About Horizon Blue Cross Blue Shield of New Jersey
What is Horizon Blue Cross Blue Shield of New Jersey?
Horizon Blue Cross Blue Shield of New Jersey is the oldest and largest health insurer in the state serving over 3.6 million members. Horizon BCBSNJ is New Jersey's only not-for-profit, health service corporation and is headquartered in Newark with offices in Wall, Mt. Laurel, and West Trenton.
New Jersey law states that “conducting the business of insurance” is one of the purposes of the health service corporation (N.J.S.A. 17:48E-1). Under its certificate of incorporation, Horizon BCBSNJ operates a health insurance business for the benefit of its members.
Horizon BCBSNJ provides a broad array of medical and dental insurance products and services for individuals, labor unions, and small and large companies, including national companies headquartered in New Jersey.
Horizon BCBSNJ is an independent licensee of the Blue Cross and Blue Shield Association.
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Is Horizon BCBSNJ a national company selling health insurance in all 50 states?
No. Horizon BCBSNJ only sells health insurance in New Jersey. Two of its subsidiaries sell dental insurance products in New York and Pennsylvania. The company is independent of other Blue Cross and Blue Shield companies operating in other states.
All Blue Cross and Blue Shield companies are independent licensees of the Blue Cross and Blue Shield Association, which is a governing body for all Blue plans. Through the BlueCard system, members of Blue Cross Blue Shield plans have access to over 700,000 physicians and over 6,000 hospitals nationwide. Blue Cross Blue Shield is the number one health care brand in the nation with over 100 million Americans covered by Blue plans.
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Is Horizon BCBSNJ a state agency?
No. Horizon BCBSNJ is an independent company organized under state law as a not-for-profit health service corporation. It is governed by a 15-member Board of Directors, of which the Governor of New Jersey appoints four members. Horizon BCBSNJ does not sell stock and there are no shareholders.
New Jersey law states that “conducting the business of insurance” is one of the purposes of the health service corporation (N.J.S.A. 17:48E-1). Under its certificate of incorporation, Horizon BCBSNJ operates a health insurance business for the benefit of its members.
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Do Horizon BCBSNJ’s assets belong to the State of New Jersey or the people of New Jersey?
No. The company owns all of its assets.
New Jersey law states that “conducting the business of insurance” is one of the purposes of the health service corporation (N.J.S.A. 17:48E-1). Under its certificate of incorporation, Horizon BCBSNJ operates a health insurance business for the benefit of its members.
A health service corporation is defined as a “charitable and benevolent institution.” This designation dates back to 1938 and was given for the purpose of exempting health service corporations from taxes. Most of the former tax exemptions have been eliminated. Horizon BCBSNJ has paid federal taxes since 1986 and state premium taxes since 1989. Last year, Horizon BCBSNJ paid nearly $157 million in federal and state taxes and assessments.
Upon conversion, however, New Jersey law requires that 100% of the initial stock of the company (its fair market value) be placed into an independent foundation to be used solely for the “purposes of expanding access to affordable, quality health care for underserved individuals and promoting fundamental improvements in the health status of all New Jerseyans.” The transfer of 100% of the stock of the company (its fair market value) upon conversion is based upon the notion that Horizon BCBSNJ should repay the State of New Jersey for its former preferential tax treatment.
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Does Horizon BCBSNJ pay state and federal taxes?
Yes. In 2007, Horizon BCBSNJ paid a total $156.8 million in federal and state taxes and assessments. Horizon BCBSNJ, as a health service corporation, is precluded from benefiting from the tax savings provision in the New Jersey Premium Tax law that is available to all other insurers. This benefit was eliminated through legislation passed during the State’s 2006 budget process. As a result, Horizon BCBSNJ paid $40.9 million more in premium taxes in 2007 than all other insurers with similar levels of premium revenue (health or other insurers) authorized to transact business in New Jersey.
As a health service corporation, Horizon BCBSNJ is exempt from state sales taxes and Newark payroll taxes.
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Is Horizon BCBSNJ the state’s insurer of last resort?
Horizon BCBSNJ is NOT the state’s insurer of last resort. In 1992, the Legislature enacted reforms that required all insurers to write individual policies for anyone regardless of their health status.
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How much does Horizon BCBSNJ hold in capital reserves?
