The skeleton of a bill making its way through the chambers of Trenton has progressive groups shaking their heads, incredulous over what looks like more undercutting of the public interest, even as insiders contemplate political implications that could shake up New Jersey’s power structure.
The as-yet numbered warmed over bill provides for the reorganization of a health service corporation, specifically Horizon Blue Cross-Blue Shield, a not-for-profit health service corporation with a 17-member Board of Directors that provides healthcare to 3.2 million people.
“The bottom line is that the proposed reorganization results in the business of the health service corporation — i.e., the legacy insurer — being placed in a for-profit stock subsidiary that is controlled, and in the latest version seemingly owned, by a nonprofit mutual insurer holding company that is declared to be charitable and benevolent,” said Renee Steinhagen of Public Interest Law Center.
“However, since assets can be transferred between and among for-profit subsidiaries, this change does not sufficiently protect the value of Horizon’s current charitable assets,” she added. “This holding company is not an insurer and does not engage directly in any nonprofit, charitable activities; its mission is achieved only through its for-profit subsidiaries revealing it to be a charity in name only. Unless further significant changes are made to the bill, the proposed reorganization constitutes a de facto conversion or change in material form despite statutory declarations to the contrary.”
“Why would we like a deal like that?” Maura Collinsgru of New Jersey Citizen Action wanted to know.
“This is a heist,” Steinhagen concluded.
Questions abounded ahead of a scheduled Tuesday Assembly Financial Institutions and Insurance Committee hearing, where Appleseed, New Jersey Citizen Action and others intended to testify in opposition to the bill. In addition to those core resisters of the nascent bill, insiders muttered about motive. Horizon pays about $600m in taxes annually. The bill requires a payment of $600 million as a fee, then another $1.25 billion over 20+ years. However, could the entity avoid all taxes on their entire operation (including for profit companies) if the insurance company has a RBC at 550 or below? Wasn’t the RBC level of 550 exactly what was deemed excessive during the 2017 budget shutdown with Gov. Chris Christie? (Horizon noted that the company actually paid $244M in state taxes in 2019. The bill, as modified, would lower just a portion of that state tax, which will be the insurance premium tax. The difference in that annual tax is offset through the upfront ($600m) and annual assessments that reach $1.25b. The 550% RBC was not “excessive; it was actually the low, safeguardrail end of a range that capped out at 750%).
The inevitable question arose: Would this deal would allow Horizon to buy AmeriHealth, owned by South Jersey Democratic Party power player George Norcross III?
Would this deal allow for Horizon to have an exclusive insurance brokerage company?
Norcross and his allies, chiefly Senate President Steve Sweeney (D-3) had ruled the legislature going back to 2010, when Sweeney assumed the oath of office to lead the Senate Democrats. But successive losses by the team, including the humiliating 2019 outcome of the Democratic State Committee chairmanship, when LeRoy Jones became the successor to sitting Chairman John Currie without including South Jersey, began to tally.
While the South’s influence waned (the main players weathering legislative losses, also in 2019, then the loss of a congressional seat this year), Middlesex continued to exert persuasion, mainly through the office of Speaker Craig Coughlin (D-19). The unflappable Coughlin had started out in 2018 at Sweeney’s side as an opponent of Governor Phil Murphy, but by 2019 the speaker had begun inching toward the governor. In 2020, the senate president credited Coughlin with taking the lead role among the three in striking a deal for Murphy’s long sought-after millionaire’s tax.
If Coughlin had originally appeared content to play South Jersey facilitator, this year he seemed to assume the role of chief engineer of a process that Sweeney found himself reluctantly welded to mostly as a consequence of COVID.
The front office wasn’t complaining, for if Middlesex never exhibited the love for Murphy that Currie had, for example, neither did it radiate the irritability (at best) and blood lust (at worst) South Jersey cast in Murphy’s direction. Their ill will for the governor went back to the 2017 election, when the New Jersey Education Association (NJEA) tried to eliminate Sweeney and Murphy remained silent.
