Horizon Blue Cross Blue Shield of New Jersey: Current and ... · Horizon Blue Cross Blue Shield of New Jersey: ... 1986 restated Certificate of Incorporation advised that "upon the

1

0

140,000

280,000

420,000

560,000

700,000

840,000

980,000

1,120,000

1,260,000

1,400,000

Horizon BCBS

(Non-HMO)

Horizon Healthcare

of NJ (HMO)

NJ Sta

te P

lan

(Self-F

unde

d)

Oth

er C

omm

ercial

(>50

Lives

)**

Small E

mploy

erGro

up

Com

mer

cial (<

50 L

ives

)

Individu

al C

omm

ercial

Dep

artm

ent o

f

Hum

an S

ervice

s

Med

icar

e

Me

mb

ers

hip

H HH�

Horizon Blue Cross Blue Shield of New Jersey:

Current and Historical Role in Providing

Health Insurance Coverage in New JerseyFebruary 2003

I

SS

UE

B

RI

EF

1

Figure 1: The Diverse Membership Portfolioof Horizon Blue Cross Blue Shield

of New Jersey, 2002*

*Total membership is 2.6 million!Includes Medicare + Choice and Medicare supplemental coverageHIncludes NJ FamilyCare and Medicaid**Includes PPO, POS, ASO and Direct AccessHH State and local government employee coverage

Sources: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats); NJ Department of Banking and InsuranceIHCP and SEHBP quarterly administrative data;HBCBSNJ 2001 AnnualReport (www.horizon-bcbsnj.com)

Blue Cross Blue Shield (BCBS) plans werefounded to provide health care insurance topopulations in need. As the health system in theUnited States has changed, with the rise of managedcare and intensifying price competition amonginsurers and providers, BCBS plans have struggledto continue to be effective. Recent public discussionsabout the possibility of Horizon Blue Cross BlueShield, the New Jersey BCBS plan, converting fromnon-profit to for-profit status have raised questionsabout potential impact on access to affordablecoverage in the state. Although a full understandingof the effects of for-profit conversion of major healthcoverage providers would require extensive analysesof financial and coverage data, this Issue Briefprovides an important overview to place many ofthe conversion issues in context.

This Brief describes Horizon's dominant role inproviding health coverage in New Jersey, examinesits mission as a non-profit organization andsummarizes its current membership portfolio andmarket shares, particularly in products that providecoverage to traditionally vulnerable populations (e.g.,elderly and low-income persons) who may beadversely affected should a conversion take place.The Brief also provides an overview of significanthistorical milestones that may have affected the roleof Blue Cross Blue Shield in New Jersey. Thisinformation should be considered background toinform discussions among policymakers andstakeholders. A second Rutgers Center for StateHealth Policy publication, "Sustaining the charitablemission of Horizon Blue Cross Blue Shield afterConversion to a For-Profit Corporation: Issues andBest Practices" provides discussion of additionalissues surrounding a possible Horizon Blue CrossBlue Shield conversion.

Horizon Blue Cross Blue Shield:

Steeped in the History of Health

Insurance in New Jersey

Blue Cross Blue Shield has been on the forefrontof providing health insurance coverage to NewJersey residents since the early 1930s when BlueCross was born out of the Association of Hospitalsof Essex County. With its creation, Blue Crossbecame the first pre-payment hospital system inthe country. Exactly a decade later in 1942, theMedical Surgical Plan of New Jersey (Blue Shield)was formed to provide coverage for non-hospitalcosts. Blue Cross and Blue Shield worked in concert,but operated as separate entities until they formallymerged in 1986.

2

Figure 2: Horizon HMO MembershipIncreased as the Total Market Flattened,

1992-2002*

* Represents Medicare, DHS (NJ FamilyCare and Medicaid), andCommercial (including individual and small employer) membership** Prior to 1998, “Horizon HMO” was known as “HMO Blue”

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2,250,000

2,500,000

1993

1992

1994

1995

1996

1997

1998

1999

2000

2001

2002

Mem

bers

hip

Year

Total Market

Including Horizon

HMO

Horizon HMO**

In the 1970's prior to the merger, there wasconsiderable activity in New Jersey's health caremarket that would later influence the way in whichhealth care organizations delivered and paid forcare. For example, hospital rate controls were putin place for Medicaid and Blue Cross in 1971 whenthe legislature passed the New Jersey Health CareFacilities Planning Act. Just two years later in 1973,Blue Cross introduced the first health maintenanceorganization (HMO) in New Jersey that signaledthe beginning of the managed care evolution andthe shift away from traditional indemnity healthinsurance coverage.