At the end of 2007, Horizon BCBSNJ had $1.6 billion in capital reserves. Reserves, mandated by state law, are a safety net to protect policyholders and ensure claims can be paid despite unexpected future events, including epidemics, natural disasters, or even terrorist attacks.
Having enough reserves is critical in maintaining the company’s financial stability and ensuring Horizon BCBSNJ will be able to keep its promises to its members when they need health care. As the state’s largest health insurer, the financial condition of Horizon BCBSNJ affects the overall financial stability of the state’s entire health care system.
Horizon BCBSNJ consults independent benchmarks and experts to determine a prudent level of reserves based upon its risk. Two independent actuarial firms have reviewed Horizon BCBSNJ’s reserve levels and both have determined that its reserve level is within an appropriate range for its risk.
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How much debt does Horizon BCBSNJ currently have on its books?
Horizon BCBSNJ's current debt is limited to a mortgage on its Wall Township facility, which is approximately $25 million.
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The Conversion Process
What is conversion?
New Jersey law (see N.J.S.A. 17:48E-49 et. seq., enacted in 2001) allows companies organized as a non-profit health service corporations to convert to for-profit domestic stock insurers. Once converted to a domestic stock insurer and pursuant to a public offering, the company can sell shares of stock in the public markets.
The conversion law requires the creation of an independent foundation that is to receive 100% of the fair market value of the health service corporation upon conversion.
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How is the process of conversion initiated?
Conversion is initiated by a minimum two-thirds vote of the Board of Directors of a health service corporation and the filing of a plan of conversion with the Commissioner of the Department of Banking and Insurance (DOBI) and a petition for review of a foundation plan with the New Jersey Attorney General. Horizon BCBSNJ filed an application for conversion and a foundation plan on August 15, 2008.
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What does it mean that Horizon BCBSNJ has filed an application for conversion?
Filing an application for conversion does not mean that our conversion will ultimately happen. However, it starts the public process of review of Horizon BCBSNJ’s potential conversion. The rigorous public process is outlined in the conversion law.
There are many issues that must still be considered. If Horizon BCBSNJ believes conversion will not be beneficial for its members or the company, the Board of Directors can, at any time, stop the process.
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Who decides whether a non-profit health service corporation can convert to a for-profit health insurer?
The New Jersey conversion law (N.J.S.A. 17:48E-49 et. seq.) sets forth a rigorous public process to evaluate a health service corporation’s proposed conversion to a for-profit health insurer. The Commissioner of DOBI receives the application of conversion and is required to hold a public hearing on the plan. Likewise, the New Jersey Attorney General receives a foundation plan and is required to hold a public hearing on the plan. The Commissioner and the Attorney General can hold the hearings jointly.
After the required public hearing, the Commissioner of DOBI is empowered to approve or disapprove the health service corporation’s plan of conversion.
The conversion law also provides that upon the Attorney General’s completion of its review of the foundation petition, the health service corporation shall apply to the Superior Court for approval of the establishment of the foundation. As part of the approval process, the superior court must conclude that the foundation plan is in the public interest.
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What does the conversion law require of the Commissioner of Banking and Insurance in reviewing Horizon BCBSNJ’s conversion application?
Under the conversion law, the Commissioner of the Department of Banking and Insurance is responsible for determining whether Horizon BCBSNJ’s conversion plan is in the public interest (NJSA 17:48E-52).
To that end, the Commissioner “may engage the services of advisors, and consultants...to advise him on any matters related to conversion.” (NJSA 17:48E-51 (g)) The Commissioner has already issued requests for proposal documents seeking to engage expert consultants to undertake an analysis of Horizon BCBSNJ’s conversion application. The process has just begun. A detailed analysis of the conversion will be undertaken and the process will be public.
Furthermore, the law requires the Commissioner to hold a public hearing after it is determined that Horizon BCBSNJ’s application is final.
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Does the conversion law require an open public process?
Yes, the conversion law provides for a rigorous public process.
The New Jersey conversion law (N.J.S.A. 17:48E-49 et. seq.) sets forth a rigorous public process to evaluate a health service corporation’s proposed conversion to a for-profit health insurer. The Commissioner of DOBI receives the application of conversion and is required to hold a public hearing on the plan. Likewise, the New Jersey Attorney General receives a foundation plan and is required to hold a public hearing on the plan. The Commissioner and the Attorney General can hold the hearings jointly. All who wish to participate in the public hearings will have an opportunity to do so.