Norcross and Sweeney didn’t forget.
But again, while the injuries incurred only intensified, as the state Attorney General began investigating Norcross-connected firms’ receipt of $11.5 billion in tax credits, Middlesex and Coughlin quietly built bridges to Murphy world, or refused to tear down those structures pursued by Murphy Chief-of-Staff George Helmy.
Insiders intent on enjoying Murphy’s supposed political ham-handedness celebrated the state committee’s rollout earlier this month of a legislative redistricting commission that lacked an obvious front office emblem. The committee had reps from Essex, Bergen, Middlesex and Hudson – even South Jersey; but no one with a specific gubernatorial attachment, as Christie consigliere Bill Palatucci possessed in 2011.
It lazily looked like South Jersey scoring another political win over a slumbering governor.
But what was less immediately apparent was how Murphy was beginning to depend more on Middlesex as a middleman, or, depending on one’s perspective, how Gary Taffet – a key Coughlin ally and himself evidently embroiled in an AG’s investigation – was making himself useful to the front office as the man who wasn’t Norcross but might have fancied himself an evolving, less threatening equivalent.
“This is undoubtedly a Middlesex power play,” a source told InsiderNJ.
But exactly how?
Sources close to the developing Horizon legislation described a possible scenario wherein Middlesex – already on a power trip – might intensify its grip on the legislature; for if restructuring enabled Horizon to acquire AmeriHealth, it opened the possibility of placating the wounded but still politically dangerous South Jersey. For one, the dangling of a safe harbor for AmeriHealth conceivably kept at bay the possibility of Sweeney pulling an end run around Essex and Middlesex and trying to get cute with Hudson and Bergen on the Democrats’ redistricting commission. AmeriHealth offloaded would greenlight the senate offloading Sweeney, and conceivably provide enough of a landing zone for the remnants of the current leadership installation, namely Coughlin or his law firm or those in that circle. Sweeney’s pooh-bah satisfied and a landing pad (not a helipad) prepared for the speaker, opened up the possibility of Middlesex going after the senate presidency. If the sprawling suburban county maintains its strong ties to Essex (Middlesex Democratic Chairman Kevin McCabe is frequently happily seen in the company of Essex Democratic Committee Chairman Jones, whose firm, 1868 Public Affairs, lists Horizon as a client), look for the reemergence of an Essex-based speaker, probably Assemblywoman Eliana Pintor Marin (D-29). Another Essex name, Assemblyman John McKeon (D-27) (who incidentally chairs Financial Institutions and Insurance), surfaced in a conversation about speaker but only briefly as the source said she suspected McKeon intends to run – sooner rather than later – for senate not assembly.
Of Pintor Marin, “She’s respected,” the source added.
She’s also the current budget chair, a promotion secured in exchange for Essex County’s support for Coughlin when he first pursued the speakership.
Sources posit Senator Joe Vitale (D-19) as the most likely Middlesex candidate for senate president.
Keep in mind this is all speculative, and anyway, Vitale – who chairs the powerful state Senate Health Committee – is said to have his own questions about the Horizon “bill.”
In full bore this-is-not-as-evil-as-it-appears mode and trying to build sympathy by identifying state politicians as a going public enemy, a source described the company’s management as fed up with the so-called Trenton alpha males and their retainers, and stressed a recalibration that would enable a CEO or his team to clamp down on their influence and professionalize the board.
In other words, the source seemed to imply, the days of Joey Muniz (a holdover from the Prieto years) on the board would be numbered.