Organizational Structure and

Non-Profit Mission

It was not until 1986 with its merger that thecompany became a health service corporation underthe name Blue Cross Blue Shield of New Jersey(BCBSNJ). According to statute, a health servicecorporation is organized, "without capital stock andnot for profit, for the purpose of (1) establishing,maintaining and operating a nonprofit health serviceplan and (2) supplying services in connection with(a) the providing of health care or (b) conductingthe business of insurance as provided for in thisact."1

With its formal corporate structure in place,BCBSNJ was defined by law as a "charitable andbenevolent institution" which was committed tocontinuing its original non-profit mission dating backto 1932, i.e., to "provide individuals and employersin New Jersey with convenient access to qualityhealth care, wherever they live or work.”2 BCBSNJ's1986 restated Certificate of Incorporation advisedthat "upon the dissolution of the Corporation, anyremaining assets of the Corporation shall be turnedover to, or distributed among, one or more charitablenon-profit institutions, which are at the time tax-

Data Used in This Brief

Data used for the charts, graphs, and mapsin this Brief were obtained primarily from the NewJersey Department of Banking and Insurance(NJDOBI), and from Horizon Blue Cross BlueShield of New Jersey’s website, www.horizon-bcbsnj.com, and the company’s 2001 annualreport (found on the website). Specifically, Centerfor State Health Policy researchers drew fromNJDOBI Individual Health Coverage Program(IHCP) and Small Employer Health BenefitsProgram (SEHBP) administrative data from 1997-2002. Other comparisons were made using 1992-2002 managed care membership data from theNJDOBI website that can be found atwww.state.nj.us/dobi/mchmostats.htm.

Aside from the IHCP and SEHBP for whichcomprehensive enrollment data are available,NJDOBI provides comprehensive data only forHMO managed care products; therefore, in orderto provide consistent comparisons, most marketshare and trend analyses in this brief arepresented using HMO membership only. Inaddition, limited access to both Horizon’s and itscompetitors’ non-HMO (e.g., Indemnity, PreferredProvider Organization [PPO], Point of Service[POS], & Direct Access) membership data madeit difficult to generate membership comparisonsacross all product lines. However, when suchnon-HMO data were available, expanded analysesare provided. All data limitations are describedin detail in footnotes to individual chartsand graphics.

3

0

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OtherCommercial

Small Employer

GroupCommercial

Individual Commercial

DHS**Medicare

Perc

en

t o

f H

MO

Mem

bers

hip

Figure 3: Horizon Plays a Large Rolein HMO Programs for Vulnerable

Populations, 2002*

* Does not include PPO or POS membership** Includes NJ FamilyCare and Medicaid

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

OCEAN

SUSSEX

LANTAT IC

BURLINGTON

MORRIS

SALEM

WARREN

OUMONM TH

LACUMBER ND

HUNTERDON

BERGEN

EMIDDL SEX

SOMERSET

MERCER

CAMDEN

MACAPE Y

STGLOUCE ER

PASSAIC

ESSEX

UNION

HUDSON

5% - 10%

11% - 15%

16% - 20%

21% - 25%

Market Share:

Total Horizon Commercial HMO Membership: 164,236

Figure 4: Horizon HMO Does Not Dominatein the Competitive Commercial Market in

Any County, 2002*

*Includes individual, small employer group, and other commercial HMOmembership. Excludes Medicare and DHS HMO membership

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

BCBSNJ was viewed as New

Jersey’s “insurer of last

resort,” the carrier that

would provide coverage to

otherwise “uninsurable”

high-risk individuals.

exempt under Federal tax laws, as the board ofdirectors shall determine and select, is furtheranceof the purpose of the corporation."3 The fact thatBCBSNJ was viewed by the health care communityas New Jersey's "insurer of last resort", the carrierthat would provide coverage to otherwise"uninsurable" high-risk individuals, was furthertestimony to its unique social role and responsibilityin the state's health insurance system.

A detail of significant note is that in 1986 whenBCBSNJ created the first HMO under the healthservices organization, this managed care productwas designed as a wholly owned for-profit subsidiaryof the parent company. Today, that HMO (nowknown as Horizon Healthcare of New Jersey or"Horizon HMO") still operates under for-profit statusand has over 500,000 of the approximately 2.6million total members enrolled in Horizon Blue CrossBlue Shield of New Jersey (see Figures 1 to 3).

