S3218 1R

An Act permitting reorganization of a health service corporation, supplementing P.L.1985, c.286 (C.17:48E-1 et seq.), and amending P.L.2001, c.131 and P.L.1970, c.22.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) The Legislature finds and declares that:

a. It is in the interest of the subscribers of the health service corporation and the State of New Jersey that the health service corporation be afforded the ability to modernize its corporate structure, subject to appropriate standards, oversight, and approval, in order to meet the evolving health care needs of its subscribers, while continuing its statutory mission, and maintaining its status as a charitable and benevolent institution as declared in section 41 of P.L.1985, c.236 (C.17:48E-41).

b. Ensuring that the health service corporation statutes provide the opportunity for the health service corporation to reorganize itself efficiently and effectively in the form and manner authorized by P.L. , c. (C. )(pending before the Legislature as this bill) will facilitate increased utilization of 21st century technologies and tools to better address current challenges, improving both the State’s healthcare infrastructure and its readiness to address future crises such as those resulting from the ongoing COVID-19 pandemic. Such a reorganization, if undertaken, approved, and completed consistent with the provisions of P.L. , c. (C. )(pending before the Legislature as this bill), also will promote vital investments and growth in health services and diversified businesses for the benefit of its members and the State.

c. Current law governing the health service corporation expressly permits the health service corporation to engage in certain actions that effectuate a corporate reorganization, subject to certain conditions, including potential conversion to a for-profit domestic stock insurer or other actions constituting a material change in its form, subject to the approval of the Commissioner of Banking and Insurance in the Commissioner’s capacity as regulator of the business of insurance and the Attorney General in furtherance of the Attorney General’s statutory and common law responsibilities as protector, supervisor, and enforcer of charitable trusts and charitable corporations. The current statutes do not, however, prescribe a clear path for the health service corporation to update and improve its corporate structure for the benefit of its members and the State while, at the same time, maintaining its non-profit status, continuing to adhere to the statutory mission to provide affordable and accessible health insurance and promote the integration of the health care system to meet the needs of its members, and fulfilling the health care obligations of a health service corporation as they exist prior to the reorganization.

d. Other states have authorized similarly situated nonprofit health insurance carriers to reorganize their corporate forms while maintaining their nonprofit legal status and purposes of the entities for the benefit of their subscribers and respective regional health care marketplaces.

e. Because a reorganization authorized pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) does not constitute a conversion or material change in form as defined pursuant to P.L.2001, c.131 (C.17:48E-49 et seq.), the currently existing statutory mission of the health service corporation to provide affordable and accessible health insurance and promote the integration of the health care system to meet the needs of its members shall continue unabated regardless of whether the health service corporation reorganizes in the manner authorized by P.L. , c. (C. ) (pending before the Legislature as this bill) or not.

f. It is also in the interest of the subscribers of the health service corporation and the State of New Jersey that the important statutory mission of the health service corporation continues to be upheld following any reorganization pursuant to P.L. , c. (C. )(pending before the Legislature as this bill); provided, however, that it is appropriate to expand and modernize that mission to encourage further innovation as well as improvement and diversification of services.

2. (New section) As used in P.L. , c. (C. ) (pending before the Legislature as this bill):

“Assessment” means an initial and a limited duration assessment made upon the mutual holding company system pursuant to section 13 of P.L. , c. (C. ) (pending before the Legislature as this bill).

“Commissioner” means the Commissioner of Banking and Insurance.

“Control” has the meaning set forth in section 1 of P.L.1970, c.22 (C.17:27A-1).

“Effective time” means the date and time at which the reorganization into a mutual holding company is effective, as provided in subsection d. of section 5 of P.L. , c. (C. )(pending before the Legislature as this bill).

“Health service corporation” means an entity organized pursuant to P.L.1985, c.236 (C.17:48E-1 et seq.).

“Insurance company” means any entity, other than the reorganized insurer, that engages in the business of insurance.

“Intermediate holding company” means an entity of which at least a majority of the voting shares of the capital stock are at all times owned directly or indirectly through other intermediate holding companies by a mutual holding company.

“Majority of the voting shares of the capital stock” means, with respect to any entity, shares of the capital stock of that entity which carry the right to cast a majority of the votes entitled to be cast by all of the outstanding shares of the capital stock of that entity for the election of directors.

“Member” means the holder of a membership interest in a mutual holding company, pursuant to the articles of incorporation or bylaws of that mutual holding company.

“Mutual holding company” means a non-insurance, nonprofit entity without permanent capital stock organized pursuant to the laws of this State in accordance with the provisions of P.L. , c. (C. )(pending before the Legislature as this bill) for the purpose of holding, directly or indirectly, one hundred percent interest in a reorganized insurer pursuant to a plan of reorganization as provided in P.L. , c. (C. )(pending before the Legislature as this bill). A mutual holding company is an insurance holding company system pursuant to P.L.1970, c.22 (C.17:27A-1 et seq.), and shall not be qualified as an insurer licensed to issue insurance policies, insurance contracts or health benefit plans.

“Mutual holding company system” means the structure resulting from the simultaneous formation of a mutual holding company with a reorganized insurer in connection with the mutualization and reorganization of a health service corporation.

“Mutual insurer” means a domestic mutual insurer into which a health service corporation transitions in accordance with the provisions of P.L.1995, c.196 (C.17:48E-45 et seq.).

“Non-insurance subsidiary” means any subsidiary of a mutual holding company system that is not an insurance company or the reorganized insurer.

