ROI-NJ

Battle Brewing: Horizon's Desire To Become Mutual Faces Resistance From Governor's Office, Progressives

The debate: Is this way to be able to invest in more tech or to avoid for-profit conversion process?

ROI-NJ — December 16, 2019

By Tom Bergeron

Assemblyman John McKeon stands firm in his commitment to the bill he introduced late last month that would allow Horizon Blue Cross Blue Shield of New Jersey to convert its corporate form from a not-for-profit health services corporation to a not-for-profit mutual.

"It's the old story about dinosaurs become extinct and reptiles have to adapt," McKeon (D-Madison) told ROI-NJ. "We've got to give them the opportunity to be competitive if we're going to make certain that all of the covered lives get the best health care and be able to keep affordable premiums. That's really what it's all about."

In a nutshell, Horizon is arguing it needs to change its corporate structure to be able to modernize its ability to invest in new technologies — the type of technologies new-age companies are bringing to market.

Others aren't so sure.

The bill may have support in both houses of the Legislature, but numerous others — including representatives from Gov. Phil Murphy's administration and various advocacy groups — have expressed reservations.

Since the story first was reported, ROI-NJ has had numerous people express that they feel Horizon is using the process as an end-around to avoid a full conversion to a for-profit entity.

Most people were not eager to speak publicly. Maura Collinsgru, the health care program director at New Jersey Citizen Action — a progressive group — was one of the few willing to speak on the record about what is shaping up to be a battle for approval. And she's not buying the investment argument.

"It's a nice thought, but there's no data behind it and there's no details," she said. "They don't need to be Apple. They don't need to be Walgreens. They're the largest insurer. They have the greatest market share here in New Jersey and they're set up as a charitable health services corporation by and for the people of New Jersey. That gets lost in some of these other behemoth structures. So, we think that there's not detail there. There's just these nice things they say, but you know, there's really no detail."

At the time of its introduction, Horizon officials pointed to the fact they can only invest 2% of their surplus as one of the reasons for the change. Collinsgru challenges that.

"If there's an issue in terms of what they can invest, that's a discussion that could be had and talked about in terms of the current laws that are on that are in place," she said. "I understand one of the issues is they can invest more than 2% of their surplus. If that's an issue and it's a real barrier and they present the details where that actually is a barrier that's negatively impacting the people of New Jersey, then that's a conversation that could be had and something that could be fixed under the structure."

There will be ample opportunity for that, McKeon said.

While state Senate President Steve Sweeney (D-West Deptford) sent out word moments after the bill was introduced that he was a supporter — a position echoed by Assembly Speaker Craig Coughlin (D-Woodbridge) — McKeon said he wants and expects plenty of discussion.

It's one of the reasons why McKeon said he does not believe it will be taken up during the lame duck session that ends Jan. 14.

"We're not going to move it in lame duck, but I introduced it to get the conversation going," he said. "This is something that's critical to the entire state and certainly to all the policy holders. Blue Cross Blue Shield is now a strong company and that's the time to put them in a position to compete with all of the for-profits who are about to enter our market. CVS and Aetna have a joint venture now. More is coming."

As are more questions.

Someone familiar with Murphy's thinking, but who asked for anonymity because they are not authorized to speak publicly on the matter, said the administration has plenty of questions. And, they said, they wished the Governor's Office had been brought in on the process sooner.

"There's a lot of details that would need to be worked out, if we even decided this was a good idea from a policy perspective," the person said.

"We've asked them a couple of very simple questions. The biggest: How is this different fundamentally from a conversion? The conversion statute says if you go from a health service corporation to a for-profit, stock-issuing insurance company, you have to do a number of things.

"Specifically, you have to have a judicial evaluation for the total value of the company. That valuation needs to be placed into a charitable entity that will serve to fulfill the mission of the charitable organization, because it's no longer going to be functioning as charity."

The person said laws are in place to ensure that, when charities need to dissolve, their mission is fulfilled.

"You can't take the benefit of state and federal tax codes and then dissolve your entity overnight, and the money just goes to your executives or your shareholders, however you want to distribute it," the person said. "There are decades of law in New Jersey that govern this process."

Collinsgru echoed those thoughts and said she feels Horizon may be using the change as a workaround to a conversion to a for-profit company, while taking some of its not-for-profit reserves with them.

"To use that as a cover for basically converting to a wholly for-profit subsidiaries with an umbrella of a nonprofit title is a bit disingenuous," she said.

Because, the source said, there is nothing from stopping Horizon from converting to a for-profit down the line.

"What happens if, in three years, they decide to convert from a mutual to a for-profit stock insurance company?" the person asked and then answered. "Are they still covered by the conversion statute? No. So, this is a way they can be converting in steps."

McKeon said there is no end-around. He said he's been talking about the bill for a year — and is willing and eager to keep talking about it.

"Everyone will have their say to argue however they would like to," he said. "I spoke to the advocates for an hour and a half regarding their opinions and they, frankly, hadn't synthesized all the different arguments they had themselves. This is, frankly, something that's not without great complexities. This is not always the way to proceed, but 18 other states have done this conversion. So, we have a little bit of a world map, especially if you look at Michigan and Florida, which are states similar to ours, regarding the pros and the cons.

"I'll tell you this, if they're just left as a health care service corporation with the current limitations that they have, they'll never be able to compete and ultimately will end up being nothing other than the insurer of last resort. This will leave a majority of the policyholders without good options or at least without affordable ones."

Collinsgru insists there are other options — and that proponents such as her have not been heard.

"There is an argument that somehow they're not competitive and they can't serve the people of New Jersey under the current structure," she said. "Quite frankly, they've not heard from the other side. There's a lot of information out there that says that's not the case. And, clearly, their current situation doesn't bear that out. They insure more people than anyone else. Their financials are stellar. They have a huge surplus. So, it's a little difficult to figure out wherein lies the problem."

Collinsgru also said there are other ways to change.

"If Horizon needs to convert and wants to convert and wants to pursue this path, there is a process already enshrined in New Jersey law for them to do that: It's the 2001 conversion law," she said. "They need to file that application with the attorney general. They need to engage (the Department of Banking & Insurance). They need to have public hearings. If it's all approved, they need to establish a charitable trust.

"This is what I think this bill is trying s to circumvent. And there's no reason. If they want to convert, there's a process, let them follow it. We don't need to rewrite the law so that they can get out of making a charitable trust payment to the people of New Jersey."

McKeon said something has to be done.

"I think what I introduced is a good start," he said. "This is the beginning of the processes. Now, we're getting into the public component, which is another aspect of the process.

"I'm hopeful that I'm going to have primary sponsors that are Republican. I'm hopeful that we'll have hearings that are bicameral and bipartisan. This is something that's too important for us to get wrong."

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