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N.J.'s Largest Insurer Is Offering State $1.2B To Get Into Health Care Business.

Some warn it's a risky deal.

NJ.com — December 5, 2020

By Susan K. Livio | NJ Advance Media for NJ.com

Horizon Blue Cross Blue Shield of New Jersey, a $13 billion nonprofit that insures one out of every three residents in the state, has asked lawmakers to pass a law allowing it to operate more like for-profit competitors so it can expand into managing people's health.

In return, Horizon would cut a check for $600 million to the state by June 2022, with potentially another $625 million paid over the next 17 years that would be contingent on the company's performance, according to a draft of the legislation that is expected to be introduced in the state Senate on Monday.

With a state budget that relies on $4.5 billion in borrowing to cover revenue losses created by the pandemic, the cash infusion has obvious appeal for state leaders. And with its roughly 5,600 employees, Horizon is one of the state's most influential and important companies.

So far, state lawmakers have embraced the concept, and with Gov. Phil Murphy's advisers, are working behind the scenes with Horizon executives and critics to craft the legislation that would turn the not-for-profit health services corporation into a not-for-profit mutual holding company.

Sen. Paul Sarlo D-Bergen, chairman of the Senate Budget and Appropriations Committee and one of the bill's sponsors, expressed his support in a statement Wednesday.

"Horizon needs greater flexibility in investments and innovation to bring more affordable and accessible products to its members," he said.

Assemblyman John McKeon, D-Essex, chairman of the Assembly Insurance and Financial Institutions Committee, introduced a similar bill a year ago. But amid sharp complaints and questions from consumer advocates, the bill was withdrawn and has undergone many rewrites. In this version, there is more money up front — $600 million instead of the $200 million proposed last year. The state would potentially receive $1.25 billion compared to the $1 billion in the 2019 version.

The bill also expands Horizon's board of directors from 15 members to 22, with five appointed by the governor, two by the Senate President and two by the Assembly Speaker. And the legislation gives the Department of Banking and Insurance the final say over Horizon's request for a corporate restructuring.

McKeon, who held a five-hour virtual hearing Tuesday on the proposal, said the changes are necessary for the company's "evolution" that will not detract from its core mission of serving its 3.6 million policy holders.
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"Just as the most successful animals on our planet thrive by adapting to their environment, we need to recognize when the time has come to facilitate the evolution and modernization of this long-standing organization," McKeon said.

The change in structure would allow Horizon to create separate for-profit subsidiaries that could raise capital and invest in new technologies and other lines of business, Kevin Conlin, Horizon's executive board chairman said during the hearing.

Horizon sees that major companies like Google and Amazon, which have "reshaped consumer behavior and expectations" moving into health care without any barriers, while Horizon, an 88-year-old company that serves about 1 million Medicaid recipients and more people who buy policies on the Obamacare health exchange, is left on the sidelines, he said.

Under state law that created Horizon, the company cannot invest more than 2% from its reserve fund in any one entity, according to the company.

"Consumers are demanding more. They want high quality care that is more convenient, more connected, and more affordable," Conlin said.

Horizon wants to get into businesses that track policy holders' health through wearable technology such as smart watches or work directly with a network of physicians, as its counterpart in Florida has done since it changed its structure, Conlin said.

"Even with this change, we will remain a not-for-profit, charitable and benevolent company. Our mission, and our unique commitment to members and New Jersey will not change," he said.

But consumer watchdog groups like Citizen Action, Consumer Union and New Jersey Appleseed cautioned lawmakers that the bill is really just a covert transformation into a for-profit entity — something it has explored but abandoned three times since 1996.

Under an existing 2001 law, if Horizon converted to a for-profit company, it would have to place the value of its assets — an estimated $7 billion — into a trust account to fund public health initiatives. The Attorney General would also have to sign off on the conversion to ensure it benefited the public.

"Their assertions they need to change the law is without merit. They can provide the health services they see fit," said Maura Collinsgru of New Jersey Citizen Action. "The only need for the bill is to relinquish and walk away from the $7 billion charity trust payment. This is very convoluted shell game."

Renee Steinhagen of the public interest law center New Jersey Appleseed, called the bill "a gift" to Horizon. She noted that the $625 million Horizon would pay over the course of 17 years is not guaranteed.

"If they are going to take their community mission seriously, that has to be spelled out in the bill. It cannot just be declared a charity," she said. "It needs to have a broader mission that clearly tells us what it is going to do to improve community health."

During the hearing on Tuesday, McKeon acknowledged Steinhagen's point about the tenuous later payments. "I am going to change that, and expand it to 30 years to make sure it gets paid," he said.

McKeon also said he would send drafts to the state Attorney General's Office and the Department of Banking and Insurance, an unusual step, "to ask for additional safeguards."

During the virtual hearing, Assemblyman Joseph Danielsen, D-Somerset, admitted he didn't understand why Horizon needed a change in corporate structure because it's such a lucrative company.

"We know that Horizon has plenty of money. How do you reconcile that?" Danielsen said.

"We can review the bloated salaries at the top," Danielsen added. "You have cash on hand — you're telling me none of these programs can be invested in now? That's math I can't understand."

Eleven of the highest paid officers or senior employees earned more than $1 million, according to 2018 financial documents on the Department of Banking and Insurance.

The $600 million payment to the state would be taken from the company's reserve account, Conlin said.

Sen. Joseph Vitale, D-Middlesex, chairman of the Senate Health, Human Services and Senior Citizens Committee, noted that when Gov. Chris Christie three years ago tried to extract $300 million from Horizon's reserve account for opioid treatment programs during the state budget process, the company refused. It led to a three-day government shutdown. Yet Horizon is ready to part with twice that amount for this legislation.

"We need to take the time to examine this bill," Vitale said. "There are also questions about where does the money go? The money should go back to the people...These are health care dollars."

At upcoming public hearings, expect there to be tussle over how these funds are spent.

Murphy Administration sources who spoke on condition of anonymity said the $600 million Horizon would pay by June 2022 would help the state through its "unique, once-in-a-century" fiscal crisis the pandemic has caused, and help offset the extraordinary amount the state has borrowed to offset the "collapsing" revenues and rising expenditures, the sources said.

The administration sources say they believe the latest version of the Horizon bill they've help shape sufficiently cements the company's obligations as a charitable organization, with a larger oversight board "to keep the new structure honest."

Horizon would continue paying taxes to the state, an estimated $200 million a year, but less than the $244 million it paid last year, Horizon spokesman Tom Vincz said. The reduced tax burden the legislation allows would be more akin to what for-profit insurance companies pay the state, he said.

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