“Reorganization” means the simultaneous mutualization of a health service corporation to a domestic mutual insurer and transformation from a domestic mutual insurer to a mutual holding company with a reorganized insurer in accordance with the provisions of P.L. , c. (C. )(pending before the Legislature as this bill). A reorganization pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) in which the mutual holding company remains a charitable and benevolent institution shall not constitute a material change in form as defined in section 1 of P.L.2001, c.131 (C.17:48E-49).

“Reorganized insurer” means a stock insurer authorized pursuant to Title 17B of the New Jersey Statutes to transact health insurance as defined in N.J.S.17B:17-4 and that, pursuant to a plan of reorganization as provided in P.L. , c. (C. )(pending before the Legislature as this bill), is a subsidiary of the mutual holding company system that holds the business of the health service corporation mutualizing and reorganizing pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill) that is related to policies directly written and issued by the health service corporation. All health insurance or risk-bearing obligations of the health service corporation shall be undertaken by the reorganized insurer pursuant to subsection c. and e. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

3. (New section) a. A mutual holding company organized pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) shall not be established as a company organized for pecuniary profit and shall retain the designation as a charitable and benevolent institution pursuant to section 41 of P.L.1985, c.236 (C.17:48E-41). A mutual holding company established pursuant to the provisions of P.L. , c. (C. )(pending before the Legislature as this bill) shall retain the health service corporation’s mission while supplementing that mission to promote innovation and delivery of diversified services.

The mission of a mutual holding company shall be to:

(1) provide affordable and accessible health insurance to its members;

(2) promote the integration of the health care system to meet the needs of its members; and

(3) promote innovation and delivery of solutions and diversified services for its members.

b. Other than as provided pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill), all property, assets, rights, liabilities, interest and relations of whatever kind of the health service corporation, and its subsidiaries, shall be that of the mutual holding company system. The mutual holding company shall not be considered a health service corporation. Notwithstanding anything to the contrary, the provisions of section 41 of P.L.1985, c.236 (C.17:48E-41) shall continue to apply to a mutual holding company ¹if the mutual holding company continues to participate in the New Jersey Individual Health Coverage Program pursuant to P.L.1992, c.161 (C.17B-27A-2 et seq.) and the New Jersey Small Employer Health Benefits Program pursuant to P.L.1992, c.162 (C.17B:27A-17 et seq.). If the mutual holding company does not participate in the New Jersey Individual Health Coverage Program pursuant to P.L.1992, c.161 (C.17B-27A-2 et seq.) and the New Jersey Small Employer Health Benefits Program pursuant to P.L.1992, c.162 (C.17B:27A-17 et seq.) the provisions of section 41 of P.L.1985, c.236 (C.17:48E-41) shall no longer apply¹.

c. The health insurance duties and obligations pursuant to P.L.1985, c.236 (C.17:48E-1 et seq.) shall continue and remain in the succeeding reorganized insurer reorganizing pursuant to P.L. , c. (C. )(pending before the Legislature as this bill), in each case, except as provided pursuant to P.L. , c. (C. )(pending before the Legislature as this bill). Except as listed below in subsection e. of this section, all references to a “health service corporation” in P.L.1985, c.236 (C.17:48E-1 et seq.), shall refer to a “reorganized insurer” established pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) and shall not refer to the mutual holding company.

d. In addition to the mutual holding company’s qualification pursuant to section 2 of P.L. , c. (C. )(pending before the Legislature as this bill), and for avoidance of doubt, the mutual holding company shall be expressly excluded from insurance operations and reporting, investment limits, and risk-bearing provisions of P.L.1985, c.236 (C.17:48E-1 et seq.), including the following provisions because a mutual holding company is not a risk-bearer:

(1) Subsection e. of section 1, subsection b. of section 2, subsection a. of section 3, sections 6 through 9, and section 11 of P.L.1985, c.236 (C.17:48E-1, C.17:48E-2, C.17:48E-3, C.17:48E-6 through C.17:48E-9, and C.17:48E-11);

(2) Section 16 and subsections a. through c. of section 17 of P.L.1985, c.236 (C.17:48E-16 and C.17:48E-17), section 5 of P.L.1988, c.71 (C.17:48E-17.1), and section 8 of P.L.1993, c.235 (C.17:48E-17.2);

(3) Section 4 of P.L.2017, c.100 (C.17:48E-17.3);

(4) Sections 36 and 37 of P.L.1985, c.236 (C.17:48E-36 and C.17:48E-37); and

(5) Sections 31 through 35 of P.L.2014, c.81 (C.17:48E-37.1 through C.17:48E-37.5).

e. The reorganized insurer shall engage in risk-bearing activities, reporting, investments, financial transactions, including the issuance of dividends or distributions, and insurance trade practices consistent with laws governing stock insurance companies organized under Title 17B of the New Jersey Statutes to transact health insurance as defined in N.J.S.17B:17-4. Notwithstanding the provisions of subsection c. of this section, the following sections of P.L.1985, c.236 (C.17:48E-1 et seq.) shall not apply to the reorganized insurer or any insurance company or risk-bearing entity within the mutual holding company system:

(1) Section 4 of P.L.2017, c.100 (C.17:48E-17.3);

(2) Sections 31 through 35 of P.L.2014, c.81 (C.17:48E-37.1 through C.17:48E-37.5), but subject to the solvency rules set forth pursuant to N.J.S.17B:18-70 et seq.; and

(3) Subsection e. of section 1, subsection b. of section 2, subsection a. of section 3, sections 6 through 9, and section 11 of P.L.1985, c.236 (C.17:48E-1, C.17:48E-2, C.17:48E-3, C.17:48E-6 through C.17:48E-9, and C.17:48E-11).

