N.J. Caps Reserves Of Nonprofit Health Insurer

July 5, 2017       Andy Segedin      

Nonprofit health insurer Horizon Blue Cross/Blue Shield of New Jersey made it through New Jersey officials’ 25th-hour state budget deliberations over the holiday weekend – but not completely unscathed. The insurer, which services 3.8 million New Jersey residents, will have its surplus capped by new legislation but state officials will be unable to, as initially planned, stick their hands into the cookie jar to fund statewide initiatives.

Horizon, as reported, was at the center of New Jersey’s government shutdown, which spanned from July 1 through 4. Some $300 million of its reported $2.5 billion in reserves had been a target of Gov. Chris Christie to fund his initiative to combat opioid dependence. State Sen. Joseph Vitale (D-Middlesex) authored a bill, S-4, that capped health service corporations’ surpluses at an unspecified range – requiring corporations with surpluses beyond the set range to either justify the surplus or develop a plan to reduce the surplus. The reduction plan would have had to both benefit policyholders and improve the overall health of New Jersey residents.

The bill was passed in the state senate on June 29 by a vote of 21 to 16. Assembly Speaker Vincent Prieto (D-Bergen and Hudson) reportedly refused to have the state assembly vote on the bill prior to the state’s July 1 budget deadline.

S-2, co-sponsored by – among others – Prieto and Vitale, was approved by both legislative houses and more definitively defines the margins health service corporations like Horizon will operate in and removes the requirement for excess surplus to be used to benefit all New Jerseyans. S-2 defines surplus as a risk-based capital ratio in excess of a set 550 percent to 725 percent range. Health service corporations with ratios found in annual regulatory filings to be exceeding that range will be notified and have 30 days to file a report to reduce the surplus to within a range. The reduction plan shall benefit subscribers such as lessening potential rate increases.

“The compromise reached today with Speaker Prieto’s and Senate President [Stephen] Sweeney’s leadership achieves a goal we established when the Governor first introduced the idea of taking our reserves: Horizon could only agree to legislation that is reasonable, avoids higher costs for our members, and that does not impose unfair or excessive obligations,” Robert A. Marino, Horizon’s chairman and CEO, said in a statement.

The bill echoes S-4 in that it states that health service corporations in the state shall not be established for pecuniary profit. It notably excludes, however, previous language relating to a charitable mission, stating only that health service corporations should be operated to the benefit of subscribers.

S-2 further increases the maximum number of board members for a health service corporation created by the merger of a medical service corporation and hospital service corporation to 17. The initial maximum will be 15 members – four governor appointees and 11 selected by the corporation’s board of directors. After initial terms expire, the board shall expand to 17 members – 11 elected by the board of directors, four appointed by the governor, and one each appointed by the senate president and assembly speaker. Each of the latter two appointees shall have experience in either finance, insurance, or healthcare.

Horizon’s board is currently made up of 15 members – including four governor appointees. S-4 pegged the ultimate composition of such boards – after initial terms expire – to be made up of eight board appointees, four governor appointees, and three elected by subscribers.

The bill additionally requires health service corporations to annually file with the state Department of Banking and Insurance information relating to the corporation’s operations – including mission, activities, revenues, expenses, assets, liabilities, and total compensation to officers, directors, trustees, and the five other highest paid employees not holding an officer, director, or trustee title. Such information will be posted on the department’s website. A similar provision was not present in S-4.

Prieto, in a statement, said that the agreed-upon bill was drafted with input from Horizon.

“A key step forward was the input I sought from Horizon, which is a key player in our state’s health care universe, like it or not,” the assembly speaker said. “This agreement protects Horizon’s ratepayers from unreasonable last-insurer-of-resort demands and ensures excess reserves go to either ratepayers or to reduced premiums. Horizon ratepayers – a significant part of our state’s population – will not be unfairly taxed, as previous plans allowed.”

  • Chris Christie
  • Horizon Blue Cross/Blue Shield of New Jersey
  • new jersey