Horizon Wants For-Profit Status

CourierPostOnline — Saturday, August 16, 2008

Gannett State Bureau

Horizon Blue Cross Blue Shield of New Jersey applied Friday to convert to a for-profit company — a move that could pump at least $1 billion into state coffers to pay for health care.

In 2005, when the company last considered going private, some estimated the move would fetch at least $3 billion for the government.

"When I was governor, it was $3 billion. I don't know where $2 billion disappears," said Senate President Richard J. Codey, who was governor when Horizon negotiated but did not reach agreement with the state to shed its nonprofit status. It made no formal application then.

"Certainly you'd want it to be more, a heck of a lot more, because you can do more with $3 billion than you can with one," Codey added.

The money — equal to the company's value when it makes its first stock offering — would come to the state once a foundation is created to govern the funds. All proceeds would have to be used to fund health care for the needy.

Betsy Ryan, president of the New Jersey Hospital Association, also questioned the reduced benefit to the state among other issues, such as whether the money would truly be used for health care and whether people would pay a higher price for insurance.

"The question has to be asked," said Ryan, noting the company has a $1.6 billion surplus. "Three, four years ago, I thought we were talking about $3 billion to $5 billion. I don't know where the $1 billion came from."

Michael T. Kornett, chief executive officer of the Medical Society of New Jersey, said an economist hired by the society said the figure should be $8 billion, not $1 billion.

"Nobody knows where those numbers are coming from," Kornett said. "They don't come from economists, they come from Wall Street."

William J. Marino, the insurer's president and chief executive officer, blamed the lower figure on the economy.

"What happened in the public markets is not a pretty picture for any sector of the stock market, and the public companies in our business have all taken a beating," Marino said. "That's reflected in the difference in values we're anticipating."

Gov. Jon S. Corzine's office gave no opinion on the application.

Legislative response was tepid, calling for a thorough review to make sure that a conversion would provide health care to the needy while not hurting the 3.6 million people Horizon currently insures.

"In a perfect world, that's what could happen," said Joseph Vitale, D-Middlesex, chairman of the Senate health committee. "But there are a number of considerations in advance of that, which is what would happen to the cost to current policies for people."

Kornett said insurers that go public often collect more from their customers and pay out less to doctors.

"The shareholder expectation becomes great," Kornett said.

Marino said the conversion won't affect those currently enrolled.

"There really will be no difference in our product offerings, either during our application process or post-conversion," said Marino, adding premiums would also be unaffected. "If our prices were not competitive, we would not gain members. We would lose members."

Marino said the decision to go public, which could take seven months for approval, would give the insurer the ability to invest in capital markets, such as technology. He said the company is worth an estimated $1 billion but has a $1.6 billion surplus with about $35 million worth of debt.

"In financial terms, you call it monetizing an asset," Marino said of what the company hopes to do.

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