NJ Spotlight

New Plan For Horizon Could Require Insurer To Turn Funds Over To NJ

Contentious meeting hammers out regulations, one of which could establish a maximum surplus size that insurer could maintain before disbursing funds

NJ Spotlight — June 27, 2017

By Colleen O'Dea

Lawmakers are not willing to give Gov. Chris Christie the $300 million he wants from Horizon Blue Cross Blue Shield of New Jersey, but a Senate committee on Monday night passed a bipartisan bill that could have the insurer turning over money to the state in the future.

The Senate Budget and Appropriations Committee approved by an 11-1 vote with one abstention a measure (S-4) with four main components, the most radical of which would establish a permissible surplus size for Horizon and require that any excess be used to benefit policyholders and for other health-related purposes that would benefit all state residents.

The lopsided vote does not reflect the contentiousness of the two-and-a-half hours of discussion and testimony about the bill, which is strongly opposed by Horizon and a number of other business organizations, unions, and other groups, whose members overfilled the seats in the committee room.

And driving the noise level up, a black truck was parked in front of the State House Annex, where the hearing took place, with a screen on its side running an ad by the group Hands Off Healthcare NJ in opposition to the planned diversion of Horizon funds.

"This is a rushed job," complained Doug Johnson, testifying on behalf of Hands Off Healthcare. "Transparency is a good thing, but targeted transparency for one is tyranny. It is an abuse of government power ... apparently because the company didn't pony up $300 million."

In addition to potentially giving the state the right to put excess profits into a new New Jersey Quality Health and Wellness Fund, the bill sponsored by Sen. Joseph Vitale (D-Middlesex) would have the state publicly post the financial filings of all insurers, make three of the 15-member seats on Horizon's board subject to a vote by health plan members, and declare Horizon to be the state's "insurer of last resort."

What the bill does not do is take $300 million from the state's largest insurer — something Christie requested privately in talks with Horizon and then publicly in his budget address. Christie said he wanted that money to fund drug addiction programs and other healthcare needs, which would have freed up other state funds to help balance the budget.

However, the governor seemed to have given up on getting that specific amount of money two months ago, when he instead presented legislative leaders with a proposal to increase transparency of the company's filings, give legislators the ability to fill four seats on Horizon's board, and give state officials the power to divert any excess profits for state health-related needs in the future.

Reconciliation legislation

Vitale, chairman of the Senate Health, Human Services and Senior Citizens Committee, said his bill is an attempt to reconcile Christie's desires and those of Sen. President Steven Sweeney (D-Gloucester) with the concerns of Horizon and input from insurance experts and other groups interested in the issue.

"I completely reworked any proposals put in front of me," Vitale said.

For instance, Christie wanted to expand the Horizon board by four members, to 19, and have legislators make appointments to those seats to be representatives of the public interest. Vitale disagreed, saying there is "no need to expand" the board. Instead, his bill would take three of the 11 members largely appointed by the Horizon CEO and have them elected by "subscribers."

Horizon officials, though, warned that the bill likely would force the company to raise its rates and could lead it to losing its license to be part of the national Blue Cross Blue Shield System.

Significant alterations

Michele Jaker, Horizon's director of government affairs, said the bill "significantly alters the structure, mission and obligations" of the company, which insurers 3.8 million New Jerseyans, has 5,500 employees, and has been operating for 85 years in the state. She said a 1992 state reform law eliminated the company's obligation to be the insurer of last resort in part because that designation — which included forcing Horizon to insure those who were very sick and turned down by other companies — "nearly drove the company to insolvency." If Horizon again has to bear that mantle, "premiums will have to be raised," she said.

Vitale, however, read from a memorandum from the state attorney general's office stating that the 1992 reform bill "did not relieve Horizon of its status as the insurer of last resort."

Dave Huber, Horizon's chief financial officer, said the company already is allowed no more than a 1 percent profit margin and if the insurer exceeds that, it returns the excess to its customers. He said that last year the company's revenues totaled about $12 billion and it had a profit of some $85 million, which was less than the 1 percent allowed.

The company reported nearly $2.4 billion in reserves at the end of 2016, a level it has insisted is appropriate for its risk and in line with industry standards.

Losing its license

Should New Jersey ever revoke Horizon's certificate to operate in the state — which it could do should the insurer refuse to pay excess surplus to the state if ordered to do so — that would lead to the national Blue Cross Blue Shield Association's terminating Horizon's license to operate as a BCBSA company and force it to pay a $400 million termination fee.