Horizon BCBSNJ is committed to a transparent process. To that end, Horizon BCBSNJ has made its application for conversion, the foundation plan, as well as non-privileged Board materials public on its Web site (page www.HorizonBlue.com/conversion).
Under the conversion law, Horizon BCBSNJ’s business plan and certain other financial documents are not considered public documents because they could harm the company by providing proprietary information to competitors. The confidentiality of these proprietary documents, however, will not in any way detract from a full and open public analysis of how conversion will affect our state’s health care system.
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Do the people of the State of New Jersey benefit from conversion of a non-profit health service corporation to a for-profit health insurer?
Yes. Conversion unlocks the value of the health service corporation for the purposes of improving the state’s health care system.
The conversion law requires the creation of an independent foundation that is to receive 100% of the stock (its fair market value) of the health service corporation upon conversion.
It is estimated that sale of Horizon BCBSNJ’s (or its parent company that will be created at the time of conversion) capital stock in the public markets by the independent foundation after conversion could raise more than $1 billion. This money is required by the conversion law to be used for “purposes of expanding access to affordable, quality health care for underserved individuals and promoting fundamental improvements in the health status of all New Jerseyans.”
Horizon BCBSNJ’s conversion will potentially generate more than $1 billion to improve New Jersey’s health care system without the need to raise state taxes.
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Who decides the value of Horizon BCBSNJ?
The public equity market, not Horizon BCBSNJ, will determine the value of the company. Horizon BCBSNJ estimates that its conversion could generate more than $1 billion for the independent foundation.
Under the conversion law, 100% of the stock of Horizon BCBSNJ (its fair market value) will be placed with the independent foundation upon conversion. The conversion law provides that the proceeds from sale of the stock be used solely for the “purposes of expanding access to affordable, quality health care for underserved individuals and promoting fundamental improvements in the health status of all New Jerseyans.”
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Is the foundation to be created under the conversion law independently run or is it connected to Horizon BCBSNJ?
The foundation is independent of Horizon BCBSNJ. New Jersey law specifically states that “the foundation shall be a trust or nonprofit corporation formed under the laws of this State, but shall not include the health service corporation or any person controlled by the health service corporation.” The law also prohibits any employee of the health service corporation to be a director or employee of the independent foundation for a period of three years after the former director or employee’s association with the health service corporation.
The trustees of the foundation will determine how much of the initial Horizon BCBSNJ stock will be sold and when it will be sold to raise money for the foundation. The Trustees of the independent foundation will have the authority to determine how to spend the proceeds of conversion to meet the statutory requirement that proceeds be used solely for the “purposes of expanding access to affordable, quality health care for underserved individuals and promoting fundamental improvements in the health status of all New Jerseyans.” Horizon BCBSNJ will not decide how the proceeds are used.
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Does the foundation have to use the proceeds of a health service corporation’s conversion to improve New Jersey’s health care system?
The conversion law states the money generated by a conversion must be used for “purposes of expanding access to affordable, quality health care for underserved individuals and promoting fundamental improvements in the health status of all New Jerseyans.”
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If the foundation gets 100% of the initial stock of the company upon conversion, how does Horizon BCBSNJ raise capital for the corporation?
Horizon BCBSNJ can raise capital by issuing additional stock in secondary offerings.
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Horizon BCBSNJ’s reasons for exploring conversion
Has Horizon BCBSNJ previously filed an application to convert to a for-profit health insurer?
No. This is the first time Horizon BCBSNJ has filed an application under the state’s conversion law enacted in 2001. Horizon BCBSNJ has considered conversion previously, but has never filed an application of conversion with the State of New Jersey under the current law.
In the mid-1990s, the company, then known as Blue Cross Blue Shield of New Jersey, attempted to become a mutual insurance company and merge with Anthem. This plan was abandoned in 1997 prior to the enactment of the conversion law.
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Why is Horizon BCBSNJ exploring conversion again?
Our nation’s health care system is facing many challenges. Most Americans believe our health care system is in need of substantial reform. Consequently, many reform proposals at the state and federal level are calling for significant changes in health care in coming years. Simply put, our nation’s health care system is undergoing a rapid transformation.
