Asbury Park Press

NJ Top Insurer Horizon Built On 1932 Rules; Here's What A Change Would Mean For You

Asbury Park Press — December 10, 2020

By Michael L. Diamond

Horizon Blue Cross Blue Shield of New Jersey, stifled in an attempt a year ago to change its corporate structure, is trying again, saying it needs more flexibility to compete in the rapidly changing health care industry.

Bills introduced in the state Senate and Assembly would allow the not-for-profit insurance company to convert to a not-for-profit mutual holding company that is owned by its members.

Horizon said the move would both help it innovate and protect its long-standing mission to serve the community — a claim met by skepticism by consumer advocates.

Newark-based Horizon is New Jersey's biggest health insurance company with 3.6 million members. In 2018, the insurer had $13 billion in revenue and 5,300 employees.

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The proposal marks the latest bid by Horizon to unbind itself from rules that it says are outdated. The company was set up as a nonprofit in 1932 and considered the insurer of last resort, agreeing to cover New Jerseyans who otherwise couldn't get insurance in the marketplace.

But the Affordable Care Act that took effect in 2010 essentially leveled the playing field, requiring insurers to cover consumers regardless of their health. At least that's the case for now; the U.S. Supreme Court is weighing a case in which opponents are seeking to strike down the law. See more in the video at the top of this story.

No matter the outcome of the court case, Horizon executives say they need more flexibility to serve their customers.

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"When the company's basic legal structure was created over 80 years ago and updated once over 30 years ago, it was right for the health care marketplace of that time," said Kevin Conlin, Horizon's chairman. "But it no longer reflects the realities of the health care marketplace, nor does it support the range of services and innovations that are expected today."

The Assembly Financial Institutions and Insurance Committee has scheduled a hearing for Thursday.

A closer look:

What's the problem with Horizon's current structure?

Horizon is the only not-for-profit insurer in New Jersey, meaning its income goes solely toward paying insurance claims and other business operations and not shareholders anxious for a return on their investment.

It seems to serve the state well. Conlin told lawmakers at a recent hearing that the company donated millions in grants to local health organizations. It waived rules to allow workers furloughed during the pandemic to keep their coverage. And it has sold policies in the Obamacare marketplace from inception, while many competitors have opted out.

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But executives say the law that governs the company, the Health Service Corporation Act, limits Horizon from doing much beyond providing traditional commercial insurance services — collecting premiums and paying claims.

They argue that silos that previously kept insurers and providers separate are crumbling. But unlike its competitors, Horizon has limits on how much it can invest in, say, technology, data analysis or partnerships with health providers that could lower the cost of care and generate new revenue sources beyond premiums, Conlin said.

What's Horizon's solution?

Horizon wants to become a not-for-profit mutual holding company similar to Blue Cross Blue Shield plans in 18 other states.

Mutual holding companies usually are owned by its members, who would share in their profits. In this case, though, there are no profits.

Instead, Horizon would be governed by a 22-member board of directors. Its members would vote for 13 directors. The governor, state Senate president and Assembly speaker would appoint the other nine.

The bill would allow Horizon to expand its mission to include innovation.

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Why does this sound familiar?

This isn't the first time Horizon has wanted to change its corporate structure.

The insurer considered becoming a for-profit company in the 2000s before abandoning those plans and turning its attention to the Affordable Care Act.

Last year, Horizon backed a bill that also would have created a mutual holding company, but the bill hit a dead end. The company this go-around says it made several changes to satisfy lawmakers' objections.

Among them: The company will continue to be governed by the Health Service Corporation Act. It will continue to be considered a "charitable and benevolent institution." And it can't sell off parts of the company to investors.

This should sail through, right?


Consumer groups are leery, arguing that Horizon's holding company would form a for-profit subsidiary that would operate with profits top of mind.

There is a lot at stake in this argument. Blue Cross Blue Shield insurers in other states that have converted to for-profit companies have transferred their assets — worth billions of dollars — to foundations that use the money for public health.

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If Horizon were to do the same, it would need to create its own public trust worth as much as $7 billion, according to New Jersey Citizen Action, a consumer group.

"We need to be very protective of assets of nonprofit insurers and hospitals," said Chuck Bell, programs director for Consumer Reports, an advocacy group. "We see this persistent nibbling away of the apple. Our goal here really should be to protect the whole apple and to know what's happening when a particular change is approved."

Horizon executives said they have addressed those concerns in part by ensuring that the not-for-profit holding company will own 100% of all of its assets.

Horizon also would pay a lower state tax rate under the new bill, but it would be required to pay the state an assessment totaling $1.25 billion over 18 years.
The Horizon Blue Cross Blue Shield blimp in seen in a 2009 file photo.

Fine, but will my premiums come down?

Despite skepticism from consumer groups, Horizon executives say that's the goal.

The company wants to invest more money in technology like wearables that can monitor consumers' health. And it wants to partner increasingly with hospital networks and doctors' offices on programs to prevent people from getting sick in the long run, Conlin said.

"Horizon will still be driven by a core set of values anchored on the services and benefits we deliver for our members instead of profit for shareholders," Conlin said. "We'll just have greater flexibility to invest and build relationships on our members' behalf."

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