained a nonprofit organization with a substantially different mission or became a mutual insurance company. This procedure must be followed. The regulatory freedom that Horizon seeks through the proposed legislation by creating a new animal, not currently known under New Jersey law, a nonprofit mutual holding company, cannot be sanctioned,” said Steinhagen.

“From our point of view right now this needs to be stopped, needs to be analyzed and needs to be clear what they are actually creating here and what they are actually doing. Our first read leads us to believe that they are seeking to just convert and to avoid a charitable trust payment at this point. And to convert into a form that in the future would not benefit even its policy holders, which is the mission of the new mutual, which is to benefit the policy holders and not the community,” Steinhagen said.

Stepping stone?

Chuck Bell, programs director, Advocacy for Consumer Reports, said that over the last 25 years, Blue Cross plans in other states have frequently used mutual company structures as a stepping-stone to fully convert to for-profit operation.

“Mutualization is a hugely significant change in state corporate form that directly affects Horizon’s value and operations, which may also make it a high priority target for merger or acquisition,” Bell said.

He added that New Jersey consumers have relied on Horizon as a charitable health service corporation since the 1930s, and deserve to fully participate in this decision.

“New Jersey needs to be extremely careful to ensure that Horizon’s $5 to $10 billion in charitable assets are fully protected and that consumers are not hurt by higher prices and reduced competition from any future insurance company mergers,” said Bell.

Responding to those remarks, a spokesperson for Horizon said the company is unwavering in its commitment to serve its members and the health of New Jersey’s communities.

“We appreciate the input offered by the advocates today on this legislation allowing Horizon to apply to the Department of Banking and Insurance to become a not-for-profit mutual. The legislation recognizes that Horizon’s not-for-profit assets must be preserved for the benefit of New Jersey and specifically requires the not-for-profit mutual, in the event of any effort to become a for-profit entity, to comply with the existing laws that protect the public interest, ” the spokesperson said.

In addition, Horizon said it is “committed to an open and transparent process, to our not-for-profit mission, to our members, and to the health of New Jersey’s communities. We look forward to continuing to work with the advocates, other stakeholders, and the sponsors to identify common ground to move health care forward for New Jersey.”

Daniel J. Munoz contributed to this report.

This article was updated at 1:45 p.m. EST on Dec. 4, 2019 to add a comment from Stephen Sweeney.