Insider NJ

Back To Business As Usual: Will The Sun Ever Set On Horizon's Bid To Reorganize?

Insider NJ — December 7, 2020

By Bob Hennelly
Columnist, News

It's hard to miss them.

Gov. Murphy's New Direction NJ ads that feature him sitting in the bleachers of an empty baseball park looking directly into the TV camera telling us how "the pandemic exposed a deeply unfair status quo" and that "we can't go back to business as usual."

And yet, based on all the scurrying around being done by the legislature in Trenton of late on behalf of New Jersey's largest health insurance provider it surely appears to be "business as usual."

Call it continuity of operations.


Rest assured, not even a once in a century global public health crisis that's already killed thousands of New Jersey residents disproportionately poor people of color and thrust the country into a second Great Depression, our legislature will not be dissuaded from doing what they've always done.

Whether it was looking out for slave owners with their tortuously slow abolition of that crime against humanity, or their offering sanctuary to the robber barons by embracing corporate trusts, New Jersey's legislature has a bi-partisan tradition of helping the wealthiest in the state get wealthier.

Of course, it's always cast as being in the public interest and they all get a pension when they retire. And thanks to the pandemic there's no need to even press the flesh. It can all be done virtually over a zoom call.


Case in point would be their push to enable Horizon Blue Cross Blue Shield of New Jersey, to reinvent itself from being a non-profit health services corporation into being a mutual holding company.

"Our health care systems must be able to adapt to changing circumstances ir order to truly help members," explained Assemblyman John McKeon, the reset bill's sponsor, to his colleagues Nov. 31. "Horizon Blue Cross Blue Shield has served our state for decades and is the oldest and largest health insurer in New Jersey. While the healthcare field has significantly changed and advanced throughout the years, this organization has been limited in what it can do with its assets."


Has your hand touched your wallet yet?

We are assured this rewriting of the state law is required by the company so it can "implement the necessary infrastructure to invest in diverse and innovative health services while still maintaining its not-for-profit mission."


When you get buzzed by a vague phrase like "not-for-profit mission" a little bit of history is essential to trace its origins so you can track where it's been before it bites you.

It's all about the value of close to a century of the buzz of branding as a charity and then overtime morphing into something that will pay the people at the top millions upon millions of dollars.

America has always had a weakness for a pyramid scheme.

It feels like the altruistic sounding Blue Cross Blue Shield has always been around like the Red Cross, a non-profit charitable philanthropy completely committed to the well being of the human race with a subliminal spiritual tie-in with the symbology of the cross upon which Jesus, Christianity's savior was crucified.

While the Red Cross was founded in 1881, New Jersey Horizon Blue Cross Blue Shield traces its origins to 1932, to its founding during the Great Depression I.

Like the Red Cross, the Blues were not unique to New Jersey but part of a national franchise of benevolence that took root with the help of the American Hospital Association. The rationale for creating prepayment plans was to help the growing ranks of Americans with "limited incomes" to avoid the "financial embarrassment and...disaster" brought on by hospitalization, according to Louis S. Reed in his history "Blue Cross Medical Service Plans" published by the US Public Health Service in 1947.

I came across the obscure Reed reference in the essential work of Melissa A. Thomassson, an economist who is the Julian Lange Professor of Economics at Miami University in Oxford, Ohio. Here paper "How Did the Current Situation Come About-Health Insurance in the United States" provides a decade by decade roadmap to how the medical complex promoted its growth by encouraging state by state public policy that established the Blues as nonprofits.


"The AHA designed the Blue Cross guidelines so as to reduce the competition among hospitals," according to Thomasson. "Prepayment plans seeking the Blue Cross designation had to provide subscribers with free choice of physician and hospital, a requirement that eliminated single-hospital plans from consideration."

Key to this architecture was "special state-level enabling legislation allowing them to act as non-profit corporations, to enjoy tax-exempt status, and to be free from the usual insurance regulations." Originally, the reason for the exemption was that Blue Cross plans were considered to be "in society's best interest since they often provided benefits to low-income individuals."

Without that special protective legal status from the states, Blue Cross plans "would have had to organize under the laws for insurance companies" which would have required they met financial "reserve requirement to ensure their solvency."


In the many years since the Blues caught on and established market share as selfless non-profit they have honeycombed into a national colossus with Amway appeal which provides lots of honey at every level of their red, white and blue marketing.

According to CEO Update , which tracks top CEO compensation, Scott Serota, the former CEO of the Blue Cross Blue Shield Association, made in excess of $ 5 million in 2017 that included a bonus that "was three times his base pay."

The Blue Cross Blue Shield Association includes a state based non-profit, like New Jersey's, to a multi-state behemoth that's a Blue association licensee like Anthem Health, which merged with WellPoint Health Networks, formerly known as Blue Cross of California.

Cashing in on decades of what was largely a national philanthropic movement, state by state, required fending off the single payer movement nationally, while cultivating state legislatures green lighting Blues' conversion.