Some have referred to the arrangement of anon-profit owning a for-profit subsidiary as a"creeping conversion."4 The questions to beconsidered are to what extent, if any, the existenceof this for-profit subsidiary challenges theorganization's current non-profit mission or will the

fact that Horizon already has membership in a for-profit entity mitigate any adverse impact should afull conversion take place.

1990s: A Decade of Change and Health

Care Reform in NJ

The 1992 passage of New Jersey's Health CareReform Act (HCRA) and related legislation was asignificant health policy milestone that wouldinfluence the state's health coverage market for thenext ten years. In part, this comprehensivelegislation sought to remedy the many ills of theindividual and small employer group insurancemarket by, among other provisions, mandatingguaranteed coverage and renewal and purecommunity rating.

One result of this legislation was that carriershad to "play or pay"; i.e., "play" in the individualhealth coverage market which many had previouslydeemed actuarially too risky, or "pay" an assessment

Some have referred to the

arrangement of a non-profit

owning a for-profit subsidiary as

a “creeping conversion.”

4

1993

1992

1994

1995

1996

1997

1998

1999

2000

2001

2002

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pe

rce

nt

of

To

tal

Ho

rizo

n H

MO

DHS (including NJ

FamilyCare and Medicaid)

Medicare

Commercial

Figure 5: Horizon HMO MembershipSkewed Toward Public Programs

Between 1992 and 2002

Source: NJ Department of Banking and Insurance managed care data( www.state.nj.us/mchmostats)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Total IHCP Market

Including Horizon

Horizon

Me

mb

ers

hip

Number of

Plans Participating

in IHCP** 17 11 8 6 7 7

19971999

2000

2001

2002***

1998

Figure 6: As Total Enrollment in theIndividual Health Coverage Program (IHCP)*

Declined, Horizon has Maintaineda Large Role, 1997-2002

* Includes both IHCP HMO and Plans A-E membership** HMOs and respective affiliates are counted separately; total includesactive plans with over 5,000 members***Through March 2002

Source: NJ Department of Banking and Insurance quarterly IHCPadministrative data

to cover the losses incurred by other carriers thatdid participate. However, perhaps the mostsignificant consequence of this legislation is that iteffectively put an end to BCBSNJ's role as NewJersey's insurer of last resort and restructured boththe individual and small employer group marketsto maximize private coverage options in the state.

By 1993 BCBSNJ, like its competitors, was inthe throes of the managed care explosion in NewJersey, and was simultaneously dealing with theimpact of the previous year's regulatory changes.During that year, the company launched HMO Blue,its premiere managed care product that by the endof the fourth quarter saw its enrollment climb to88,000 lives, an upward HMO membership trendthat continues today for Horizon (see Figure 2).Also in 1993, Medigroup Services, Inc., which wasdirectly owned by Blue Cross Blue Shield of NewJersey, partnered with Mercy Health Plan ofPennsylvania in a joint venture to administercoverage, under the entity Mercy Health Plan, toBlue Cross Blue Shield's HMO Medicaid membership.This move proved strategically significant given thestate's expansion of subsidized health coverageprograms in the late 1990s.5 In a recentdevelopment perhaps indicating the organization'scommitment to this market, on January 15, 2003Horizon announced it had acquired Mercy HealthPlan of PA's interest in Horizon Mercy (as it becameknown in 1998), resulting in Horizon's full ownership(through its subsidiaries) of this Medicaid plan.6

Anthem Abandons Horizon During First

Conversion Attempt

If Blue Cross Blue Shield files an applicationwith the New Jersey Department of Banking andInsurance to become a for-profit organization, itwill not be the organization's first attempt at mergeror for-profit conversion. The stage was set forHorizon to become a for-profit entity in 1995 whenthe New Jersey legislature authorized theorganization's conversion to a for-profit mutualcompany without formal corporate dissolution.Following that legislative action, in 1996 Blue CrossBlue Shield announced its plans to become a mutualcompany to prepare for a merger with AnthemInsurance Company, Inc., an Indiana-basedmanaged care giant.

