NJCA and HPAE File Motion to Halt Horizon Reorganization

Groups cite “irreparable harm” if reorganization goes forward before Court hears matter

Trenton, NJDecember 22, 2022 – On December 20, New Jersey Citizen Action (NJCA) and the Health Professionals and Allied Employees Union (HPAE) – who are challenging on behalf of policyholders and other members of the public the Commissioner of Banking and Insurance’s recent decision to approve the reorganization and mutualization of Horizon BCBS of New Jersey – completed their request to the Commissioner for a stay of the transaction pending full review on the merits by the Appellate Division of the Superior Court.

A request for a stay to the Commissioner is required as a necessary first step prior to asking a court to grant a stay. Commissioner Marlene Caride issued her Order approving Horizon’s Plan to mutualize and reorganize on November 1, 2022.  NJCA and HPAE filed their notice of appeal on December 12, within the 45-day appeal period governing actions seeking review of a final agency decision.

In their initial stay request, filed December 14, the two organizations laid out the issues they are raising on appeal and the reasons why they believe the Commissioner’s Order is contrary to law, inconsistent with legislative policies, unsupported by substantial evidence, and, thus, is arbitrary and capricious.

Horizon responded to that Stay request on December 16, contending that a stay should not be issued because the Appellants allegedly failed to meet the standard for a stay, in part, because it had already started to implement a list of “corporate reorganization steps – many of which took place… immediately following the November 1, 2022 effective date of the Order…”  On this basis, Horizon has taken the position that there is no “imminent harm” to stop because the transaction is already underway. (See Horizon Opposition to Stay Request (“Opp.”) at p. 11.)

As noted above, on December 20, NJCA and HPAE filed a detailed letter (“Reply”) with the Commissioner in which they rebut Horizon’s arguments regarding lack of imminent harm if a stay is not issued and its alleged policyholder support for the reorganization, and establish the merits of their appeal. The appellants argue that Horizon’s decision to start the reorganization immediately, prior to the end of the appeal period, was undertaken at Horizon’s own peril and does not preclude a stay from being issued.

In fact, “allowing additional transactions to occur will only make it more difficult to “unscramble the eggs” if the challenge to the reorganization is successful after the appeal is heard. In their response, NJCA and HPAE also point out that significant corporate actions have not yet been performed, such as the investing the $300 million transferred to the newly created mutual holding company (which the Commissioner approved) and therefore a stay is necessary to avoid irreparable harm to the Appellants and the public. (See Reply at p. 2 and 15)

The groups also expressed their disappointment that Horizon continues to insist that “no fewer than 600 people” supported the reorganization, despite that Appellants have disclosed that Horizon selectively notified individuals and used hundreds of its own employees masquerading as just “members” to create a false narrative that deceived the Commissioner. (See Reply at p. 1; See Commissioner’s Post-Hearing Report at p. 7 (“The overwhelming majority of comments were enthusiastically supportive of HHSI’s Plan… policyholders and consumers, all of whom emphatically supported the approval of HHSI’s application.”); see Appellants’ Stay Letter dated December 14, 2022 (“Stay Letter”) at p. 10-11.)

A review of public comments submitted to the Department of Banking and Insurance found that in a batch of 339 identical form letters supposedly submitted by individuals who claimed to be New Jersey “residents” or Horizon “members”, approximately 78% or 264 of these individuals were likely current or former Horizon employees based on their LinkedIn accounts or email address that had a “horizonblue.com” extension. (See Certification of Laura Waddell, Health Care Program Director at New Jersey Citizen Action, dated December 20, 2022.)

Ultimately, the groups contend that Horizon failed to address any of the specific arguments they advanced concerning the weakness of the rationales the Commissioner provided in support of her Order. This includes Horizon’s arguments under the standard that require the Commissioner to grant approval unless the Plan “does not benefit the interests of the policyholders of the health services corporation or treats them inequitably.” (See Stay Letter at p. 11-18, Sections B and C; see Reply at p. 5.)

Rather than address Appellants’ attack on the weaknesses in the Commissioner’s decision, Horizon makes its big reveal: arguing that the “mere maintenance of policyholder benefits” is a “true benefit” satisfying the above legal “benefit” standard by virtue of an overarching legislative intent to allow Horizon to modernize. (See Opp. at p. 6.) But, as it admits, that intent is “subject to appropriate standards” (id.), the application of which is the issue here. This big reveal goes to the heart of the dispute, because the Commissioner used the wrong “not contrary to” the interests of the policyholders standard, when the law requires that the Plan “benefit” policyholders’ interests to be approved.

These two standards are obviously different, and it is contrary to law to treat them the same when the Legislature knows how to say both.  In fact, the governing law contains three distinct standards. It requires the Commissioner to approve the Plan unless it is “contrary to the law” (prong 1); “would be detrimental to the safety or soundness” of the insurers (prong 2); and “does not benefit the interests of the policyholders of the health service corporation or treats them inequitably” (prong 3).” Because the Commissioner turned “benefit” into “not contrary to” she failed to judge the Plan on the actual standard required and it should be overturned. (See Reply at p. 5.)

Regarding the impact of the reorganization on premiums, Horizon relies on a Health Impact Study which actually concludes it will “not have a significant impact on policyholder interests based on the record.” This is hardly a benefit, and the conclusion is counter to the evidence in the record – namely, as Horizon asserted repeatedly, higher taxes “raise premiums.” Under the Plan there is an undeniably significant immediate tax ($600 million in taxes and $300 million in capital transfers). (See Reply at p. 6.)

Furthermore, in their Reply, NJCA and HPAE point out that Horizon and the Department misinterpret the Risk-Based Capital requirement that governs the level of capital the reorganized insurer must have on hand to ensure against risk. The law governing the Plan to reorganize refers to a “system-wide health RBC. In its opposition to the Stay, Horizon claims that this requirement just means the “system wide RBC” and “group-wide RBC”.  But as the Appellants state, “health” RBCs only apply to insurers, and not to systems like the mutual holding company Horizon seeks to become. Appellants argue that if the Commissioner’s Order agrees with Horizon on this, then it is contrary to law. At risk would be the $650 million in tax assessments the State expects to receive over the next 17 years. (See Reply at p. 8-13)

Lastly, the Appellants challenge the Commissioner’s failure to produce numerous records that should have been disclosed during the public hearings, including, for example, the proposed bylaws for the newly created mutual holding company (“MHC”).  The proposed bylaws were important for evaluating the Plan as they define what the term “Member” of the MHC means, and set forth how many votes each Member gets. These rights are clearly relevant to policyholders-members whose interest are directly affected by the reorganization. Appellants made the broader point from their Stay Request: “The withholding of these bylaws is indicative of overreach as to public records, which undermined the legitimacy of the proceedings.” (See Reply at p. 14-15.)

In short, Appellants have shown that they should be granted a stay until the Court can decide the merits of the case. The truncated, rushed process with lack of proper disclosure, fact-finding and substantial evidence in the public record has resulted in an Order that cannot be sustained as a matter of law and policy and would be a detriment to the policyholders if not overturned. The State’s interest in future tax payments and the broader public’s interest in affordable health insurance are also at stake.