As New Jersey’s oldest and largest health insurer, we have an obligation to our more than 3.6 million members to be prepared to meet their needs as our health care system changes. For these reasons, we felt it was appropriate to reconsider conversion at this time.
We also believe our members and New Jersey health care providers can benefit from our conversion. As a public company with access to the capital markets, we will have greater flexibility to invest in and acquire new capabilities and technologies to better serve the changing needs of our members and network physicians and hospitals.
For more than 75 years, millions of New Jersey residents have trusted Horizon Blue Cross Blue Shield of New Jersey to be there when they needed us most. We feel a special obligation to maintain that trust and to continue to be there when we’re needed. To do so, our corporate structure needs as effective and efficient as possible in order to stay competitive in the rapidly changing health care industry.
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If Horizon BCBSNJ is currently financially strong and the largest health insurer in the state, why is conversion necessary?
Any corporate Board of Directors that is not looking to the future of their industry and the changes likely to occur and preparing for those changes risks losing its competitive edge or worse. For example, one need only look to the newspaper industry to see how technological changes can remake an entire industry within a short period of time.
Our nation’s health care system is in a time of rapid transformation. Health insurers must be prepared to meet industry changes being driven by reform efforts, technology, and stakeholder demands.
Horizon BCBSNJ’s current nonprofit corporate form dates back to the 1930’s. That’s why Horizon BCBSNJ’s Board of Directors has decided to explore conversion. By converting, the company will gain access to capital through the public markets giving it more flexibility to make investments and acquisitions to add capabilities and respond to future changes in the health care system.
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Is Horizon BCBSNJ’s conversion in the public interest?
Horizon BCBSNJ believes its conversion is in the public interest.
The people of New Jersey are the biggest beneficiary of Horizon BCBSNJ's potential conversion because it unlocks the value of the health service corporation for the purposes of improving the state's health care system. The conversion law requires the creation of an independent foundation that is to receive 100% of the initial stock of the health service corporation upon conversion.
Horizon BCBSNJ’s conversion potentially could generate more than $1 billion to be dedicated to improving our state’s health care system without raising taxes.
Additionally, conversion is in the public interest because, as a public company with access to the capital markets, Horizon BCBSNJ will have greater flexibility to invest in and acquire new capabilities and technologies to better serve the changing needs of our members and network physicians, hospitals, and other health care professionals. This will make Horizon BCBSNJ more efficient, effective, and competitive.
Our health care system is in a period of rapid transformation and many current health care reform proposals will significantly affect the health insurance industry. Moreover, as technologies advance, employers, members, and health care professionals are demanding enhanced services from health insurers.
Employers are demanding sophisticated analysis of their employees in order to develop customized health and wellness programs to keep medical costs down. Members are demanding more real-time information on the cost and quality of hospitals and physicians as well as information on health and wellness and claims status. Hospitals, physicians, and health care professionals are demanding more efficient transactions with more online, real-time processing and payment. These changes require continual investment in new technologies to meet changing demands.
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How will Horizon BCBSNJ’s members benefit from conversion?
As a public company with access to the capital markets, Horizon BCBSNJ will have greater flexibility to invest in and acquire new capabilities and technologies to better serve the changing needs of our members and network physicians and hospitals.
For more than 75 years, millions of New Jersey residents have trusted Horizon BCBSNJ to be there when they needed us most. We feel a special obligation to maintain that trust and to continue to be there when we’re needed. To do so, our corporate structure needs to be as effective and efficient as possible in order for us to stay competitive in a rapidly changing health care environment.
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How will network physicians, hospitals, and other health care professionals benefit from Horizon BCBSNJ’s conversion?
As a public company with access to the capital markets, we will have greater flexibility to invest in and acquire new capabilities and technologies to better serve the changing needs of network physicians, hospitals and other health care professionals.
Additionally, providers will benefit from the resources conversion will provide for an independent foundation dedicated to improving the state’s health care system.
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Additional Questions
Will health insurance premiums increase as a result of Horizon BCBSNJ’s conversion?
Health insurance premiums are a reflection of the underlying costs of health care (e.g., hospital costs, physician costs, utilization, new medical technology, and prescription drug costs). As these underlying costs rise, so do health insurance premiums.