The biggest controversy at that time was overthe distribution of BCBS's assets, should it becomea mutual company. Then New Jersey AttorneyGeneral Peter Verniero argued that BCBS enjoyedall the benefits of a non-profit organization and ithad assumed a unique charitable role providing

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Horizon HMO

Horizon Non-HMO

Other Carriers HMO

Other Carriers Non-HMO

1997 2002*

Perc

en

t o

f To

tal IH

C M

em

bers

hip

Year

Figure 7: Total and Horizon IHCPMembership Has Shifted to HMO Coverage,

1997 and 2002

*Through March 2002

Source: NJ Department of Banking and Insurance quarterly IHCPadministrative data

health care coverage to potentially vulnerablepopulations. Therefore, he argued, if the conversionwas to occur, a charitable trust would need to becreated to return the assets to the community. TheNew Jersey Appellate Court agreed with AttorneyGeneral Verniero's argument, and with the prospectof paying out an estimated $400 million in BCBSassets to establish a health foundation, Anthemwalked away from the deal in 1996. The AppellateCourt's 1996 decision regarding the disposition ofcharitable trust assets would likely need to beconsidered by all stakeholders should futureconversion activities unfold.

Horizon's Corporate Makeover

In late 1998 in an effort to maximize its brandand corporate logo recognition, Blue Cross BlueShield of New Jersey changed its name. Blue CrossBlue Shield of New Jersey became known as HorizonBlue Cross Blue Shield of New Jersey and HMO Blue,its flagship managed care product, wouldsubsequently be known as Horizon Healthcare ofNew Jersey, doing business as Horizon HMO. Bythe end of that year, Horizon's managed caremembership rose to nearly 320,000 lives in NewJersey (see Figure 2).

Horizon Blue Cross Blue Shield of New

Jersey in the New Millenium

In June 2001, Acting New Jersey GovernorDonald DiFrancesco signed legislation that outlinedthe regulatory process governing all health careorganization conversions in the state. Two signif-icant points in the statute, N.J.S.A. 17-48 E-49 etseq, include the establishment of a politicallyappointed fifteen-member temporary advisorycommission and a mandate that all valued assetsendow a newly created health foundation whose

• Formal application submitted to NJ Commis-sioner of the Department of Banking and In-surance (DOBI), including valuation(s) of as-sets and premium rate analysis

• Foundation plan submitted to NJ Attorney Gen-eral concurrently with the conversion plan tothe Commissioner of DOBI

• Commissioner has discretion to engage consult-ants to review case. Health services corpora-tion (i.e., BCBS) assumes the cost

• Fifteen member appointed Advisory Commis-sion which transitions to Foundation Board ofDirectors after the conversion (note: AssemblyBill 1873 is currently pending in the Senate Com-merce Committee. If passed, this bill wouldabolish the advisory commission. Board of di-rectors of the Foundation would be appointedbased on the same selection process as advi-sory commission, though by a new Governorand legislative leaders)

• Minimum of one public hearing; scheduledwithin 90 days from date application is consid-ered complete. Notice in two newspapers nomore than 45 and no fewer than 15 days be-fore the hearing

• Commissioner renders decision on conversionwithin 45 days from the close of the public record

• Attorney General to hold hearing on foundationplan. May be concurrent with conversionpublic hearing

• Non-profit assets must be used to expand ac-cess to affordable quality health care

• Health service corporation petitions NJSuperior Court for approval of establishmentof foundation

• Attorney General makes recommendation toSuperior Court

New Jersey’s Conversion Law

6

Figure 9: The Role of HMOs, other thanHorizon, in the SEHBP Has Grown Modestly,

1997 & 2002

* Represents standard HMO only, HMO/POS membership shown asnon-HMO**Through March 2002

Source: NJ Department of Banking and Insurance quarterly SEHBPadministrative data

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Horizon HMO*

Non-HMO

Other Carriers HMO*

Other Carriers Non-HMO

1997 2002**

Pe

rce

nt

of

Sm

all

Em

plo

ye

r G

rou

p M

ark

et

Year

Figure 8: Horizon’s Role in the SmallEmployer Health Benefit Program (SEHBP)*

has Remained Stable as Other CarriersHave Consolidated, 1997-2002

* Includes both small employer HMO and Non-HMO membership** HMOs and respective affiliates are counted separately; total includesactive plans with over 5,000 members***Through March 2002

Source: NJ Department of Banking and Insurance quarterly SEHBPadministrative data

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Total SEHBP

including Horizon

Horizon

Mem

bers

hip

Number of Plans

Participating in

SEHPB** 39 34 22 18 18 18

1997

1998

1999

2000

2001

2002

***

mission was consonant with the mission of theoriginal non-profit organization.

