The president of the Medical Society of New Jersey, Michael T. Kornett, recently wrote an op-ed that appeared in The Bergen Record on October 9, 2008. It has since appeared in other papers. A number of the statements made in the op-ed are inaccurate. Below Horizon BCBSNJ has responded with the facts:

MSNJ Statement: “Horizon executives recently said, "The best for-profit companies tend to be more efficient, even when compared to well-run non-profit organizations." I am not sure what they mean by the best for-profit companies. But in recent weeks, we have seen some of the best-known and largest for-profit companies, among them the 158-year-old Lehman Brothers investment banking firm, tank because of economic uncertainty.”

Response: All health insurers must maintain prudent reserve levels to ensure their ability to pay claims in a crisis. We would note that no major health insurer (for-profit or not-for profit) was among the companies that have failed in the current financial crisis.

Horizon BCBSNJ takes its financial strength very seriously. Horizon BCBSNJ’s reserve levels have been reviewed by independent third parties and have been found to be in an appropriate range for the size of our membership.

We will continue to ensure that our reserves are adequate to protect our members. Conversion will provide the company with greater access to capital, which will give the company’s greater financial flexibility and strength.

 

MSNJ Statement: “This is the same Horizon that as a non-profit organization weathered 75 years of financial crises, including the latter years of the Great Depression, the 1973-75 recession and the 1987 stock market crash. Yet their executives will try to convince the public that Horizon needs to go public because of the nation's changing health care system. And with untested corporate leadership, they want to leave Main Street and go to Wall Street.”

Response: Horizon BCBSNJ’s current nonprofit corporate form dates back to the 1930s. Health care is significantly different than it was back in the 1930s. Moreover, it is in a state of rapid transformation with numerous reforms being proposed at the state and federal government levels.

That’s one reason 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 in order to provide better services to its members and providers in the changing health care industry.

The leadership team at Horizon BCBSNJ has significant experience navigating the health insurance marketplace. Horizon BCBSNJ competes everyday for business against the nation’s largest for-profit health insurers and the company remains the state’s largest health insurer. Horizon BCBSNJ’s corporate leadership is tested and well suited to lead the company as a for-profit company.

 

MSNJ Statement: “Horizon states that the nominal amount of $1 billion (which it claims is the value of Horizon) will be a benefit to the citizens of New Jersey. This may indeed be a small bump in the short run, but it will do nothing for the state's 8.7 million residents long term.”

Response: The market, not Horizon BCBSNJ, will determine the value of the company. Horizon BCBSNJ has said its conversion could generate MORE THAN $1 billion.

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 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.

Horizon BCBSNJ’s conversion will generate MORE THAN $1 billion for expanding access to health care without the need to raise state taxes. That money will benefit the people of the State of New Jersey.

 

MSNJ Statement: “If Horizon receives approval for conversion, it will be transformed into a completely different organization with different interests and philosophies. It will look like a stranger to the public but will attempt to appear as the same old trusted insurance family. It's just not going to work that way.”

Response: Horizon BCBSNJ’s basic operations will not change as a result of conversion. The conversion law and Horizon BCBSNJ’s application for conversion state that its existing subscriber contracts will remain in place, unchanged after the conversion. Horizon BCBSNJ will continue to operate and compete in the marketplace against national for-profit health insurers as it always has. After conversion, however, it will have access to the capital markets that will allow it to invest in and acquire new capabilities in order to provide better services to its members and providers in the changing health care industry.

 

MSNJ Statement: “To survive, they will have to meet shareholder expectations and find ways to pay the state taxes that they haven't had to pay for the last 75 years.”

Response: Horizon BCBSNJ already competes and wins against national, for-profit health insurers. It has to meet the expectations of its customers, members, providers, and regulators in that market. As a for-profit, Horizon BCBSNJ will have access to the capital markets allowing it to become even stronger and more agile in meeting the new demands of a changing health care industry.

Horizon BCBSNJ already pays significant taxes: in 2007, the company paid a total $156.8 million in federal and state taxes and assessments.

In fact, Horizon BCBSNJ pays more taxes than any other health insurer in the state. 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.

 

MSNJ Statement: “If premiums rise to meet these new expenses, those executives may try to blame the "underlying costs of health care" for the increased costs.”

Response: Health insurance premiums are a direct reflection of the underlying cost 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 rise as a function of the underlying cost of health care.

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)

 

MSNJ Statement: “And as we have all seen on Wall Street, Horizon executives may be given stock options that will vest over time to make them multimillion-aires.”

Response: 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.

 

Horizon BCBSNJ believes that its potential conversion is a matter of significant importance to the State and is committed to a fact-based discussion of the merits of conversion for its members, health care professionals and the people of New Jersey.