f. The insurance premium rate tax cap law provided by subsection a. of section 6 of P.L.1945, c.132 (C.54:18A-6) shall apply to the companies within the mutual holding company system that have an insurance premium tax liability, and the exclusion from the tax cap applicable to a health service corporation pursuant to subsection b. of section 6 of P.L.1945, c.132 (C.54:18A-6) shall not apply to the mutual holding company or any entity within the mutual holding company system, including the reorganized insurer, that has an insurance premium tax liability.

g. A mutual holding company system may pursue businesses, assets, or operations through one or more of its insurance subsidiaries and non-insurance subsidiaries without a limit on aggregate revenues from nonconforming affiliates or such pursuits being considered a material change in form as such term is defined pursuant to section 1 of P.L.2001, c.131 (C:17:48E-49). The subsidiaries of the mutual holding company, including the reorganized insurer, shall be permitted to make dividends or distributions to the mutual holding company, any subsidiaries thereof, or both, and shall not be considered a material change in form as such term is defined pursuant to section 1 of P.L.2001, c.131 (C.17:48E-49). Dividends and distributions from domestic insurers, including the reorganized insurer, within the mutual holding company system shall be subject only to the applicable provisions of subsection c. of section 4 of P.L.1970, c.22 (C.17:27A-4).

h. The continuation of the rights, duties and obligations of a health service corporation pursuant to this section following completion of an approved reorganization pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill) shall be limited to such rights, duties and obligations pursuant to P.L.1985, c.236 (C.17:48E-1 et seq.) as of the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill); amendments to P.L.1985, c.236 (C.17:48E-1 et seq.) enacted after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) shall not apply. Notwithstanding the above, the reorganized insurer shall be subject to the laws applicable to domestic health insurance companies contained in Title 17B of the New Jersey Statutes ¹and P.L.1970, c.22 (C.17:27A-1 et seq.)¹.

4. (New section) a. A health service corporation organized pursuant to P.L.1985, c.236 (C.17:48E-1 et seq.) may reorganize to create a mutual holding company system pursuant to a plan of reorganization at the same time it applies to transition to a mutual insurer pursuant to P.L.1995, c.196 (C.17:48E-45 et seq.). Thereafter, the succeeding mutual holding company system shall be operated in a manner consistent with sections 1 and 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

b. The mutual holding company system shall consist of a mutual holding company and one or more controlled nonprofit or for-profit subsidiaries, including the reorganized insurer, and shall be operated for the benefit of its members. The mission of a mutual holding company shall be as specified in subsection a. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

c. The mutual holding company and each of its non-insurance subsidiaries, other than the reorganized insurer and any insurance company subsidiaries, shall not be:

(1) an insurer and therefore shall not be subject to any of the provisions of N.J.S.17B:18-1 et seq. applicable to stock or mutual insurers, or to any laws concerning the writing of insurance, including rules and regulations adopted thereunder, including with respect to governance, stock or other voting or equity interest, the writing of insurance, any investment limitations directly applicable to risk-bearing entities engaged in the writing of insurance such as those pursuant to N.J.S.17B:20-1 et seq., or any capital or surplus requirements;

(2) authorized to transact the business of insurance; or

(3) qualified as an insurer.

The writing of insurance shall be permitted only through the reorganized insurer and other insurance company subsidiaries or investments of the mutual holding company. Nothing herein shall alter the oversight of the commissioner with respect to the mutual holding company and its non-insurance subsidiaries provided for pursuant to applicable laws and rules of this State relating to insurance holding company systems.

d. A mutual holding company shall be a nonprofit entity incorporated under, and shall conduct its business pursuant to, the provisions of Title 15A of the New Jersey Statutes, except that in situations in which the provisions of that title are inconsistent with the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), the provisions of P.L. , c. (C. )(pending before the Legislature as this bill) shall govern.

e. At the effective time, members shall receive membership interests of the mutual holding company, and thereafter 100 percent of the membership interests of the mutual holding company shall continue to be held by members, in each case, in the manner set forth in the articles of incorporation and bylaws of the mutual holding company.

f. The shares of the capital stock of the reorganized insurer shall be:

(1) issued to the mutual holding company or one or more intermediate holding companies that are wholly-owned by the mutual holding company; and

(2) at all times owned by the mutual holding company or one or more intermediate holding companies that are wholly-owned by the mutual holding company.

g. The subsidiaries of a mutual holding company system may be formed by any of the following means:

(1) the formation of one or more subsidiaries;

(2) amendment or restatement of the articles of incorporation and bylaws of one or more companies;

(3) transfer of assets and liabilities among two or more companies; ¹[or]¹

(4) issuance, acquisition or transfer of capital stock of one or more companies ¹; or

(5) merger or consolidation of two or more companies.

h. The mutual holding company shall ensure that any ownership interest in a subsidiary shall be held by the mutual holding company, and that any profits generated by that interest are returned to the mutual holding company¹.

5. (New section) a. A health service corporation may submit an application to the commissioner to form a mutual holding company system. ¹Upon submission of an application to the commissioner, a health service corporation shall immediately thereafter provide a copy of the application to the Attorney General.¹ Prior to submission of the application, the board of directors of the health service corporation shall adopt a resolution proposing to transition to a mutual insurer and form a mutual holding company system, at a meeting of the board by a two-thirds affirmative vote of the total number of directors of the health service corporation. A copy of the minutes of the meeting at which that resolution is adopted shall be filed with the commissioner. The resolution shall include a plan to transition to a mutual insurer and form a mutual holding company system, including proposed articles of incorporation and bylaws for the mutual holding company and proposed articles of incorporation, certificates of formation, restatements of, or amendments to, existing articles of incorporation or bylaws, and plans of merger or consolidation, with respect to each entity to be formed, converted or otherwise subject or party to the transition transactions pursuant to the plan of mutualization and reorganization.