With the stage set by the passage of thislegislation, and perhaps having learned a lessonon the importance of political and regulatory supportfrom the aborted Anthem merger, in December 2001Horizon Blue Cross Blue Shield's Board of Directorsformally authorized the exploration of a for-profitconversion. Horizon has stated that a for-profitconversion would allow the company to successfullyexpand their access to capital and give them greaterflexibil ity for technology innovations andenhancements that would benefit their members.They believe that the ability to leverage privatecapital will reduce their reliance on membershippremiums as a primary revenue source.

In the year since Horizon announced itspreliminary intentions, the company has not activelymoved forward with this business strategy. Thislack of activity may be the result of a free-fallingstock market creating an unfavorable environment

for an initial public offering (IPO), or changes in thestate political landscape after the election of 2001,or perhaps some combination of the two. Regardlessof the cause(s) for the delay, there has been growingconcern among community organizations andactivist groups about not only the impact such aconversion would have on Horizon's membership,but also over the distribution of Horizon's assets.There have been recent news reports suggesting astate interest in using a portion of the funds forstate health programs that would otherwise bereduced or eliminated due to the estimated $4 billionbudget shortfall. However, such a strategy wouldlikely require legislative action to amend the currentstatute, and would be highly controversial.

As of mid-January 2003, Horizon has not fileda formal conversion application with the NJDOBI,and it remains to be seen if the process will heat upagain in 2003. While the state's political andeconomic climate will no doubt influence Horizon'sdecision regarding a conversion in 2003, it is nottoo early to examine the organization's currentbusiness portfolio to better assess potential impacton vulnerable members. Such data can serve toinform the debate should Horizon move forward withtheir conversion application.

7

OCEAN

SUSSEX

LANTAT IC

BURLINGTON

MORRIS

SALEM

WARREN

OUMONM TH

LACUMBER ND

HUNTERDON

BERGEN

EMIDDL SEX

SOMERSET

MERCER

CAMDEN

MACAPE Y

STGLOUCE ER

PASSAIC

ESSEX

UNION

HUDSON

25% - 36%

37% - 48%

49% - 59%

60% - 71%

Market Share:

Total Horizon HMO DHSMembership: 287,231

Figure 11: Horizon HMO Plays a Major Rolein DHS Programs* in all Counties, and

Dominates in Many, 2002

*Includes NJ FamilyCare and Medicaid

Source: NJ Department of Banking and Insurance managed care datafound at www.state.nj.us/mchmostats

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000Total DHS Programs*

(including Horizon)

Horizon HMO**

Me

mb

ers

hip

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002*

**

1992

Figure 10: Horizon More than Doubled itsState Program HMO Membership in 5 Years

as NJ Department of Human ServicesPrograms Expanded, 1997-2002

*Includes NJ FamilyCare and Medicaid**Prior to 1998, “Horizon HMO” was known as “HMO Blue”***Through June 2002

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

Horizon's Leading Role in the Individual

Health Coverage Program

The Individual Health Coverage Program (IHCP)was born out of the 1993 insurance reformlegislation. Analyses of the first few years of IHCPoperation showed that these reforms were achievingtheir goals of, among other things, increasing thenumber of carriers offering coverage in the marketand providing affordable coverage regardless ofindividuals' age or health status. However, since1996, the market has experienced rising premiums(compared to employer coverage) and decliningenrollment. According to NJDOBI administrativedata, the IHCP is losing an estimated 3% of itsmembership per quarter, while evidence indicatesthat those people who are opting to stay in theprogram do so to cover very costly medical needs.

Horizon is a dominant player in the currentIHCP. In 1997, Horizon had approximately 56% ofthe IHCP market, reflecting combined HMO and non-HMO membership. With nearly 50,000 members,Horizon's market share increased to 60% in 2002when they were one of seven carriers offeringcoverage, again reflecting combined HMO and non-HMO membership (see Figure 6). As a number ofcarriers have exited this market, Horizon's role has

become increasingly significant. Should they departthis program, there would be substantial disruptionof coverage for members and reduced choiceof carriers.

Stability Marks the Small Employer Health

Benefits Program (SEHBP)

In addition to trying to address the failingindividual market, the 1993 regulatory reforms alsosought to remedy problems in the small employergroup (under 50 employees) market in New Jersey,and created the Small Employer Health BenefitsProgram (SEHBP).

