NJ's Horizon BCBS Bill Could Expand Charitable Status, but at Cost of "Blue" License

Legislation would give New Jersey's top insurance regulator new powers over Horizon's surplus, which the Blue Cross Blue Shield Association said would cause it to terminate Horizon's license. The bill also restores "insurer of last resort" status, which was abandoned in 1992.

A months-long standoff between New Jersey Governor Chris Christie and the state’s largest health insurer will reach a climax this week, and before it’s over Horizon Blue Cross Blue Shield (BCBS) may have to give up the “Blue.”

Governance changes before New Jersey's Democratic legislature are so far-reaching that the Blue Cross Blue Shield Association (BCBSA) warned Thursday that Horizon BCBS could lose its license—and be charged a $400 million withdrawal fee—if lawmakers don’t scuttle their plans. These include overhauling Horizon’s board, replacing 3 members with those elected by subscribers, and giving the state’s Commissioner of Banking and Insurance new powers to manage the insurer's surplus. BCBSA says this amounts to letting regulators run the insurer as an “arm” of the state.

Scott P. Serota, president and CEO of BCBSA, said Christie's early plan "goes significantly beyond what is typically required by other states," and creates "the precise type of situation the license agreements prohibit" to ensure independence. All this was before the insurer saw a bill it believes is a bigger threat.

What started as a fight about money—Christie wanted $300 million from Horizon BCBS for an opioid treatment fund—has evolved into a debate about transparency, executive pay, and what the insurer's mission should be. On Thursday, Senator Joseph Vitale, a veteran Democrat and his chamber’s healthcare expert, introduced a bill that would expand Horizon BCBS's charitable and public health mission and restore its “insurer of last resort” status, which the $12 billion insurer hasn't seen since it escaped bankruptcy a generation ago. More financial information for "health services corporations," which uniquely applies to Horizon BCBS, would be publicly available.

A 1992 law revamped New Jersey’s individual market to spread the risk among multiple insurers, while increasing Horizon BCBS’s tax burden. That law laid the groundwork for the company that today insures 3.8 million people and covers 49% of the market. Many still assume Horizon BCBS is a nonprofit, but it is actually a not-for-profit that dwarfs competitors. That may be what's going on here: any move Horizon BCBS makes in New Jersey's healthcare market has an outsize effect. Many Democrats were unhappy with a tiered health plan the insurer launched in 2015, and there are rumblings that the Horizon feud is a smokescreen to bolster a competitor with political ties.

While Democrats who lead New Jersey's Legislature are in no rush to let Christie touch Horizon's surplus, other arguments have touched a nerve.

Senate Majority Leader Loretta Weinberg, in a blog post Sunday, wrote, “I don’t agree with the Governor’s style or his negotiation tactics. But I do believe that Senator Joe Vitale has come up with the right compromise to bring us to an appropriate solution. … Some of the components in Senator Vitale’s bill have been discussed by Democrats for years."

Vitale’s bill will be one of the interlocking parts needed to push New Jersey’s Fiscal Year 2018 budget over the line, before the the current year ends June 30. Christie is historically unpopular, but he still has a Constitutional power tool: New Jersey governors can strike through individual budget items and kill legislators' pet projects, and this year Christie can also weigh in on a revamped school funding formula. Over the weekend, it appeared Christie would refuse to sign the budget or the school funding plan without getting something from Horizon. He called a news conference Thursday to chastise the insurer over $16 million in fines relating to Medicaid program administration. However, no details are available because the insurer disputes the findings.

Powers to Manage Surplus

The Vitale bill calls for the Banking and Insurance Commissioner to create a “public process” for reviewing Horizon’s surplus, and the commissioner would decide whether funds are to be turned over to the state for public health purposes. Unlike states where insurance commissioners are elected, New Jersey's top regulator is appointed by the governor. While the bill allows the commissioner to hire experts to evaluate the surplus, it doesn't require this political appointee to follow that advice. The most recent version of the bill seeks to create a surplus "range" and surplus above the upper end of the range would be deemed "iinefficient." This provision would not take effect until February 2018, after Christie leaves office.

Horizon BCBS officials did not rule out a lawsuit.

“This bill makes very significant and substantial changes and no one has had the time to fully contemplate or understand all the ramifications,” said spokesman Kevin McArdle in an e-mail Sunday. “It is unprecedented, and dangerous, to ram through such a major overhaul of the state’s health insurance marketplace without fully understanding how it will impact the people who pay the premiums. Horizon will do what is in the best interests of our policyholders.”

From the start, Christie’s portrayal of Horizon’s “excess surplus” has fallen flat with business and labor leaders who agree the insurer meets nationally recognized standards for keeping enough cash on hand to pay claims. On the day of Christie’s 2018 budget address, Horizon issued a statement that the company’s net income was less than 1% of revenues for 2016, and that its $2.4 billion in reserves could cover just 75 days of claims. Since then, endorsements of that position have spanned the political spectrum—from former Republican presidential candidate Steve Forbes to Phil Murphy, the Democratic nominee to replace Christie as governor.

In a Monday morning conference call, Forbes joined leaders from New Jersey’s major business organizations to weigh in against the plan. The conservative publisher called the Horizon bill “a pure political vendetta” on Christie’s part. Forbes said the combination of more political appointees and elected ones, whom he predicted would be picked through political means, would result in a Horizon board controlled from the state capital.

Going after the insurer is "the kind of thing you expect in Third World dictatorship,” Forbes said. “That it came from a Republican governor I just found astounding.”

Christie started 2017 with a vow to spend his last year in office fighting opioid addiction, and he quickly passed a bill for the nation’s strictest treatment mandates. Horizon put up little resistance, even though there are no cost estimates for the new law. Published reports say Horizon BCBS offered funds for opioid treatment, but far less than Christie wanted. Horizon has argued that commandeering its surplus would threaten its ability to keep premiums in check. Senate President Steve Sweeney has said he would not support any move that led to increased premiums, and Assembly Speaker Vincent Prieto has been cool to Christie’s plans from the start.

Horizon, for its part, warns that the Vitale bill represents a massive departure from current healthcare policy, and adds uncertainty when there's plenty coming from Washington, DC.

Democrats note that most oversight provisions will take effect under a new governor. Weinberg wrote, “Nothing in this bill will enable this Governor to do anything with regard to Horizon’s surplus. The transparency aspect will take effect immediately."