State's largest insurer could invest $275 million from federal tax refund to a variety of initiatives, rebates, and longer-term projects.

Millions of Garden State residents could see direct financial gains and potential improvements to healthcare services under a plan devised by New Jersey's largest healthcare insurance company to invest at least $275 million it received from a federal tax refund to benefit consumers.

Horizon Blue Cross Blue Shield of New Jersey announced Wednesday it will work with state officials to distribute $150 million - through rebates, discounts or some other mechanism - among the company's 3.8 million members this year. Details of how this will work still must be developed.

The insurance provider will commit another $125 million to longer-term initiatives designed to benefit its policyholders; areas of focus include improving mental health services and better integrating these with other medical care, increasing access to substance abuse treatment, and expanding primary care.

The funding became available as a result of the Trump administration's tax reform plan, signed into law late last year, which changed the process used by some corporations to file income tax. It also requires the federal government to provide refunds to firms that chose this method, which, for Horizon, could mean a reimbursement of $550 million over the next five years.

Reaction to Horizon largesse

Horizon's plan triggered praise from a variety of civic and healthcare leaders, who lauded the company's corporate responsibility and welcomed the opportunity to reduce the financial pressure on policyholders.

"I commend Horizon Blue Cross Blue Shield for reinvesting these profits into New Jersey through efforts such as increasing access to primary care in underserved communities, more fully connecting their members to behavioral and mental health programs, and strengthening substance-abuse prevention," Gov. Phil Murphy said, in a statement released by the insurance company. "They are setting the bar for how corporations can responsibly reinvest in our communities."

The announcement comes a year after former Gov. Chris Christie tried to force the company to provide as much as $300 million annually to battle addiction and support other public health needs, singling them out in his annual budget speech and threatening to enact a corporate overhaul if they didn't comply. (Although the issue initially derailed the budget agreement, it ended with a watered-down Horizon reform and no funds transferred.)

Kevin P. Conlin, the chairman, president, and CEO of Horizon, who took over from the previous leader, Robert Marino, on January 1, said Wednesday that the company is "entirely focused" on serving its policyholders.

"In keeping with our longstanding mission to operate for the benefit of our customers, this plan seeks to provide to them this year, in the most direct way possible, $150 million in relief," Conlin said. "Members will also benefit from the substantial investments this plan makes to expand access to care, improve healthcare quality, and lower costs."

Horizon stands alone

Horizon is unique in New Jersey, and not just because of its size and power; the company reported $2.6 billion in reserves at the end of 2016. Unlike other insurance companies, it is a not-for-profit entity called a "health services corporation" created by statute in 1986. Among other things, this status exempts it from paying certain state taxes and requires the company to act for the good of its members - not its shareholders or executives.

The insurer does pay federal income and payroll taxes, however. Horizon chose to calculate its income tax filings using the corporate Alternative Minimum Tax, or AMT - which limited how much businesses could benefit from deductions and other write-offs - and the company said this resulted in higher annual payments than it would have made under standard corporate tax rates.

But the Tax Cut and Jobs Act of 2017, which significantly lowered the corporate tax burden, eliminated the use of AMT and called for companies that have used this formula to be refunded a portion of their payment over the next five years. Horizon expects to receive $550 million over this time, but has agreed to invest half of this up front, in 2018.

(A recent survey of state CPAs found half of their corporate clients stand to benefit from the law.)

Michele Siekerka, president and CEO of the New Jersey Business & Industry Association, lauded Horizon as a strong corporate citizen and commended the company for the impact this would have on the state. "With this action, Horizon is not only sharing its returns to its large customer base, it is also making a strong investment in the health of our citizens and the soundness of New Jersey's economy," she said.

The move also drew praise from Analilia Mejia, executive director of the New Jersey Working Families Alliance, who said too many companies have shifted their tax savings to shareholders and executives. "It is refreshing to see a corporation, such as Horizon, place New Jersey working families before profits by truly passing on savings to working families and investing in much-needed services we all benefit from," Mejia said.

Destabilized market

But despite the anticipated Horizon windfall, the tax law - which could be facing a federal lawsuit from Gov. Phil Murphy and other state executives - has also destabilized the health insurance market by eliminating the requirement that people purchase coverage that was part of the Affordable Care Act. Experts fear that without healthy people participating in the insurance pool, the cost of caring for the sickest individuals will become unmanageable.

(Garden State lawmakers are now considering legislation to replace the mandate on a state level and make other changes to shore up New Jersey's market.)

Before the tax law even passed, concern about potential changes to the ACA, or Obamacare, contributed significantly to increases in insurance costs for 2018. Premiums for coverage sold by Horizon in the individual and small-business market, where the company writes seven out of 10 policies, increased an average of 24 percent this year, more than half of this due to uncertainty over federal policy, representatives said.

Horizon's promise to benefit members is especially sweet in this context, noted Linda Schwimmer, president and CEO of the New Jersey Health Care Quality Institute, which works with insurance companies, providers, and consumers and other payers to improve the state's system.

'Ray of light'

"For customers to some way get some of that back in their own pocket is fantastic," Schwimmer said. "To me, this announcement is like a ray of light in an otherwise somewhat gloomy time for healthcare."

The company said it will work with officials at the state Department of Banking and Insurance to "identify the most appropriate mechanism to use these funds in 2018 for its policyholders." While no exact model exists for this effort, DOBI occasionally works with insurance companies to redistribute to consumers profits that exceed a specific ratio.

For the longer-term investments, Horizon said it will begin work this year to expand some existing programs to help policyholders benefit more from mental health and addiction services, including prevention, and to ensure these are properly integrated into other aspects of their medical care. The company will also invest in improving access to primary care, especially in underserved communities, and on programs that address the social determinants of health.

Additional funds returned by the federal government will be managed by the Horizon board "to benefit our members on cost, quality, and the consumer experience," the company said.

"It's a great opportunity. I hope it's used correctly," Schwimmer said, encouraging the company to consider investing in family planning and maternal and child health, preventative services and mental health, and improving end-of-life care. "We talk about healthcare being so expensive, but that's because we haven't invested in these long-term things to reduce cost," she said.

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