In addition to including information required pursuant to section 2 of P.L.1995, c.196 (C.17:48E-46) for the plan of mutualization, with respect to the formation of a mutual holding company system for purposes of this provision, the plan shall include:

(1) A description of the structure of the mutual holding company system consistent with the requirements set forth in P.L. , c. (C. )(pending before the Legislature as this bill);

(2) A description of the qualifications for members’ membership in, and the rights of members of, the mutual holding company consistent with the requirements set forth in P.L. , c. (C. ) (pending before the Legislature as this bill);

(3) A description of the transactions, and parties to those transactions, that will affect the mutualization and reorganization, including, but not limited to, transfer and assumption of policies, contracts, assets and liabilities, formation of entities, and the amendment or restatement of certificates of incorporation or bylaws. The plan of reorganization may provide for the transfer of assets of a health service corporation and its subsidiaries to the mutual holding company or one or more subsidiaries of the mutual holding company in connection with the formation of the mutual holding company system;

(4) The identity of those persons who shall serve as directors and officers of the mutual holding company, its intermediate holding companies, if any, and its subsidiaries, including the reorganized insurer, as of the effective time of the mutualization and reorganization. The plan shall specify the members of the board of directors of the health service corporation who shall serve as initial directors of the mutual holding company, as provided in section 15 of P.L. , c. (C. )(pending before the Legislature as this bill);

(5) Information sufficient to demonstrate that the financial condition of the reorganized insurer and the insurance company subsidiaries of the reorganized insurer shall meet solvency requirements pursuant to applicable laws and rules of this State relating to insurance companies after giving effect to the mutualization and reorganization;

(6) A ¹[representation] certification¹ that, following the mutualization and reorganization, the material terms and conditions of insurance coverage of:

(a) policyholders of policies directly written and issued by the health service corporation shall remain in full force and effect under policies transferred to and assumed by the reorganized insurer; and

(b) all other policyholders shall remain in full force and effect under policies transferred to and assumed by insurance company subsidiaries of the mutual holding company;

(7) A ¹[representation] certification¹ that, following the mutualization and reorganization, the material terms and conditions of subordinated surplus notes and other contractual obligations, other than those arising pursuant to policies described in paragraph (6) of this subsection, of the health service corporation and its subsidiaries shall, subject to the rights of the health service corporation and its subsidiaries pursuant to applicable law, and to the extent those obligations are not otherwise satisfied or terminated in accordance with their terms, remain in effect upon the transfer of those obligations to, and assumption of those obligations by, the reorganized insurer or one or more other subsidiaries of the mutual holding company; and

(8) A ¹[representation] certification¹ that, following the mutualization and reorganization, the mutual holding company shall comply with the employment requirements as provided in section 16 of P.L. , c. (C. ) (pending before the Legislature as this bill).

b. Upon the affirmative vote of the board of directors complying with subsection a. of this section, the plan to form a mutual holding company system pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) shall be filed with the commissioner for approval. Upon filing the plan to form a mutual holding company system, the obligations pursuant to section 4 of P.L.2017, c.100 (C.17:48E-17.3) shall be suspended during the pendency of the commissioner’s review process pursuant to this subsection; if the commissioner approves the plan to form a mutual holding company, any obligations arising pursuant to section 4 of P.L.2017, c.100 (C.17:48E-17.3) shall be deemed satisfied by the initial assessment pursuant to subsection a. of section 13 of P.L. , c. (C. ) (pending before the Legislature as this bill). The commissioner shall review the plan to mutualize and reorganize in accordance with the requirements of subsection a. of section 3 of P.L.1995, c.196 (C.17:48E-47). ¹[The public hearing conducted pursuant to subsection a. of section 3 of P.L.1995, c.196 (C.17:48E-47)] The commissioner shall hold three public hearings on the plan to form a mutual holding company within 90 days after the commissioner determines that the filing is complete, with notice provided by publication in a manner satisfactory to the commissioner. The public hearings¹ shall also address the plan of reorganization to the mutual holding company system required by P.L. , c. (C. )(pending before the Legislature as this bill). Consistent with subsection a. of section 3 of P.L.1995, c.196 (C.17:48E-47), the commissioner shall approve a plan of mutualization and reorganization unless the commissioner 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 mutual holding company; or

(3) ¹[prejudices] does not benefit¹ the interests of the policyholders of the health service corporation or treats them inequitably.

