Two state committees Monday approved a bill that would permit a sweeping and controversial corporate restructuring of New Jersey’s largest health insurance provider, which would net the state budget as much as $1.25 billion over the next quarter-century, in exchange for less government oversight and fewer taxes.
Legislation allowing Horizon Blue Cross Blue Shield of New Jersey — a not-for-profit that was once the state’s insurer of “last resort” — to apply to state regulators for permission to function more like a for-profit company is moving fast. Introduced Dec. 10, the bill cleared the Assembly Insurance and Financial Institutions and the Senate Commerce Committee Monday, and will be back before the Senate Budget and Appropriations Committee Tuesday.
“Today was another step in permitting Horizon Blue Cross Blue Shield of New Jersey to be able to take advantage of innovations and medical advances enabling them to better support the well-being of their members and stabilize premiums,” said Assemblyman John McKeon, D-Essex, the prime sponsor of the bill, said after the 9-2 vote.
Both houses of the Legislature may vote on the bill as soon as Thursday, the last voting session of the year.
Republican lawmakers, consumer watchdog groups like Citizen Action, Consumer Union and New Jersey Appleseed as well as a handful of community nonprofit organizations urged lawmakers to slow down and bring in corporate law experts to help decide whether this is the right move for the state.
“This is new to a lot of us, and I see red flags going up all over the place here,” Assemblywoman BettyLou DeCroce, R-Morris, said.
Maura Collinsgru from New Jersey Citizen Action cautioned lawmakers that the bill is just positioning Horizon for a future conversion to a for-profit entity without having to follow a 2001 law requiring it to place the value of its assets — an estimated $7 billion — into a trust account to fund public health programs.
“There is a false sense of urgency here, and there are no actual reasons for that to be the case,’’ Collinsgru told both committees, meeting in separate virtual hearings.
Horizon is a $13 billion company based in Newark that employs 5,600 people and insures 3.6 million people. Its executives claim the company can’t compete with national for-profit companies because of Horizon’s unique structure as a not-for-profit health services corporation.
As competitors expand into new lines of business, such as buying physician networks or investing in new technology to track policy holders’ health, state law limits Horizon to a 2% investment in any one venture. Horizon Executive Vice President Allen Karp testified the company would like to double its successful effort of managing the health of 24,000 people on Medicaid, but can’t, because it would need at least $50 million to do so.
“Critical investments in these kinds of proven community-based care models would not only create a virtuous cycle of improved health outcomes for New Jersey residents, they would also create new jobs, expand business opportunities and drive stronger economic growth across the state,” Karp said.
Opponents have been far outnumbered by the dozens of business organizations and community nonprofits that have lobbied for the bill on Horizon’s behalf.
Andi Williams, Executive Director of Community in Crisis, a nonprofit that works with people addicted to drug, said thanks to Horizon’s “support and belief in our work and outreach, we has been able to serve and improve the lives of many of New Jersey’s most vulnerable residents grappling with a much underfunded disease.”
The bill, (A5119), amended minutes before the Assembly hearing began at 11:30 a.m., would require Horizon to write the state a check for $600 million by June 1, 2022. Another $625 million, paid piecemeal over the course of 25 years, would likely follow, although the company could forgo payments if revenues do not reach a specific threshold.
Sen. Anthony Bucco, R-Morris, said the lack of restrictions and oversight over how the state spent that money concerned him. “Other states have dedicated funding to communities that were underserved, or for the benefit of the ratepayers,” Bucco said.
Sen. Gerald Cardinale, R-Bergen, asked how Horizon had $600 million on hand to pay the state, and why that money wasn’t being returned to policy holders in the form of lower premiums. Horizon insures many local government workers and premiums drive up property taxes, he said.
“My constituents pay very high property taxes. We should just lower the premiums if you have that much money flowing around,” Cardinale said.
Anthony Coscia, Horizon’s attorney, said the money comes from the reserve account, with the understanding that Horizon’s tax burden will be about $50 million lower each year if the legislation passes.
The bill also expands the existing board of directors from 15 to 22 members, with nine government appointees. The positions are paid, with a salary starting at $77,000 — a cost Cardinale expected his constituents to not like. “I am very confident my constituents would instruct me to vote no.”
The bill passed the Senate committee by a 3-1 vote with one abstention.
Horizon’s offer to pay $600 million up front has struck some consumer advocates and lawmakers as odd. It was only three years ago Horizon strongly resisted Gov. Chris Christie’s attempt to extract $300 million from Horizon’s reserve account to expand drug treatment programs and help the state contend with its opioid addiction epidemic. Horizon insisted that parting with that money would harm the fiduciary interests of its policy holders.
The public squabble played out as the Legislature and the governor were negotiating the state budget and led to a three-day government shutdown. The compromise gave the state Banking and Insurance commissioner the authority to decide how much Horizon could keep in its reserve fund based on a percentage of its revenues.
According to its 2019 financial report, Horizon holds $2.7 billion in reserves — an amount that does not exceed the limit set by the 2017 law, Banking and Insurance Department spokeswoman Trish Graber said. The law does not allow specifics details about how the calculation was made to be released publicly.
Senator Nellie Pou, D-Passaic, the chair of the Senate Commerce Committee and the bill’s other prime sponsor, acknowledged the bill is “not perfect,” but it does enable Horizon to expand and innovate in ways that will benefit New Jersey.
“The company will be able to enhance services in a variety of ways, including actions that can reduce out-of-pocket costs and expand telemedicine, among other improvements,” Pou said after the vote.
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Susan K. Livio may be reached at [email protected]. Follow her on Twitter @SusanKLivio.