Horizon gets OK to make changes with conditions

TRENTON - Horizon Blue Cross Blue Shield of New Jersey can change its corporate structure, Gov. Phil Murphy's administration said, clearing the way for the health insurer to invest more heavily in technology and programs it says will result in better, more affordable care.

The decision by the state Department of Banking and Insurance to allow Horizon to change its structure for the first time in its 90-year history came shortly after a health impact study found the new corporate entity would continue to operate with a charitable mission and provide comprehensive insurance plans statewide.

The approval included 11 conditions that Horizon needs to meet. Horizon said Wednesday it would accept the terms.

"Horizon's members and customers need, and are demanding, more from the health care system," the company said in a statement. The restructuring "preserves Horizon's historic not-for-profit mission while giving the company added flexibility to adapt and better serve our members by improving health care quality, convenience and affordability."

Newark-based Horizon is the state's biggest health insurer, with 3.7 million members and annual revenue of $13.6 billion. Long considered New Jersey's insurer of last resort, Horizon offers insurance across each market, from Medicaid to Medicare Advantage.

The company, which has operated as a not-for-profit since 1932, asked the state for permission to convert to a not-for-profit mutual holding company similar to Blue Cross Blue Shield plans in 18 other states.

Horizon said its previous structure came with regulations that made it harder to compete with other insurers, invest in innovation, and, ultimately, improve the quality of health care in the state. The insurer, for example, was restricted from investing more than 2% of its reserves.

Its application was met with skepticism from at least one consumer group, New Jersey Citizen Action, which said Horizon didn't provide enough details, and regulators rushed through the process. One worry: Horizon will use money long considered to be charitable assets and make potentially risky investments in for-profit companies instead.

"We are dismayed by the ... lack of transparency, hurried and truncated approval process for Horizon's restructuring application," said Dena Mottola Jaborska, the group's executive director. "It made a mockery of the provisions of the statute for public hearing which assumes an informed public although critical information was denied."

A health impact study conducted for the state by Manatt, Phelps & Phillips LLP and Manatt Health, and released Tuesday, found Horizon's application should be approved.

The report found: Horizon would continue to operate as a nonprofit that would be governed by a board of 22 directors. By law, it faced numerous barriers that would prevent it from converting to a for-profit company. It would pay the state an assessment of up to $1.25 billion over 17 years, including $600 million by June 1. And the change wouldn't have an impact on current benefit plans for consumers or reimbursement rates for providers.

The company instead said a new corporate structure would allow it to ramp up pilot projects that have shown promising results in improving care and lowering costs.

For example, Horizon in 2020 partnered with six hospitals and two community health groups to create Neighbors in Health, using technology to connect disadvantaged consumers with resources. The program, financed with a federal tax rebate Horizon received through the 2017 Tax Cuts and Jobs Act, reduced the cost of care by 25%.

The impact study also raised issues that regulators should be aware of in part because the New Jersey Banking and Insurance Department doesn't have the authority to regulate health insurance rates. It can only reject rate filings that are inadequate, unfairly discriminatory, incomplete or not in substantial compliance with the law, the study noted.

Horizon's new holding company would have new options to expand beyond New Jersey.

"Should the proposed reorganization be approved, the department must closely monitor Horizon to ensure this

outcome and prevent Horizon from acting in ways that are not consistent with its statutory mission," the report said.

The department determined Horizon "met the requirements for approval," Commissioner Marlene Caride said in a statement. "In order to promote additional protections, the department has imposed conditions on the approval that Horizon must meet so that the intent of the law is maintained into the future."

Among the conditions:

Horizon can't transfer more than $300 million to set up its mutual holding company.

Horizon can't pay a dividend to the mutual holding company or a subsidiary for three years without approval from the commissioner.

Horizon Mutual Holdings Inc. needs to offer comprehensive medical insurance in the individual market in all 21 New Jersey counties.

Horizon's capital requirements need to exceed the statutory minimums.

Horizon needs to report its capital levels each quarter.

Michael L. Diamond is a business reporter who has been writing about the New Jersey economy and health care industry for more than 20 years. He can be reached at [email protected].