In 2010, NPR reporter Sarah Varney did a story entitled "Did Blue Cross' Mission Stray When Plans Became for Profit" which looked at the arc of the devolution of the movement in places like California from non-profit to a profit making corporation.

"It maybe hard to imagine now, but back in the 1930s, membership in a Blue Cross plan was practically a civic duty," reported Varney. "Boy Scouts handed out enrollment brochures and preachers urged their congregations to enroll."

She continued. "Blue Cross and Blue Shield plans formed as not-for-profits to give communities access to medical care and protect against personal financial ruin. All members paid the same amount no matter how old or sick, and no one was turned away. The Blues became one of the most trusted brands in America."


NPR chronicled how in 1994 the Blue Cross Blue Shield Association "made a huge change" starting with letting its Blue Cross of California franchise forsake its non-profit charity status to become a for-profit public company. In its metamorphosis it became WellPoint Health Networks which went on to buy non-profit Blue plans in Missouri, Wisconsin and other states.

"At the same time, Anthem, the for-profit owner of Indiana's Blue Plan, went on a multi-state buying spree of its own," recounted Varnay. "Then is 2004, WellPoint and Anthem merged and became the largest health insurance company in the country."

Chris Conover, a researcher with Duke University told NPR that over time the remaining not-for-profit Blues and for profit became "indistinguishable."

"For 90 or 95 percent of their business decisions, they're going to make the same business decision," Conover told NPR.

The march of progress continued, and in 2013 Blue Cross Blue Shield of Michigan abandoned its fuddy duddy charity non-profit designation and became a "non-profit mutual company." Why with a 70 percent market share built up as a philanthropy, they had the home field advantage and their CEO really cashed in.


Daniel Loepp went from a measly $1 million compensation in 2006 shot to a promising $9 million in 2009. By 2018, he was aloft in orbit in the stratosphere riding that "non-profit mutual" model to the stars with a $19.2 million total compensation package which the Detroit Free Press noted was just a few million shy of what the CEO for General Models get the year before.

That phrase "not-for-profit mutual" was used in an on-line explanation dated December 2 for what Horizon is trying to get our state legislature to pass written by William Georges, a senior vice-president for Horizon Blue Cross and Blue Shield.

Georges describes what the company wants to change is merely a "technical change" to the law.

He describes the wonders of Amazon's Alexa technology, "the virtual assistant that gives customers a more intuitive way to interact with the technology they use every day. Today, more than one in four households in the U.S. has a smart speaker like Alexa, and an increasing number of people are using the units to manage their health. It's just another sign that healthcare is evolving faster than ever."


New Jersey Citizen Action, a non-profit advocacy group, countered that for the fourth time Horizon was "proposing a corporate reorganization in a way that jeopardizes the mission and assets of the company that insures 3.4 million New Jersey residents by converting to a corporate structure they would create "an unlimited number of for-profit subsidiaries."

And as a consequence, Citizen Action argues, Horizon's proposal requires the health insurer only offer back to the state a fraction of the $7 billion in public assets it has built up by virtue of its special charity status it was extended by the legislature which permitted it to build up such a major market share.

At the Nov. 31 Assembly hearing, when the bill was introduced Renee Steinhagen, the executive director of Appleseed of New Jersey , a public interest law center, counseled the legislature to slow down the process so as to permit public participation "and the necessary amendments" can be made to "protect the approximately $7 billion or more in charitable health care assets that represent Horizon's fair market value and which belong to the New Jersey public."

"In fact, all the activity of that company would rest in the for profit stock companies and by definition the activities of the company in fact will be driven by the for profit investors and the consequences of that need to be properly analyzed by the state," Steinhagen said in a phone interview.

Even in its existing status Horizon Blue top management was paid more like Wall Street bankers than CEOs of a non-profit.

Back in 2010, the $8.7 million compensation for non-profit Horizon-Blue Cross Blue Shield of New Jersey Chairman and CEO William J. Marino made headlines.

The company explained that $3.9 million of it had been deferred from the two previous years and that without that, "his 2009 earnings would have been $4.8 million, less than he received the previous years" according to

According to Indeed, the on-line job listing company, Horizon pays its customer service and call center representatives $39,000 a year.

It's just another American pyramid.


Could it be that our current once in a century public health crisis is the result of our health policy being shaped by fast talking health care execs atop these pyramids who say they deserve millions because they are going to deliver affordable health care to their subscribers?

Back in 2018, a report by the Harvard T.H. Chan School of Public Health, the Harvard Global Health Institute, and the London School of Economics reported "the main drivers of higher health care spending in the U.S. are generally high prices — for salaries of physicians and nurses, pharmaceuticals, medical devices, and administration."

This winner take all system meant that the US paid twice as much as other high-income countries for health care only to get poorer population health outcomes.


What our current healthcare system delivers is multi-million dollar compensation to insurance, pharma and hospital executives. It's all part of the cost driver that results in our rationing care based on the ability to pay.

Its a model based on scarcity which results in tens of millions of American falling through our tattered safety net into chronic disease and premature death from something like COVID.

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