The commissioner may engage the services of experts and consultants to advise on any matters related to the application ¹, and if a written study or other expert report is prepared, it shall be made available to the applicant within a reasonable period of time prior to the initial public hearing. The commissioner may also engage the services of a consultant to conduct a health impact study of the effects of the reorganization on the health of the policy holders of the health service corporation, and the general public¹. The engagement shall not be subject to Chapter 32 of Title 52 of the Revised Statutes and all costs related to such engagement for the examination and deliberations of the application shall be paid by the health service corporation that makes the filing, both for services prior to the effective time and for services after the effective time. At the expiration of 30 days after the ¹final¹ public hearing, the commissioner shall approve or disapprove the plan of mutualization and reorganization and shall set forth the decision in writing and shall state the reasons therefor. The commissioner shall inform the health service corporation of the specific reasons for the disapproval of any plan of mutualization and reorganization and provide a cure period of no shorter than 90 days to cure any deficiencies. Any disapproval shall be subject to judicial review as a final decision of a State administrative agency.

c. A plan of mutualization and reorganization may be amended, terminated, or approved consistent with P.L. , c. (C. )(pending before the Legislature as this bill). A plan of mutualization and reorganization adopted by the board of directors of the applicant may be:

(1) Amended by the board of directors of the applicant in response to the comments or recommendations of the commissioner at any time; or

(2) Terminated by the board of directors of the applicant at any time. An applicant that has terminated a plan to form a mutual holding company system shall be deemed to have also terminated the application to transition to a mutual insurer.

d. An approved plan of mutualization and reorganization shall be effective at the effective time specified in the plan of reorganization, or such other time subsequently requested by the applicant and agreed to by the commissioner.

6. (New section) A mutual holding company system shall be considered an insurance holding company system and subject to P.L.1970, c.22 (C.17:27A-1 et seq.). ¹The commissioner shall possess supervisory powers with respect to the insurance holding company system which shall include the authority to monitor the mutual holding company systems financial health, enterprise risk, and examine its operations pursuant to P.L.1070, c.22 (C.17:27A-1 et seq.).¹ Notwithstanding the foregoing, solely with regard to the transactions set forth in the application to form a mutual holding company system filed pursuant to section 5 of P.L. , c. (C. )(pending before the Legislature as this bill), a mutual holding company system shall not be required to seek separate approval for an acquisition of controlling stock, ownership interest, assets or control, or for a ¹merger or consolidation,¹ share exchange, organization, or reorganization of insurance companies within the mutual holding company system, or other transactions set forth in the application to form a mutual holding company system. Thereafter, any future transactions not approved as part of the application to form a mutual holding company system, shall be subject to the applicable requirements of P.L.1970, c.22 (C.17:27A-1 et seq.). As an insurance holding company system subject to P.L.1970, c.22 (C.17:27A-1 et seq.), the commissioner shall have the power to order production of any records, books, or other information and papers in the possession of a mutual holding company system as are reasonably necessary to ascertain the financial condition of the mutual holding company system or to determine compliance with P.L. , c. (C. )(pending before the Legislature as this bill).

7. (New section) a. A mutual holding company or a non-insurance subsidiary may, alone or together, make any lawful investments including directly or indirectly acquiring or otherwise holding the stock or other ownership interests of any nonprofit or for-profit entities.

b. Insurance company subsidiaries and the reorganized insurer may make investments, including investments in non-insurance entities subject to investment and asset limitations pursuant to applicable laws and rules relating to insurance companies.

¹c. The mutual holding company and its non-insurance and insurance company subsidiaries shall continue to operate a diverse supplier program that promotes and invests in the utilization of minority-owned and women-owned businesses in the procurement of goods and services, including professional services. The mutual holding company shall include in its annual filing pursuant to subsection b. of section 11 of P.L. , c. (C. ) (pending before the Legislature as this bill) information on this subsection.¹

8. (New section) Neither the adoption nor the implementation of a plan of mutualization and reorganization shall be deemed to give rise to any obligation by or on behalf of any entity in the mutual holding company system or any predecessor entity to make any distribution or payment to any member or policyholder, or to any other person, fund, or entity of any nature whatsoever, in connection with the ownership, control, benefits, policies, purpose, or nature of any entity in the mutual holding company system, any predecessor entity or otherwise.

9. (New section) a. Membership in a mutual holding company shall be determined in accordance with the mutual holding company’s 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.

A mutual holding company may also consider the amount of premiums paid to, or policies in force under, affiliated insurance companies operating under the same brand licensee program as the reorganized insurer and permit entities holding administrative services agreements with the mutual holding company to be members of the mutual holding company. The mutual holding company may provide in its bylaws the basis for the number of votes those entities will have as members of the mutual holding company.

b. Members of a mutual holding company shall be entitled to vote for the election of directors of the mutual holding company in accordance with the mutual holding company’s bylaws. Directors of the mutual holding company shall be elected from nominees selected by the nominating and governance committee of the board of directors of the mutual holding company, or a comparably authorized committee, except for public directors serving in accordance with section 15 of P.L. , c. (C. )(pending before the Legislature as this bill).

c. No member of a mutual holding company shall transfer membership or any right arising therefrom.

d. Except as specified in subsection b. of this section, a membership interest in a mutual holding company shall not be deemed to give rise to any other rights, including any ownership interests in, or ownership rights with respect to, the assets of any entity in the mutual holding company system or any predecessor entity, and shall not be deemed to give rise to any entitlement to receive payment of any dividend or other distribution in connection with the ownership, control, benefits, policies, purpose or nature of any entity in the mutual holding company system or any predecessor entity.

e. A member of a mutual holding company is not personally liable for the acts, debts, liabilities or obligations of the mutual holding company solely because of the member’s membership status.

f. No assessments shall be imposed upon the members of a mutual holding company by the directors or members, or because of any liability, act, debt or obligation of the mutual holding company or of any company owned or controlled by the mutual holding company.

g. A membership interest in a mutual holding company shall not constitute a security pursuant to the laws of this state.

