N.J. Caps Cash Reserve Of Nonprofit Insurer

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 via 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 passed 21 to 16 in the state senate on June 29. 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 Prieto and Vitale among others, was approved by both legislative houses and more definitively defines the margins health service corporations such as 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.