In re Application by Horizon Healthcare Servs

1

IN THE MATTER OF APPLICATION BY HORIZON HEALTHCARE SERVICES, INC., TO FORM A MUTUAL HOLDING COMPANY PURSUANT TO N.J.S.A. 17:48E-46.1.

No. A-1121-22

Superior Court of New Jersey, Appellate Division

May 31, 2023

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Argued May 1, 2023

On appeal from the New Jersey Department of Banking and Insurance.

Jason B. Adkins (Adkins, Kelston & Zavez, PC) of the Massachusetts bar, admitted pro hac vice, argued the cause for appellants New Jersey Citizen Action, Inc., and Health Professionals and Allied Employees, Inc. (New Jersey Appleseed Public Interest Law Center, Inc., and Jason B Adkins, attorneys; Renée Steinhagen and Jason B Adkins, on the briefs).

G Glennon Troublefield argued the cause for respondent Marlene Caride, Commissioner of the New Jersey Department of Banking and Insurance (Carella, Byrne, Cecchi, Olstein, Brody & Angelo, PC, and Matthew J. Platkin, Attorney General, attorneys; G. Glennon Troublefield, Brian H. Fenlon, Marc D. Mory, and Richard E. Wegryn, Jr., Deputy Attorney General, on the brief).

Andrew I. Hamelsky argued the cause for intervenor Horizon Healthcare Services, Inc. (Stradley Ronon Stevens & Young, LLP, and Windels Marx Lane & Mittendorf, LLP, attorneys; Andrew I. Hamelsky, Antonio J. Casas, and Julie R. Tattoni, of counsel and on the brief; Zaara B. Nazir and Deenah Z. Sirota, on the brief).

Before Judges Whipple, Mawla, and Smith.

PER CURIAM.

Appellants New Jersey Citizen Action, Inc., and Health Professionals and Allied Employees, Inc. appeal from a November 1, 2022 order by the Commissioner of the Department of Banking and Insurance (DOBI), granting Horizon Health Services Inc.'s (HHSI's) reorganization application. We affirm.

This lawsuit challenges the reorganization of HHSI from a mutual insurance company to a mutual insurance holding company (MHC), pursuant to P.L. 2020, Chapter 145, N.J.S.A. 17:48E-46.1 to -46.17 (Chapter 145). Chapter 145 defines an MHC as "a non-insurance, nonprofit entity without permanent capital stock organized . . . for the purpose of holding, directly or indirectly, one hundred percent interest in a reorganized insurer pursuant to a plan of reorganization . . . ." N.J.S.A. 17:48E-46.2.^[1] Prior to the reorganization, HHSI owned its subsidiaries. The reorganization envisioned the creation of Horizon Mutual Holdings (HMH), as the parent company of HHSI's subsidiaries. HHSI would then become a subsidiary stock insurance company owned by HMH.

In 2020, the Legislature enacted Chapter 145, to provide a mechanism for HHSI to reorganize as an MHC. N.J.S.A. 17:48E-46.1. The Legislature explained its intent as follows:

It is in the interest of the subscribers of the health service corporation [HSC] and the State . . . that the [HSC] be afforded the ability to modernize its corporate structure . . . in order to meet the evolving [healthcare] needs of its subscribers, while continuing its statutory mission, and maintaining its status as a charitable and benevolent institution [pursuant to N.J.S.A. 17:48E-41].

[N.J.S.A. 17:48E-46.1(a).]

As an HSC, HHSI is the only insurer in New Jersey with a statutory mission to benefit its policyholders. N.J.S.A. 17:48E-3(a). It is New Jersey's largest and oldest health insurer and the only nonprofit health insurer in the State. HHSI is currently a mutual company, which is "[a] company that is owned by its customers rather than by a separate group of stockholders" or shareholders. Black's Law Dictionary 340 (10th ed. 2014).

Chapter 145 expands and modernizes HHSI's important "statutory mission . . . to provide affordable and accessible health insurance" by "encourag[ing] further innovation[,] as well as improvement and diversification of services." N.J.S.A. 17:48E-46.1(e), (f). Among Chapter 145's most significant advantages is HHSI's ability to make investments, which was restricted in its previous form. N.J.S.A. 17:48E-46.7.

Chapter 145 provides membership in the new MHC "shall be determined in accordance with the . . . articles of incorporation and bylaws and may be based upon: (1) the amount of health insurance policies in force with the reorganized insurer; (2) the amount of the health insurance premiums paid to the reorganized insurer; or (3) other reasonable factors." N.J.S.A. 17:48E-46.9. The statute also directs the voting rules for directors to be in accordance with the new company's bylaws. N.J.S.A. 17:48E-46.9(b). The Board, comprised of members elected to the Board, and public members appointed by the Governor, Senate President, and Speaker of the General Assembly, is also set by statute. N.J.S.A. 17:48E-46.15(a).