10. (New section) Upon any voluntary dissolution of a mutual holding company in accordance with N.J.S.15A:12-2, 15A:12-3, 15A:12-4, 15A:12-5, 15A:12-6, 15A:12-7, or section 19 of P.L.1992, c.65 (C.17B:32-49), the mutual holding company shall adopt a plan of dissolution in accordance with N.J.S.15A:12-8. The plan shall provide that any assets of the mutual holding company remaining after the discharge of all liabilities and obligations, if any, shall be distributed in accordance with N.J.S.15A:12-8.

11. (New section) a. A mutual holding company shall file with the commissioner an annual statement pursuant to applicable laws of this State.

b. The mutual holding company shall, on an annual basis, and in a form and manner prescribed by the Department of Banking and Insurance, file with the department information relating to the mutual holding company's operations, including but not limited to the following: the mutual holding company's mission, activities, revenues, expenses, assets, liabilities, and total compensation provided to officers, directors, trustees and the five other highest compensated employees who are not an officer, director or trustee, which information shall be posted on the department's website.

c. The commissioner shall report to the Governor, and to the Legislature pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), on the compliance of the mutual holding company with the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill).

¹[12. (New section) All information, documents and copies of information and documents obtained by or disclosed to the commissioner, the Department of Banking and Insurance, or any other person in the course of preparing, filing or processing an application to reorganize pursuant to P.L. , c. (C. )(pending before the Legislature as this bill), including the annual statement required pursuant to section 11 of P.L. , c. (C. )(pending before the Legislature as this bill), other than information or documents distributed to policyholders in connection with the plan of reorganization or election of directors, shall be subject to the confidentiality requirements set forth in section 6 of P.L.1970, c.22 (C.17:27A-6).]¹

¹12. (New section) a. The application submitted pursuant to section 5 of P.L. , c. (C. )(pending before the Legislature as this bill) shall be a public record, except for the following documents, which shall be confidential and not public records:

(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 commissioner determines could result in harm to the health service corporation, mutual holding company, reorganized insurer or other insurance entity within the mutual holding company system, or the public interest, if disclosed.

b. The commissioner shall provide the public with prompt and reasonable access to public records relating to the proposed reorganization of the health service corporation. The commissioner shall make the public records received pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) available for inspection at no cost to the public. These public records shall be made available to the public in connection with the public hearing to be held pursuant to P.L. , c. (C. )(pending before the Legislature as this bill).¹

13. (New section) a. Following regulatory approval pursuant to section 5 of P.L. , c. (C. )(pending before the Legislature as this bill) and the establishment of a mutual holding company, the mutual holding company, ¹[through itself or any of its affiliates] or any affiliates benefiting from the establishment of a mutual holding company¹, shall pay an initial assessment to the State Treasury in the amount of $600,000,000 by June 1, 2022 if the effective time precedes June 1, 2022. If the effective time is later than June 1, 2022, the initial assessment shall be due by June 1 of the calendar year following the effective time. The initial assessment shall be a one-time, nonrecurring State business tax on the ¹[reorganized insurer] mutual holding company and its affiliates¹.

b. Following the initial assessment, and subject to subsections c. and d. of this section, the mutual holding company, ¹[through itself or any of its affiliates] or any affiliates benefiting from the establishment of a mutual holding company¹, shall pay a limited duration business tax by June 1 of each calendar year beginning with the calendar year following the initial assessment, and for a period of seventeen years. The total assessment, including both the initial and annual assessments, shall not exceed $1,250,000,000. The annual assessments represent a limited duration state business tax on the ¹[reorganized insurer’s] mutual holding company and its affiliates’¹ business payable by the mutual holding company or any ¹[of its]¹ affiliates ¹benefiting from the establishment of a mutual holding company¹, and shall be based on the following schedule with earned premiums defined consistent with 45 C.F,R, 158.130:

(1) For annual assessment 1, 20 percent of the reorganized insurer’s earned premiums for the calendar year preceding that assessment, with the assessment not to exceed $100,000,000.

(2) For annual assessments 2 through 11, 5 percent of the reorganized insurer’s earned premiums for the calendar year preceding a given year’s assessment, with each year’s assessment not to exceed $25,000,000.

(3) For annual assessments 12 through 17, 10 percent of the reorganized insurer’s earned premiums for the calendar year preceding a given year’s assessment, with each year’s assessment not to exceed $50,000,000.

c. The mutual holding company shall not pay any portion of the annual assessment for a given calendar year if the mutual holding company’s system-wide health risk-based capital authorized control level would fall below 550 percent based on the standards for risk based capital for health organizations as adopted by the National Association of Insurance Commissioners following the payment as applied against the prior calendar year’s risk based capital, or if in the opinion of any nationally recognized statistical rating organization, the group credit rating of the mutual holding company would not be considered investment grade. ¹The commissioner shall determine that the mutual holding company’s system-wide health risk-based capital authorized control level would fall below 550 percent before payments shall be deferred pursuant to this subsection and paragraph (1) of subsection d. of this section. Neither the insurance company subsidiaries nor the reorganized insurer shall make dividends or distributions to the mutual holding company or any subsidiaries thereof until such time as the annual assessment deferred pursuant to paragraph (1) of subsection d. of this section is satisfied.¹

d. (1) If the mutual holding company does not pay the annual assessment for a given calendar year pursuant to subsection c. of this section, the annual assessment that was not paid shall be deferred to the subsequent calendar year, which shall be the deferral date for the deferred annual assessment, with all subsequent annual assessments pursuant to subsection b. of this section also deferred by another calendar year so that no two annual assessments are due in the same calendar year. If an annual assessment is deferred, that annual assessment shall not be required by law to be paid until the deferral date.