Whether Horizon BCBSNJ remains a nonprofit health service corporation or becomes a for-profit health insurer, health insurance premiums will be a function of the underlying cost of health care. Therefore, health insurance premiums will not rise as a result of Horizon BCBSNJ converting to a for-profit health insurer. Health insurance premiums will continue to rise as the underlying costs of health care increase.
In speaking of Virginia’s experience with a Blue plan that converted to a for-profit health insurer: “[Etti Baranoff, associate professor of insurance and finance at Virginia Commonwealth University] said by making the company public, there would be more incentives for Horizon to be a more modern and sophisticated company. For Virginia, it hasn't impacted rates, Baranoff said, but if the co-pays for specialists and emergency room visits go up, people should begin asking questions. 'In my mind, there shouldn't be any fear of rate increases,' said Baranoff, referring to monthly payments.” (8/16/08, Press of Atlantic City, Horizon Blue Cross applies to become for-profit insurer)
“’Across the U.S., there has not been a displacement of customers or an increase in rates as many had feared,’ said Dave Knowlton, president and CEO of the New Jersey Health Care Quality Institute.” (8/16/08, Press of Atlantic City, Horizon Blue Cross applies to become for-profit insurer)
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Will the amount of coverage or quality of the coverage Horizon BCBSNJ provides its members be reduced as a result of conversion?
No. New Jersey is a competitive health care market. Simply put, Horizon BCBSNJ must continue to provide quality and affordable health care products and services or it will lose customers.
Similarly, Horizon BCBSNJ will have to continue to balance the desire of its network hospitals and physicians for fair reimbursement for their quality services with the needs of its members for access to affordable health insurance products and services. This will not change upon conversion.
In speaking of Virginia’s experience with a Blue plan that converted to a for-profit health insurer, “[Etti Baranoff, associate professor of insurance and finance at Virginia Commonwealth University] said by making the company public, there would be more incentives for Horizon to be a more modern and sophisticated company.” (8/16/08, Press of Atlantic City, Horizon Blue Cross applies to become for-profit insurer)
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After conversion, will Horizon BCBSNJ stop participating in Medicaid or New Jersey FamilyCare?
Horizon BCBSNJ, through its affiliate Horizon NJ Health, is the largest managed healthcare organization serving the publicly insured, providing health services for more than 300,000 people in all 21 New Jersey counties.
A decision whether or not to continue to participate in government run programs is not dependent upon Horizon BCBSNJ's status as a nonprofit or for-profit company. Provided the state government adequately funds Medicaid and FamilyCare, Horizon BCBSNJ will continue to participate in those programs.
It must be understood that Horizon BCBSNJ could not stay in a government program that is losing money even as a non-profit. To do so would require its other members to subsidize the government program members’ health care. This would essentially amount to a tax on our individual, small group and other private sector members. Furthermore, staying in a government program that is consistently under funded would undermine the company’s strength, which could harm all of our members. This is the case whether Horizon BCBSNJ remains nonprofit or converts to a for-profit health insurer.
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After conversion, will Horizon BCBSNJ with its market share give it monopoly-like power in New Jersey?
Corporate form does not affect the market share of a company. In a competitive market such as New Jersey, market share is determined by the health insurer providing the best products and services at the most affordable cost. Horizon BCBSNJ will continue to provide quality products and services at the best possible cost after conversion.
Additionally, the health insurance market in New Jersey is heavily regulated. There is no risk of Horizon BCBSNJ becoming a monopoly given the fact that more than 50% of the market is insured by other, for-profit health insurers, including some of the biggest insurers in the nation such as Aetna, CIGNA, and United Healthcare.
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Will Horizon BCBSNJ’s executives benefit from the issuance of stock to them upon conversion?
No. New Jersey’ conversion law prohibits Horizon BCBSNJ’s officers and the company’s Board of Directors from obtaining any stock or stock-related equity compensation in the company for 12 months after the conversion.
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Have other Blue plans converted from nonprofit to for-profits health plans?
Yes. Blue plans in the states of California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia, and Wisconsin are all for-profit plans. In addition, the Blue plan in Puerto Rico is a publicly traded, for-profit health insurer.
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Where can I find additional information?
We have developed a Web page www.HorizonBlue.com/conversion to serve as our official source for conversion-related communications to the public. The Web page has a copy of our application for conversion and information on the conversion process, including the law governing conversion.
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