Chapter 145 provides a mechanism for HHSI to "submit an application to the [C]ommissioner to form a[n MHC,]" which includes the submission of a plan that further includes "proposed articles of incorporation[,] . . . bylaws[,] . . . and plans of merger or consolidation" and other requirements. N.J.S.A. 17:48E-46.5(a)(1)-(8). The plan must include:

(1) the purpose of the conversion;

(2) the effect of conversion on existing subscriber contracts issued by the [HSC];

(3) a business plan;

(4) a provision that each policyholder shall receive any rights with respect to the mutual insurer as may be prescribed by the [C]ommissioner, provided that such rights shall not exceed the rights provided to policyholders of other domestic mutual insurers authorized to transact the business of health insurance;

(5) a provision that each policyholder shall be notified of the conversion, which notification process shall be approved by the [C]ommissioner; and

(6) a provision incorporating the recovery plan established pursuant to [N.J.S.A. 17:48E-17.1].

[N.J.S.A. 17:48E-46(a).]

The restructuring subjects HHSI to new tax assessments, including an initial installment of $600 million due by June 1 of the calendar year the plan becomes effective. N.J.S.A. 17:48E-46.13(a). Thereafter, the MHC "shall pay a limited duration business tax . . . for a period of seventeen years" on the June anniversary date. N.J.S.A. 17:48E-46.13(b). The total tax assessment for all eighteen payments "shall not exceed [$1.25 billion]." Ibid. The annual tax assessment contains an exception where "the [MHC] shall not pay any portion . . . for a given calendar year if the [MHC]'s system-wide health risk-based capital [(RBC)^[2] authorized control level would fall below 550 percent . . . ."

N.J.S.A. 17:48E-46.13(c). If the MHC does not pay an annual tax assessment based on its failure to maintain the minimum RBC, the assessment is deferred to the following calendar year. N.J.S.A. 17:48E-46.13(d).

The statute mandates the Commissioner review HHSI's plan and "hold three public hearings . . . within [ninety] days after the [C]ommissioner determines that the filing is complete, with notice provided by publication in a manner satisfactory to the [C]ommissioner." N.J.S.A. 17:48E-46.5(b).

[T]he [C]ommissioner shall approve a plan of mutualization and reorganization unless the [C]ommissioner finds the plan: (1) is contrary to law; (2) would be detrimental to the safety or soundness of the proposed reorganized insurer and insurance company subsidiaries of the proposed [MHC]; or (3) does not benefit the interests of the policyholders of the [HSC] or treats them inequitably.

[Ibid. (the disapproval factors).]

The statute also empowers the Commissioner to "engage the services of experts and consultants to advise" and "conduct a [voluntary] health impact study of the effects of the reorganization . . . ." Ibid. Chapter 145 grants the Commissioner "supervisory powers with respect to the insurance holding company system[,] which . . . include the authority to monitor the [MHC] system's financial health, enterprise risk, and examine its operations . . . ." N.J.S.A. 17:48E-46.6. The Commissioner may also "order production of any records, books, or other information and papers . . . as are reasonably necessary to ascertain the financial condition . . . to determine compliance with [Chapter 145]." Ibid. Chapter 145 states HHSI's plan application "shall be a public record, except for . . . (1) documents deemed confidential by statute or regulation; (2) the business plan, capitalization plan, financial projections, and market competitive data; and (3) any other information the [C]ommissioner determines could result in harm . . . if disclosed." N.J.S.A. 17:48E-46.12.

In August 2022, HHSI submitted its application. The Commissioner released the nonconfidential portions, including: over 800 pages of exhibits; the proposed corporate structure; notice to members; the articles of incorporation; the compositions of the Board of HHSI and its subsidiaries; and balance sheets and income statements from HHSI and its subsidiaries.

The proposed articles of incorporation stated HMH "is organized as a not-for-profit corporation and will not be required to pay dividends or make any other distributions to any member or policyholder, or to any other person, fund, or entity of any nature whatsoever . . . ." The articles established a twenty-two-member Board and provided that membership in the new company is subject to the company's bylaws.

The Commissioner deemed HMH's business plan confidential. It contained financial projections through 2024 regarding enrollment and revenue, the effect on a subsidiary's revenue as the result of increases in HHSI providing ancillary services, and another subsidiary's enrollment and revenue. The plan projected HHSI would remain stable through reorganization, and the company's recovery from the effects of the COVID...