While the IHCP has continued its membershipdecline, the SEHBP has remained stable and haseven seen periods of modest membership growth(See Figures 8 and 9). In 1997, Horizon hadapproximately 25% of the SEHBP market share,combined HMO and non-HMO, and that figure roseto 30% in 2002 as the number of participatingcarriers in the market decreased from thirty-nine toeighteen from 1997 to 2002. Though not thedominant player that it is in the IHCP, Horizon doeshave sufficient market presence to consider how

8

Figure 12: Horizon’s Role in DHS* HMO Programs, 2002

*Includes NJ FamilyCare and Medicaid**Counties in which Horizon has 32% to 60% Market Share***Counties in which Horizon has over 60% Market Share

Source: NJ Department of Banking and Insurance managed care data found at www.state.nj.us/mchmostats

Horizon MembershipTotal DHS Total DHS Horizon DHS as a % of Total DHS

County Eligibles HMO Membership HMO Membership HMO Membership

Atlantic 32,945 23,408 13,842 60%**

Bergen 49,243 34,355 14,000 41%**

Burlington 28,279 20,207 10,729 53%**

Camden 76,967 60,487 30,150 50%**

Cape May 13,016 9,346 6,586 70%***

Cumberland 28,401 21,666 8,513 39%**

Essex 147,792 109,197 43,675 40%**

Gloucester 21,439 16,225 4,131 25%

Hudson 114,859 89,554 35,715 40%**

Hunterdon 4,054 2,205 1,475 67%***

Mercer 40,479 26,261 15,954 61%***

Middlesex 59,503 44,102 16,118 37%**

Monmouth 46,187 33,804 17,595 52%**

Morris 17,530 9,797 4,792 49%**

Ocean 47,966 36,566 18,465 50%**

Passaic 89,146 69,524 19,143 28%

Salem 8,023 5,712 3,449 60%**

Somerset 13,211 8,778 4,157 47%**

Sussex 7,537 5,083 3,011 59%**

Union 60,827 45,076 14,059 31%

Warren 7,316 5,190 1,672 32%**

TOTAL 914,720 676,543 287,231 42%**

9

0

50,000

100,000

150,000

200,000

250,000

Mem

bers

hip

Total Medicare HMO

(includes Horizon)

Horizon HMO

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

*

Figure 13: Horizon Medicare HMOMembership Climbed as Other Carriers

Exited the Market, 1993-2002

*Through June 2002

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

the SEHBP market and Horizon's members couldpotentially be impacted should the conversiontake place.

NJ FamilyCare and Managed Medicaid

Enrollment Explosion

There has been a significant increase in NewJersey's public managed care membership since1994. This upward trend continues, in part due tothe 1997 New Jersey Department of Human Services(NJDHS) children's health insurance program, NJKidCare. This program was expanded and renamedNJ FamilyCare in 2000 (see Figure 10). Theseprograms were created to provide free or discountedhealth coverage to children and adults whose familyincome is modest but too high to make them eligiblefor other publicly sponsored health benefits.

Today, Horizon Mercy plays a significant rolein providing HMO coverage to NJDHS beneficiaries,including NJ FamilyCare and Medicaid enrollees.Currently, with over 287,000 NJDHS programmembers, Horizon has over 40% of the NJDHS HMOmarket share statewide, and a minimum of a 60%share in Hunterdon, Mercer, Salem and Cape MayCounties (see Figures 3 & 11). Horizon has morethan doubled its DHS HMO membership in fiveyears, from 1997-2002. Currently, as shown inFigure 5, the NJDHS membership accounts for over50% of Horizon's HMO membership.

Horizon HMO Dominates Medicare+

Choice Program

Managed Medicare in New Jersey slowlyaccelerated enrollment in the early 1990s, hittingits peak in 1999 with nearly 200,000 members ineight health plans throughout the state. Horizonbegan enrolling Medicare members in its HMO (thenknown as HMO Blue) product in 1996. With theenactment of the federal Balanced Budget Act (BBA)in 1997, which reduced premiums paid to carriersoffering Medicare HMO coverage, several managedcare companies chose to exit the program andoverall membership declined (see Figure 13).

