A blue-and-white blimp flying the logo of Horizon Blue Cross and Blue Shield of New Jersey sums up whats wrong with the insurers plan to convert to for-profit status from the view of the Medical Society of New Jerseys top executive.
It goes up and down the Jersey Shore every day, the societys chief executive officer, Michael Kornett said. These guys are so damned obnoxious.
That bad blood, along with deep concerns voiced by the New Jersey Hospital Association, signal that Horizon is headed for turbulence in the public hearings required under the state statute passed in 2001 to pave the way for the companys conversion. Horizon previously moved in that direction but turned back.
As Horizon President and CEO William Marino has explained the newest turnabout, the board concluded the company needs access to the capital markets in order to respond nimbly to looming state and federal healthcare reforms and meet the demands of members, employers and providers for transparency, electronic health records and wellness programs.
State law calls for the value of the company at the time of conversion to go to a foundation, which is required to put the proceeds toward expanding access to affordable, quality healthcare for underserved individuals and promoting fundamental improvements in the health status of New Jerseyans. Horizon, in announcing its application to the states attorney general and Banking and Insurance Department, said that could mean more than $1 billion toward that cause.
But that left some people in the state demanding to know why so little. In the previous years, I know we were talking about $3 billion to $5 billion, said Elizabeth Ryan, president and CEO of the New Jersey Hospital Association. Ryans association has not taken an official position on the conversion, but has invited regulators to look closely at a number of questions. Were wondering, why has the value gone down? Thats already emerging as a key question.
Kornett called the matter of valuation greedy CEOs and senior management looking to take this thing public and undervaluing it to death in order to cash in on more valuable stock options in the future. An economist hired by the medical society, Kornett said, concluded the company is worth at least $8 billion.
Horizon spokesman Thomas Rubino, though, said the controversy was either a misunderstanding or a fabrication. It could generate more than $1 billion; thats all weve said, Rubino said. A review of published reports from 2005the last time the company explored and backed away from becoming for-profitshows that the conversion value most often was expressed in similar terms, in the neighborhood of $1 billion, though sometimes more.
Marino, however, said the stock would have been worth $3 billion during a 2006 symposium on the role of not-for-profit health insurance, in which he said our decision to permanently pull conversion off the table was a business decision to eliminate the issue as a distraction.
More important than whatever numbers the company has floated, Rubino said, is that the mechanics of the conversion dont allow for the companys management to play Svengali with the numbers. Everyone is jumping on this thing like weve reduced the amount, Rubino said. Thats based on a clear misunderstanding of what happens. One hundred percent of the stock goes to an independent foundation. They decide when and how much to sell for the foundations benefit. The price will determine what the value of the company is.
Horizon reported income of $161 million on revenue of $7.5 billion for 2007, ending the year with $1.6 billion in reserve. That pool of cash is another target of the companys critics, and Horizon defends the sum as supported by outside actuaries to prudently ensure claims would be paid in the event of a natural disaster or epidemic.
Horizon points to $157 million paid in state and federal taxes in 2007 as belying a perception that the company is trying to cash in after freeloading on taxpayers.
Rubino also discounted a suggestion from Kornett that Horizon is laying plans to be acquired by Indianapolis-based WellPoint, which has acquired Blues plans in 14 states, again explaining that the foundation will hold the stock and the current management has no control over who may decide to buy shares when theyre offered.
With Horizon already dominating the insurance market in New Jerseyit covers 3.6 million New Jersey residents, more than 40% of its 8.7 million residentshospitals and physicians also are concerned that a for-profit incarnation of the company that answers to shareholders would raise premiums and pay providers less.
Thomas Senker, president and CEO of 146-bed Newton (N.J.) Memorial Hospital, said Horizons power has made it challenging to negotiate an acceptable contract yet problematic to walk away from the payer because so many area residents are enrolled as Horizon members. The hospitals contract with Horizon was terminated July 22, though it remains in network through Nov. 22 and is continuing to work toward an agreement.
We heard it was forthcoming, Senker said of Horizons new bid to go for-profit. From our perspective, its hard to imagine how converting to for-profit status would help our situation, Senker said. We need Horizon to focus on the needs of the patients and the community, which is currently its mission, as opposed to Wall Street.
None of the state authorities with influence over the bid for conversion has expressed a preliminary stance. That includes Gov. Jon Corzine, who has been pushing for universal coverage in the state and has an indirect role in Horizons application because he appoints the attorney general and commissioner of banking and insurance.
Ryan acknowledged that the promise of a significant investment in expanding health insurance could be a savior to struggling hospitals. The mandated charity care is breaking hospitals backs, she said.
And that blimp? Its a more cost-effective way to advertise in an area that overlaps with the pricey New York and Philadelphia media markets, Rubino said. We do advertisesurprise, surprise.