Lawmakers asked if such a termination had happened in any of the other states in which BCBSA insurers operate with similar excess-surplus caps and were told it had not. They also tried to get the Horizon representatives to talk more about how much they are planning to raise premiums in the coming year, but were told the company has until July 7 to file for any increase and had not yet made any decisions on premiums.

The biggest complaint from the representatives of other groups who testified is that the bill included the possibility that money deemed excess surplus could wind up going into state coffers, with just about everyone saying that if Horizon has any excess surplus, it should be returned to the people who paid it in the first place.

'Stealing their money'

Ed Richardson, executive director of the New Jersey Education Association, said the bill "at its core allows the state to seize" money from Horizon. If it were determined that the insurer overcharged customers, "that money belongs to the policyholders ... it should be provided to the people who paid it in the first place." Anything else, he said "is essentially stealing their money."

Vitale's bill seeks to have Horizon draw up a plan for dealing with an excess surplus that would include giving back to its customers and would only have the money go into the newly established state health fund should Horizon and the commissioner of state Department of Banking and Insurance be unable to agree on a plan for disbursing the funds.

"This is by no means a slush fund, by no means is it a money grab," Vitale said.

That part of the bill was modeled after a program in place in Pennsylvania, where excess surplus is called "inefficient." Vitale's bill borrows that term, saying that any surplus in excess of the maximum of the range determined by the DOBI commissioner "be deemed inefficient."

Ultimately, everyone who testified urged the committee to hold off, saying the issue is too complicated to rush, particularly with changes in the federal health insurance system looming.

Take it slow

Dena Mottola Jaborska, associate director of New Jersey Citizen Action, was the only person who testified that there were any merits to the bill. But she said the organization had not had enough time to study it yet, given it was only introduced on Friday, and she called for the committee to take more time to consider the issue.

"Mostly I just want to urge you to slow down," she said. "We see this as a major change. A lot of what this bill tackles is very complicated ... We do appreciate the debate, we just think it should go on longer."

Michael Egenton, the executive vice president and head of government relations for the New Jersey State Chamber of Commerce, agreed, saying he is concerned about the "unintended consequences" of rushing the measure through.

"This is a Pandora's box," he said. "A bill of this magnitude needs to be properly vetted, and not in the waning days of a state budget."

Vitale said those calls are unwarranted, as he "spent a considerable amount of time over the last several weeks" considering the issue and potential solutions.

"It's offensive for me to hear we are unable to work in an efficient, quick manner to resolve issues," Vitale said. "The bill is just a few pages and I believe it's fair."

Majority rules

A majority of the committee agreed that a vote was not premature and supported the bill. Sweeney and Vitale both sat as committee members today — instead of Sens. Linda Greenstein (D-Mercer) and Patrick Diegnan (D-Middlesex) — although their votes turned out not to be needed because four of five Republicans endorsed the measure. Only Sen. Jennifer Beck (R-Monmouth) voted "no," while Sen. Jeff Van Drew (D-Cape May) abstained. Beck is facing a strong challenge from Democrat Vin Gopal in this election year and Van Drew's district has more registered Republicans than Democrats and had one Republican Assemblyman until last year.

Van Drew said he had "very, very serious concerns" about the bill. Beck said she voted against it because it could allow for excess profits to go to the state, rather than to those who paid the premiums in the first place.

"My instinct is if you have policyholders, subscribers, health plans, whether individuals or groups, who overpaid, that they should get that money back," she said. "That's not for the state of New Jersey to sweep in and decide 'we are going to use this for our new pet project.' It should not become a piggybank for the state of New Jersey."

It's unclear what will eventually happen to the bill; the board list for Monday's Senate voting session is incomplete.

There has been speculation that passage of the Horizon bill is part of the negotiations over passage of the state budget, which by law must happen before July 1. But Assembly Speaker Vincent Prieto (D-Hudson) said the lower house will not consider any legislation concerning Horizon before the budget is adopted. And two Democratic Assembly members, John Wisniewski (Middlesex) and Elizabeth Maher Muoio (Mercer), already announced they would not support the measure.

Christie, asked about the issue on Monday night's Ask the Governor radio show, refused to tip his hand, saying he had looked at the bill but would not make a decision on it until it reaches his desk and he would "not negotiate" the issue on a radio show.

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