Extra Regulation Sought For Horizon's Conversion

State attempts to estimate impact of for-profit status

NJBIZ — Monday, June 22, 2009

By Shankar P.

Small businesses are keeping a close watch as the state's largest health insurer, Horizon Blue Cross Blue Shield of New Jersey, winds its way through legislators, regulators and public hearings in its quest to convert itself from a nonprofit to a for-profit company.

Horizon knows "they have a gold mine in small business," said J. Kelly Conklin, owner of Foley-Waite Associates, a Bloomfield-based architectural woodworking firm that specializes in the residential market. He said policymakers must look out for the state's smaller employers, as "the small-business community pays a higher premium, because their pool is small."

To defend small-business interests, Rutgers University's Center for State Health Policy, in New Brunswick, will be mindful of the potential impact on these employers, said Joel Cantor, a Rutgers professor of public policy and the center's director. The state Department of Banking and Insurance, or DOBI, has chosen Cantor's center to conduct the health impact study.

Two weeks ago, a state Assembly committee held a hearing on a bill that seeks to establish four hearings examining whether to allow Horizon to make its conversion. At least one would come after the release of this study, according to the bill.

Cantor said the study would track the potential impact of Horizon's conversion on "all health insurance markets," not just small businesses. "Small businesses are possibly more vulnerable, but [health insurance] is also a regulated market, so that would reduce their vulnerability," he said. "Yet, they don't have the bargaining power of large businesses."

Rutgers and DOBI are currently discussing the study's scope and time frame, Cantor said. And DOBI is retaining an actuarial firm to examine the potential impact of Horizon's conversion on premiums, which "is of great importance to the small-business community," he said.

All this is familiar territory for Cantor, who co-authored a discussion paper on Horizon's proposed conversion to a for-profit corporation in 2003, one of several similar attempts by the company over the years.

Small and midsized businesses would benefit from Horizon in New Jersey as a for-profit, said Tom Rubino, its director of public affairs, corporate marketing and communication relations. A for-profit Horizon would be "more efficient, and offer more services," he said. "The conversion in and of itself doesn't mean higher premiums; they are reflections of the underlying cost of health care."

But advocacy groups like New Jersey Citizen Action are concerned about the commitment of a for-profit Horizon to those covered by Medicaid and the New Jersey FamilyCare Advantage, a low-cost program for children of low-income families. That is a big concern because, until recently, Horizon was the only insurer offering insurance through FamilyCare Advantage, said Eve Weismann, New Jersey Citizen Action's Highland Park-based health care campaign coordinator.

Rubino said, "The marketplace determines a lot of these things," adding that his company does a significant amount of charitable and community work.

Weismann testified in favor of the bill — which would create the four hearings — before the Assembly Financial Institutions and Insurance Committee. Other supporters of A-3729/S-2532 include the Medical Society of New Jersey, New Jersey Policy Perspective and the New Jersey Public Health Institute.

But John M. Leyman, Horizon's director of government affairs, testified at the assembly hearing, arguing against creating additional public hearings and an extra health impact study. He took particular exception to the bill, calling for the creation of a new regulator, in the form of the state Department of the Public Advocate, "to protect the public interest." With the attorney general and DOBI already involved as regulators, "the requirement of a third department is difficult to understand," Leyman said.

Those obstacles could lead Horizon to withdraw its application for the conversion. Blue Cross Blue Shield insurance companies have won bids to convert themselves into for-profit corporations in 13 other states, but were denied approval or withdrew in Kansas, Maryland, North Carolina, Washington and Alaska, said Chuck Bell, programs director at Consumers Union, of Yonkers, N.Y.

It isn't easy to compare the impact of the conversions in other states on premiums, deductibles and scope of coverage, Bell said, as the markets vary significantly from one another. One report on the impact of Blue Cross conversions across the country, by Christopher J. Conover, a Duke University research scholar, found "the average effects [of conversion] mask sharp differences across states."

The ensuing debate must eventually provide a fairer health insurance deal, Conklin said. He doesn't relish paying higher premiums for his staff of 13, which has a higher proportion of older employees than the average business.

"That template is wrong," he said. Insurers should adopt "a broader template" to bring all small businesses in one pool, to distribute risk and consequently lower premiums, he said.


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