Legislature approves change to Horizon’s corporate form

Will allow N.J.’s leading insurer to make much larger investments in emerging technologies

Legislation allowing Horizon Blue Cross Blue Shield of New Jersey to change its corporate form to a more modern structure — one that would enable the nonprofit to invest a far greater amount into emerging technologies — passed in the Senate and General Assembly on Thursday afternoon.

The legislation (S3218/A5119) faced some opposition from progressive groups, but was overwhelmingly supported by the business community.

The legislation still needs to be signed by Gov. Phil Murphy. After that, the change in corporate form still would have to be approved by the Department of Banking and Insurance and the Attorney General’s Office. All of these steps are considered a formality.

The passage of the legislation would amend the Health Services Corporation Act and create a process under which Horizon could apply to the state to become a not-for-profit mutual health insurer — a designation that would enable Horizon to invest as much of its reserves as it deems necessary in emerging technologies that could help the company and its customers, such as telemedicine.

It most certainly will change health care in the state.

Horizon, currently organized as a not-for-profit health service corporation under the Health Services Corporation Act, is limited to using only 2% of its reserves for investment in any one entity, regardless of the benefits — or cost savings.

Gary St. Hilaire. (File photo)

Horizon CEO Gary St. Hilaire, in a statement, said the company was happy and grateful.

“Today’s vote recognizes that health care, and the expectations and needs of health consumers, are rapidly changing,” he said. “Over the past three years, countless hours of discussion, deliberation and critical thinking by many legislators, administration officials and stakeholders helped guide and improve this legislation.

“As a result, it achieves its goal of preserving Horizon’s historic member-focused mission while giving the company the flexibility to adapt and innovate to enable care that is more connected, more convenient, and more affordable.

“We thank everyone — particularly Senate President (Steve) Sweeney, (Assembly) Speaker (Craig) Coughlin, and our primary sponsors Sens. Nellie Pou and Paul Sarlo and Assembly members (John) McKeon, (Joann) Downey, (Benjie) Wimberly and (Robert) Clifton — who supported giving our 3.6 million members a better Horizon and look forward to making that vision a reality.”

If approved, Horizon would continue to be under the supervision of the Department of Banking and Insurance, with oversight by the state attorney general. And upon establishment of the not-for-profit mutual holding company, Horizon would be required to pay a one-time, initial assessment of $600 million to the state treasury and pay an additional $625 million to the state over 17 years after its reorganization.

The bills sponsors, McKeon (D-West Orange) and Downey (D-Ocean Twp.), obviously were pleased.

McKeon said it’s about competition.

“Right now, the company is limited in the ways it can stay competitive to benefit its 3.6 million members,” he said. “We must allow this organization to adapt its infrastructure so that it can make the investments it needs to in order to offer stable rates, promote innovative health care services and meet the evolving needs of its members — all while maintaining its charitable mission.”

Downey called it a “win-win” for the state.

“This is a brilliant way to let Horizon be a part of the cutting-edge health care innovations that will improve the well-being of New Jersey residents while preserving the company’s not-for-profit status,” she said. “By reorganizing in this manner, Horizon would still be the charitable insurer so many families rely on, but would also be free to help promote medical advances that everyone can benefit from. This is a win-win for the entire state.”

This corporate form is not unusual for Horizon or the industry.

The not-for-profit mutual form has been adopted by Blue Cross Blue Shield plans operating in 18 other states. Not-for-profit mutual holding companies are not owned by investors or shareholders, but reinvest any income generated into activities and ventures that benefit the policyholders.

The company would continue to be overseen by a board of directors with significant public representation, including an increased number of members appointed by the governor, Senate president and Assembly speaker.

Keith Roberts, a leading health care attorney at Brach Eichler, said the impact of the change is still to be determined.

“It depends on what Horizon does with the vast influx of readily available assets to invest in the private sector,” he said. “Will they pivot to position the company to subsequently being acquired? Will the policyholders be positively affected by an improved insurance product, and what they will pay for it?

“In addition to creating jobs and a significant cash injection into the economy, what will be the real economic benefit to New Jerseyans, and will there be unanticipated results of this reorg?”

Efforts by Horizon to change its corporate structure last November were stalled over concerns the company was looking to convert to a for-profit company and abandoning its charitable mission.

Horizon officials have strongly suggested that was never the intent. And this legislation seemingly would take such a conversion off the table, as a reorganized Horizon still would need to comply with all of the existing HSC Act coverage requirements.

Kevin Conlin. (File photo)

Horizon Executive Chairman Kevin Conlin made his case to legislators earlier in the month. He said the change in structure is needed to compete with the private equity and public company innovators and disruptors in the space, including Amazon, Google and Apple.

“Given how few structural barriers these for-profit insurers and tech companies face, they have been able to move quickly to engage select opportunities and populations — all of which they can pick and choose,” he said. “Some of these tech giants and competitors have also dramatically reshaped consumer behavior and expectations.

“Consumers now routinely use their phone to pay their bills, order their groceries or video chat with family and friends. Even in health care, consumers are demanding more. They want high-quality care that is more convenient, more connected and more affordable.”

Conlin said Horizon must change to meet — and match — this coming change. It is a difficult balancing act, he said.

“Unlike our for-profit competitors, who focus on delivering value to their shareholders and make decisions based on financial reward, Horizon is a New Jersey-based not-for-profit,” he said. “Our focus is on delivering value for our members, not shareholders. How does that difference play out? Two of the most challenging insurance markets paint a clear picture.

“Faced with difficult market conditions that threatened profitability, many of the for-profit insurers stopped offering plans on the Affordable Care Act exchange that cover more than 300,000 New Jerseyans. Horizon remained and responded by developing new, high-quality products that actually lowered the cost of coverage. Similarly, while the national for-profits cherry picked their way across the state, offering Medicaid coverage in only the counties they chose, Horizon offered a Medicaid option in every ZIP code across New Jersey.”

Move Health Care Forward New Jersey, a group headed by longtime New Jersey executive Dennis Bone, said changing the corporate structure will help create an environment where Horizon can provide better access to and more affordable care

“This legislation represents an important step forward for health care in New Jersey,” he said in a statement. “By removing restrictions currently placed on Horizon — restrictions that apply to no other insurer in the state — we will create enormous potential for both Horizon’s 3.6 million members and for the state’s economy.

“Legislative leadership and the bill’s sponsors …  all deserve a tremendous amount of credit for crafting a bill that addresses the needs of Horizon’s members and the concerns of stakeholders. They ran an open, transparent process that took public feedback and incorporated it into this legislation. This is a good day for the future of New Jersey.”