(2) Notwithstanding the provisions of paragraph (1) of this subsection to the contrary, the assessment years pursuant to subsection b. of this section shall not be extended beyond, and the payment obligation pursuant to this section shall cease to exist after, the date that is ¹[20] 25¹ years from the effective time.

e. The initial assessment is a one-time business tax imposed on the mutual holding company system and the annual assessment is a limited duration business tax imposed on the mutual holding company system based on the reorganized insurer’s business. The assessment of additional taxes, penalties and interest shall be as provided by the “State Uniform Tax Procedure Law,” R.S.54:48-1 et seq.; provided that no interest shall accrue or penalty shall be levied on a deferred annual assessment.

14. (New section) A mutual holding company formed pursuant to P.L. , c. (C. )(pending before the Legislature as this bill) shall not convert to a for-profit stock holding company. The provisions of P.L.2001, c.131 (C.17:48E-49 et seq.) providing for conversion of a health service corporation to a domestic stock insurer shall not apply to a mutual holding company formed pursuant to P.L. , c. (C. )(pending before the Legislature as this bill).

15. (New section) a. The board of the mutual holding company shall be constituted of 22 directors as follows:

(1) 13 directors shall be elected, as provided in the bylaws, one of whom shall be the chair;

(2) 5 directors shall be public directors appointed by the Governor with the advice and consent of the Senate;

(3) 2 directors shall be public directors appointed by the Senate President; and

(4) 2 directors shall be public directors appointed by the Speaker of the General Assembly.

b. Upon the effective time, the term of office of the public directors of the reorganized insurer shall ¹not immediately¹ expire ¹but rather shall be temporarily continued and each such director shall continue in holdover status until such time as the appointing authority reappoints or renames such director or appoints or names another director¹. The initial board of directors of the mutual holding company shall be:

(1) the elected directors of the reorganized insurer supplemented by additional elected directors nominated and elected by the mutual holding company’s board after the effective time for a total number of elected directors specified in paragraph (1) of subsection a. of this section;

(2) 5 public directors appointed by the Governor with the advice and consent of the Senate ¹[within 30 days after the effective time]¹;

(3) 2 public directors named by the Senate President ¹[within 30 days after the effective time]¹; and

(4) 2 public directors named by the Speaker of the General Assembly ¹[within 30 days after the effective time]¹.

c. Each elected director shall have a term of three years with up to two successive three-year terms following the initial term for up to a total of three successive terms, and as provided for in the bylaws, with such other term and term limits specifically applying to the individual directors. The chief executive officer or president of the mutual holding company shall be an elected director at all times and shall not be subject to any term limit or election pursuant to section 9 of P.L. , c. (C. )(pending before the Legislature as this bill). The board of directors ¹[or the members]¹, as provided by the bylaws, shall elect a chair, who shall be a member of the board elected pursuant to paragraph (1) of subsection a. of this section. Each director elected pursuant to paragraph (1) of subsection a. of this section shall meet the statutory and regulatory qualifications for the mutual holding company system’s businesses and be free from conflicts of interest that would prohibit the person from materially executing the person’s duties as a director. Each public director shall ¹[serve at the pleasure of the appointing authority] have a term of three years with up to two successive three-year terms following the initial term, for a total of up to three successive terms. Upon the effective time, the terms of office of the public directors of the reorganized insurer shall continue until their respective successors are appointed and qualified. No period during which a public director holds over shall be deemed to be an extension of the public director’s term of office for the purpose of determining the date on which a successor’s term expires¹.

d. There shall be a transitional period of 18 months following the effective time before elected directors of the mutual holding company are subject to election by its members pursuant to section 9 of P.L. , c. (C. )(pending before the Legislature as this bill). The first election shall occur at the first annual meeting following the transitional period, and in accordance with the mutual holding company’s bylaws.

¹e. To the extent practicable, the mutual holding company shall make best efforts to reflect the racial, ethnic, and gender diversity of the communities that it serves throughout the organization, including the board of directors and executive leadership, to achieve its mission.¹

16. (New section) a. Upon the formation of a mutual holding company, the total number of full-time employees that were employed within a mutual holding company system shall be maintained for a transition period of ¹[24] 36¹ months following that formation based on the full-time employee count of the health service corporation as of September 30, 2019, except as provided in subsection b. of this section.

b. This section shall not:

(1) supersede the terms of any collective bargaining agreement; or

(2) require a mutual holding company system to replace headcount lost due to voluntary attrition or terminations for cause, including for performance, or replace any loss of headcount attributable to a decline in enrollment, market share, or loss of a major account.

c. This section shall expire following the transition period of ¹[24] 36¹ months following the formation of a mutual holding company.

17. Section 1 of P.L.2001, c.131 (C.17:48E-49) is amended to read as follows:

1. As used in this act:

“Affiliate” or “affiliated” has the meaning set forth in subsection a. of section 1 of P.L.1970, c.22 (C.17:27A-1).

“Alternative foundation plan” means the plan submitted to the Attorney General and the commissioner pursuant to section 18 of this act.

“Application” means the application for approval of a plan of conversion filed with the commissioner pursuant to section 3 of this act.

“Attorney General” means the Attorney General of the State of New Jersey.

“Commissioner” means the Commissioner of Banking and Insurance.

“Control” has the meaning set forth in subsection c. of section 1 of P.L.1970, c.22 (C.17:27A-1).

“Conversion” means the process by which a health service corporation converts to a domestic stock insurer in accordance with the provisions of sections 2 through 14 and section 19 of this act. “Converted insurer” means the domestic stock insurer into which a health service corporation converts in accordance with the provisions of sections 2 through 14 and section 19 of this act.