Some others there now would presumably also get the boot, and there was already some backroom pushing and shoving among Sweeney, Coughlin and Murphy over who to install on the other side of the company’s restructuring, with names like Joe Kyrillos, Joe Roberts and Senator Loretta Weinberg circulating. If the deal were to go through – a big if with public opposition mounting – a showdown for Weinberg’s 37th District Senate seat might be imminent, presumably (at the very least) between Assemblyman Gordon Johnson (D-37) and Assemblywoman Valerie Vainieri Huttle (D-37). The battle lines always shift but Johnson, it should be noted, backed Coughlin for speaker in 2017. That said, Bergen has its own politics.
Its Democratic Party chairman, moreover, already sits on the Horizon Board.
Again, no one’s labored breathing in the subterranean passageways of Trenton as he passed around the proposed legislation appeared in line for a good government award here. There was even some conflict-of-interest buzz Monday a day ahead of the hearing. If it even were to find a way out of committee, leadership could find itself counting heads. Usually a reliable Sweeney vote come crunch time, state Senator Kip Bateman (R-16) might find himself once again in play-ball-mode, or looking to resist in the face of establishment assistance for a bill-backing Assemblyman Andrew Zwicker (D-16), who is said to be seriously mulling a 2021 run against Bateman. Murphy acolytes worked it, trying to secure a Horizon life line in time for the governor’s budget address.
Again, the parlor game dynamics abided in an atmosphere where only hard questions at Tuesday’s hearing would affix a finer exclamation point on the public interest, presumably mostly expressed as public criticism.
In a statement, Horizon spokesman Thomas Vincz expressed the company’s rationale.
“For nearly two years, Horizon has been working with State leaders on legislation to establish an open, inclusive and transparent regulatory process that allows Horizon to become a not-for-profit mutual, the same corporate form used by Blue Cross Blue Shield plans in 18 other states,” Vincz said. “The COVID-19 pandemic continues to remind us that when it comes to health, things can change very quickly and the healthcare system must be able to rapidly adapt to protect the people of New Jersey. Becoming a not-for-profit mutual has always been about one thing: making sure that Horizon, a company uniquely focused on the New Jersey, is best positioned to adapt to the changing needs and expectations of our members and the communities we serve.
“The revisions that we understand will be made to the legislation incorporate substantial input gained from listening to our members, to policymakers, and to stakeholders over the past year,” he added. “New language specifically preserves all of the essential elements that protect Horizon’s historic not-for-profit focus and mission while enabling the modernization of our corporate form to give the Company the flexibility to accelerate the pace and scale of investments that will ensure we are there for our members when they need us most in the future.”
In the meantime, Steinhagen dissected the bill – and not happily.
“Section 13 of the proposed legislation contemplates an initial assessment of $600,000,000 dollars, and then a recurring payments for 17 years (together capped at $1.250 billion), a portion of which is to compensate the State for the premium tax revenue that the State would lose if Horizon were to convert to a mutual holding company with its legacy insurer operating as a for-profit stock subsidiary (i.e., $50 million/year). This loss would be incurred due to the fact that the new entity would be able to take advantage of a premium tax cap that is now unavailable to a health service corporation. We simply ask, if the policy reason that a health service corporation is not able to take advantage of the cap because its entire business is in New Jersey, and not just a certain percentage of its business, why can’t the Legislature remove the ability to enjoy the cap from any for-profit insurance company whose entire business is similarly only in New Jersey?
“In any case, this payment will end after 17 years, and the State again will again be left with figuring out a way to fill the budget gap,” she added. “Secondly, the payments can be deferred without interest, the debt is extinguished after 20 years, and the State’s interest in the debt is neither secured or given any particular status. What happens in the event of sale of all the for-profit insurance subsidiaries to an out-of-state insurer? Will the state have to sue to receive payment? Perhaps, giving the Governor, Speaker and Senate President three additional appointments on the board of the mutual holding company will ensure payment, but this is a very not a revenue stream on which the State can rely.”
She also griped about the front office.
“We’ve been trying to reach the AG,” Steinhagen told InsiderNJ. “This is one of those reasons why New Jersey needs an elected AG. He needs to make his voice heard on this.”