Reforms in the NJ IHCP & SEHBP7

• Guaranteed Coverage & Renewal: All eligibleapplicants must be offered coverage, regard-less of health status

• Community Rating: Each IHCP plan mustcharge enrollees the same premium regardlessof age, sex, occupation, geographic location,or health status. Limited premium variation isallowed in the SEHBP

• Standardized Plan Designs: All plans mustconform to a set of standard benefit optionsto be able to compare premiums more effec-tively. Indemnity plans A-E and an HMO planin the IHCP

• Minimum Loss Ratio: Carriers must spend 75cents for every dollar on benefits

NJ FamilyCare at a Glance8

• Federal and state funded program designed toprovide benefits to uninsured children andsome adults (currently closed to new adultenrollment)

• Provides coverage to over 278,000 childrenand adults (August 2002)

• Children up to 19 years of age qualify• Eligibility based on family size and monthly

income; up to 350% of federal poverty levelfor children

• Must be uninsured for at least 6 months• Sliding scale premiums and co-payments and

annual renewal requirement

10

This trend has continued in 2002 as four healthplans have chosen not to renew their Medicare +Choice (the revised Medicare HMO program afterthe BBA) contract with the federal Center forMedicare and Medicaid Services (CMS). Thewithdrawal of these carriers affected 53,144Medicare members in seventeen of New Jersey'stwenty-one counties.9

As the overall managed Medicare membershipdecreased in New Jersey since 1999, Horizon'smanaged Medicare enrollment has grown after amodest decline between 1999 and 2000, ascompetition has waned and displaced beneficiarieshave sought coverage elsewhere. Currently, Horizonhas a minimum of 32% share in the Medicare +Choice market in each of New Jersey's twenty-onecounties and an 82% or higher share in eleven NewJersey counties that stretch from the northwestcorridor of the state to Cape May County (seeFigures 14 & 15).

In addition, in September 2002 the U.S.Department of Health and Human Services selectedHorizon Blue Cross Blue Shield of New Jersey asone of thirty-three health plans in the country to

Medicare at a Glance10

• Federal health insurance program for theaged (65 years and over) and disabled

• Nationally, 87% of 40 million Medicare benefi-ciaries receive benefits through standard fee-for-service (FFS) Medicare program

• FFS Medicare pays 80% of reasonable andcustomary charges to participating providers

• Standard Medicare does not offer an outpa-tient pharmacy benefit (the subject of ongo-ing debate in Congress)

• Medicare + Choice (M+C) established withthe passage of the 1997 Balanced Budget Act(prior to 1997 managed Medicare was knownas the Medicare Risk program)

• M+C covers all FFS benefits in addition toenhanced services

• Nationally, M+C provides benefits to 13% oftotal Medicare beneficiaries

• Over 1.2 million Medicare eligibles in NewJersey, including 103,233 members (8%) inM+C plans

participate in the Medicare + Choice PreferredProvider Organization (PPO) Demonstration Programin 2003. This pilot program will be available toHorizon's Medicare + Choice members in all twenty-one counties in New Jersey.

Perhaps it is Horizon's non-profit mission andhistory of providing coverage to at-risk populationsthat influences its decision to sustain and grow itsMedicare role even as most for-profit companieshave sought to exit. The extent to which a for-profit conversion (beyond the presence of a for-profit subsidiary) would change Horizon's Medicarestrategy remains unknown, though in recent years,evidence demonstrates the tendency of for-profit plans to abandon this program because ofreduced reimbursement.

Conclusions

Horizon Blue Cross Blue Shield of New Jerseyhas a rich history and tradition of providing healthcoverage in New Jersey. Since 1932, the organi-zation has evolved into a non-profit health servicecorporation giant that provides health coverage tonearly 2.6 million members in a variety of managedcare and traditional insurance products. Horizon

OCEAN

SUSSEX

LANTAT IC

BURLINGTON

MORRIS

SALEM

WARREN

OUMONM TH

LACUMBER ND

HUNTERDON

BERGEN

EMIDDL SEX

SOMERSET

MERCER

CAMDEN

MACAPE Y

STGLOUCE ER

PASSAIC

ESSEX

UNION

HUDSON

32% - 48%

49% - 65%

66% - 82%

83% - 99%

Market Share:

Total Horizon Medicare HMO Membership: 63,520

Figure 14: Horizon Dominates in theMedicare HMO Program in Most NJ

Counties, 2002*

*Does not include Horizon Medicare supplemental membership

Source: NJ Department of Banking and Insurance managed care data(www.state.nj.us/mchmostats)

