Legislators advanced a bill Monday that could significantly increase the state's control over the finances of its largest insurer, as well as set a precedent for businesses statewide.
The bill, introduced Friday by Sen. Joseph Vitale (D-Woodbridge), and amended Monday, cleared the state Senate’s Budget and Appropriations Committee.
If it becomes law, it would allow the state to have access to "excess" reserves of Horizon Blue Cross Blue Shield of New Jersey.
Vitale said the bill does not create "a slush fund" and is not a "money-grabbing" move. He said it establishes a "ceiling" for the reserves of Horizon, and anything beyond the ceiling would be "divested in a public way" to the state.
Currently, Vitale explained, there is only a range, or "floor," within which Horizon keeps its reserves.
"We don't want (Horizon)to be over-reserved. There is no benefit to the members if they are over-reserved," Vitale said.
Horizon said it ended 2016 with a risk-based capital, or reserves ratio, of 620 percent, and it is incurring substantial losses in the individual market this year. It expects to end the year with an RBC under 590 percent, which is at the lower end of the 550-700 percent range established by regulators in Pennsylvania.
If, according to Vitale's comments Monday, the rate of reserves is determined by existing rules, the likeliness of the insurer reaching an excessive level is unlikely, Horizon said.
Bill faces widespread opposition
Business leaders and trade groups have come out in opposition of state Sen. Joseph Vitale’s bill focused on Horizon Blue Cross Blue Shield of New Jersey because of its widespread impact and the precedent it could set.
New Jersey Chamber of Commerce Executive Vice President Michael Egenton said that, following the bill's introduction, businesses in the state have been calling and wondering who is next.
New Jersey Association of Health Plans President Ward Sanders has previously said the state’s actions potentially create instability, when insurance companies "crave stability."
And New Jersey Business & Industry Association CEO and President Michele Siekerka said Monday, when the bill passed a Senate committee, "With all the uncertainty in Washington right now about the possible repeal of the Affordable Care Act and the impact of that on New Jersey’s health care marketplace, this is certainly not the time to rush through any plan that could jeopardize Horizon’s ability to pay future claims or put its policyholders at risk for higher premiums.”
In addition, NJBIA, along with other business experts and trade groups, has said the bill sets a dangerous precedent — both in exercising greater control over the company's finances, as well as control through the mandate of serving the good of the public (rather than just policyholders, as is the current practice).
Especially considering how Horizon makes its money.
"This is money that New Jersey businesses and policyholders have paid in premiums, and it must be kept in reserve to pay future health care bills. It is inappropriate to divert Horizon policyholders’ money to pay for other state programs," Siekerka said.
The National Federation of Independent Business also opposed the bill, using a business analogy.
"Business owners in the state of New Jersey have been doing more with less for a decade. They don’t have the luxury of raiding reserve funds for a cash grab, and neither should legislators. The time has come to budget for state spending the same way a small business owner does, and that means stop spending money that simply isn’t there," the statement said. "Unfortunately, this proposal and is just another move in a series of fiscal shell games that have been occurring in Trenton."
"The existing laws establishing the Minimum/Medical Loss Ratio requirements prevent insurers from having 'banner years.' Horizon spends 87 cents of every dollar on direct benefit costs and claims, more than the MLR rules require," Horizon said.
If not spent, Horizon can and has returned funds to policyholders.
Vitale said Horizon would be able to define what the money is used for. But language in the bill stated that the Department of Banking and Insurance could determine the cap, and determine the use of the funds.
The bill, also supported by Assemblywoman Eliana Pintor Marin (D-Newark), reverts back to calling Horizon the insurer of last resort, a title it last held in the early 1990s, when it was nearly bankrupt.
At that time, Horizon took on the risk of insuring individuals who didn't qualify for other insurance, and was subsidized by payments from other insurers.
Vitale said Monday that, because of the uncertain federal regulatory environment, if all other insurers fled the state, Horizon would essentially be the insurer of last resort.
On the flip side, some have said forcing Horizon to insure certain individuals would create a stronger insurance market because others in the state would be able to price competitively and only cover individuals they can make a profit off of.
Vitale's bill also called for Horizon to, as the insurer of last resort, serve in the interest of the general public, in addition to its policyholders.
In an environment where the Affordable Care Act and rollback of Medicaid are being discussed at the federal level, Horizon said Monday the bill could destabilize the company if it is forced to pay for individuals who cannot afford health care, this time without aid from its peers.
In testimony Monday, Horizon explained the company operates on a profit margin that is less than 1 percent: $80 million of net income in 2016 on $13 billion of gross revenue.
Horizon also pays taxes. It paid $500 million in federal and state taxes last year and, of that, $212 million went to the state.
In an exclusive interview with NJBIZ, Horizon CEO Robert Marino previously explained why serving the needs of policyholders stabilized the company, rather than having to serve beyond that. His comments were focused on if the company were to face conversion to a for-profit again, which is also a likely scenario if the bill progresses Thursday in the Senate.
"Once you become a publicly traded company and you convert, your mission changes. Your mission doesn't necessarily become provide access to affordable, high-quality health care for the residents of New Jersey. Your mission becomes the fiduciary obligation to your shareholders, which is your quarterly earnings. I would be obligated; I as the CEO would be obligated to create shareholder value," Marino said.
Despite much of the discussion Monday focusing on the lack of details, whether in regard to available information about Horizon, or specific directions and definitions in the bill, it passed with 11 yes votes against one no vote and one abstention.
New Jersey Association of Health Plans President Ward Sanders said that, if the state were forcing greater transparency of insurers' financial filings, it should ensure all non-profits in the state are regulated in the same way.
The bill requires immediate public posting of Horizon's financial filings on DOBI's website.
Vitale said toward the end of the hearing that "There is nothing I would do or this Legislature would do to undermine the efficacy of Horizon."
The bill was crafted in response to Gov. Chris Christie's call to mandate that Horizon, which dominates the health insurance market, provide the state with assistance in fighting opioid addiction.
Senate Budget Chair Paul Sarlo (D-Wood-Ridge) addressed concerns that the bill was being rushed through the committee by saying there had been more than two hours spent on the bill, and Vitale sponsoring the bill gave it credibility.