11

Atlantic 39,245 2,634 2,568 97%***

Bergen 143,042 10,909 3,764 35%

Burlington 59,820 7,846 7,220 92%***

Camden 74,378 10,628 3,910 37%

Cape May 22,397 1,771 1,743 98%***

Cumberland 22,817 2,260 2,229 99%***

Essex 105,159 6,970 3,080 44%

Gloucester 32,844 3,189 2,785 87%***

Hudson 74,080 5,198 1,636 31%

Hunterdon 15,089 861 855 99%***

Mercer 53,133 3,638 3,547 97%***

Middlesex 99,575 6,867 6,180 90%***

Monmouth 89,708 8,388 3,517 42%

Morris 60,385 3,291 2,941 89%***

Ocean 121,564 14,052 8,996 64%**

Passaic 66,683 5,083 2,445 48%

Salem 10,721 403 292 72%**

Somerset 32,599 1,958 1,881 96%***

Sussex 16,103 1,161 695 60%**

Union 80,205 5,381 2,162 40%

Warren 15,993 745 718 96%***

TOTAL 1,235,540 103,233 63,164 61%

Figure 15: Horizon’s Role in Medicare HMO Program, 2002*

Horizon Membership as a

Total Medicare Total Medicare Horizon Medicare % of Total Medicare County Eligibles HMO Membership HMO Membership HMO Membership

*Does not include Medicare supplemental membership**Counties in which Horizon has 49% to 82% Market Share***Counties in which Horizon has over 82% Market Share

Source: NJ Department of Banking and Insurance managed care data found at www.state.nj.us/mchmostats

12

Rutgers Center for State Health PolicyRutgers, The State University of New Jersey317 George Street, Suite 400New Brunswick, NJ 08901-2008Ph: 732.932.3105Fax: [email protected]

This issue brief was prepared by:

Margaret Koller, Senior Project Manager

Joel C. Cantor, Professor and Director

Lori Glickman, Publications Manager

Amy Tiedemann, Research Analyst

Dorothy Gaboda, Associate Director for Data Analysis

Dawne Harris, Graduate Assistant

Rutgers Center for State Health Policy informs, supports, and stimulates sound and creativestate health policy in New Jersey and around the nation.

This Brief was commissioned by the Council of New Jersey Grantmakers. The Center for State Health Policy acknowledgesthe New Jersey Department of Banking and Insurance and Horizon Blue Cross Blue Shield of New Jersey for their assistance

in this project. CSHP analysts are solely responsible for its content.

Funding Partners

Through the Council of New Jersey Grantmakersthe following organizations provided generoussupport for this Issue Brief:

Community Foundation of New JerseyFund for New JerseyHarbourton FoundationHealthcare Foundation of New JerseyHyde & Watson FoundationJockey Hollow FoundationThe Robert Wood Johnson FoundationMCJ FoundationNew Jersey Institute for Social JusticeRippel FoundationSagner Family FoundationThe Schumann Fund for New JerseySnyder FoundationSummit Area Public FoundationUnion FoundationJohanette Wallerstein InstituteAnonymous

plays a large role in markets covering vulnerablepopulations including the individual market, and theNJ FamilyCare, Medicaid and Medicare programs.

Though there has been a pattern in New Jerseyof carriers migrating out of products that offercoverage to some vulnerable populations (e.g., theIHCP, DHS programs and Medicare + Choice),Horizon has remained a constant and growingpresence in these lines of businesses. Such actionscan be seen as consistent with the organization'snon-profit mission to serve at-risk populations.While it remains to be seen the extent to whichthese groups (and the New Jersey's health coveragelandscape in general) will be affected by a Horizonfor-profit conversion, in light of recent experiences,it is reasonable to be concerned about continuedaccess to affordable coverage for a significantnumber of vulnerable state residents.

Notes

1 N.J.S.A. 17:48E-1.2 http://www.horizon-bcbsnj.com.3 Amendment to Section 15A:9-5 New Jersey

Nonprofit Corporation Act.4 New Jersey Senate Commerce Committee.

Statement to Committee Substitute forSenate Bill No.1581. December 14, 2000.

5 Snowden Publications. 09 Aug 1999. "AKinder, More Profitable HMO." North Edition.Business News New Jersey.

6 PR Newswire. 15 Jan 2003. "Horizon BlueCross Blue Shield of New Jersey IncreasesInterest in Horizon Mercy Medicaid Business."

7 http://www.njgov/dobi/ihc_seh.htm.8 http://www.njfamilycare.org/pages/

whatis.html.9 http://www.medicarehmo.com/mrepnr04.htm.10 Henry J. Kaiser Family Foundation. 2002. "The

Medicare Program-Medicare + Choice".Washington, DC: Henry J. Kaiser FamilyFoundation.