“Domestic stock insurer” means a for-profit stock insurer authorized pursuant to Title 17B of the New Jersey Statutes to transact health insurance as defined in N.J.S.17B: 17-4.

“Effective time” means the date and time at which the conversion of a health service corporation is effective, as provided in section 11 of this act.

“Foundation” means the foundation or foundations established under section 18 or 19 of this act.

“Foundation plan” means the plan submitted to the Attorney General pursuant to section 19 of this act.

“Health service corporation” means a health service corporation established pursuant to P.L.1985, c.236 (C.17:48E-1 et seq.).

“Material change in form” means any action or series of actions that effect a fundamental corporate change which involves a transfer of ownership or control of assets of the health service corporation or a change of the mission or purpose of the health service corporation, including, without limitation, the purchase, lease, exchange, conversion, restructuring, merger, division, consolidation or transfer of control, bulk reinsurance or other disposition or transfer of a substantial amount of business, line of business, assets or operations of the health service corporation, including the transfer, directly or indirectly, of a substantial amount of the health service corporation's business, line of business, assets or operations to one or more nonconforming affiliates. A material change in form by the transfer, directly or indirectly, of a substantial amount of the health service corporation's business, line of business, assets or operations to one or more nonconforming affiliates shall not be deemed to occur so long as, during the most recent four prior consecutive calendar quarters: (1) the aggregate revenues of all nonconforming affiliates do not exceed 50 percent of the aggregate revenues for the health service corporation and all affiliates; (2) the aggregate revenues of all nonconforming affiliates derived from providing individual or group health coverage to residents of New Jersey equal or exceed 50 percent of the aggregate revenues from all nonconforming affiliates; and (3) the aggregate assets of all nonconforming affiliates do not exceed 50 percent of the aggregate assets of the health service corporation and all affiliates. Notwithstanding the above, a reorganization approved by the commissioner pursuant to section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill), whereby the mutual holding company is a charitable and benevolent institution as provided in section 41 of P.L.1985, c.236 (C.17:48E-41), shall not constitute a material change in form for purposes of P.L.2001, c.131 (C.17:48E-49 et seq.).

“Nonconforming affiliate” means any affiliate of a health service corporation that: (1) operates on a for-profit basis, or (2) operates on a nonprofit basis and does not have a purpose the same as or substantially similar to that of the health service corporation.

“Parent corporation” means a stock corporation incorporated under the laws of this State that is or has been organized for the purpose of acquiring, directly or indirectly, control of the converted insurer pursuant to the plan of conversion.

“Petition” means the petition for approval of a foundation plan submitted to the Attorney General pursuant to subsection a. of section 19 of this act.

“Plan of conversion” means the written plan of conversion adopted by the health service corporation in compliance with section 2 of this act.

“Policy” means an individual or group policy or contract of insurance, including, without limitation, any certificate, rider, endorsement, plan or product offering issued by or binding upon the health service corporation.

“Subscriber” means a person covered by or entitled to benefits under any policy, including, but not limited to, the persons described in subsection k. of section 1 of P.L.1985, c.236 (C.17:48E-1).

(cf: P.L.2001, c.131, s.1)

18. Section 1 of P.L.1970, c.22 (C.17:27A-1) is amended to read as follows:

1. Definitions.

As used in P.L.1970, c.22 (C.17:27A-1 et seq.), the following terms shall have the respective meanings hereinafter set forth, unless the context shall otherwise require:

a. An “affiliate” of, or person “affiliated” with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

b. The term “commissioner” shall mean the Commissioner of Banking and Insurance or the commissioner's deputies.

c. The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of any other person, provided that no such presumption of control shall of itself relieve any person so presumed to have control from any requirement of P.L.1970, c.22 (C.17:27A-1 et seq.). This presumption may be rebutted by a showing made in the manner provided by subsection j. of section 3 of P.L.1970, c.22 (C.17:27A3) that control does not exist in fact. The commissioner may determine, after furnishing all persons in interest notice and an opportunity to be heard, and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

d. An “insurance holding company system” consists of two or more affiliated persons, one or more of which is an insurer. A mutual holding company system resulting from a mutualization and reorganization of a health service corporation pursuant to section 5 of P.L. , c. (C. )(pending before the Legislature as this bill), shall be an insurance holding company system pursuant to P.L.1970, c.22 (C.17:27A-1 et seq.).

e. The term “insurer” means any person or persons, corporation, partnership or company authorized by the laws of this State to transact the business of insurance or to operate a health maintenance organization in this State, except that it shall not include agencies, authorities or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

f. A “person” is an individual, a corporation, a limited liability company, partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity or any combination of the foregoing acting in concert.

g. (Deleted by amendment, P.L.1993, c.241).

h. A “subsidiary” of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries.

i. The term “voting security” shall include any security convertible into or evidencing a right to acquire a voting security.

j. “Acquisition” means any agreement, arrangement or activity, the consummation of which results in a person acquiring directly or indirectly the control of another person, and includes but is not limited to the acquisition of voting securities, and assets, and bulk reinsurance and mergers.

k. “Health maintenance organization” means any person operating under a certificate of authority issued pursuant to P.L.1973, c.337 (C.26:2J-1 et seq.).

l. “Enterprise risk” means any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including, but not limited to, anything that would cause the insurer's Risk-Based Capital to fall into company action level as set forth in administrative rules adopted by the commissioner which reflect the standards set forth in the Risk-Based Capital For Insurers Model Act adopted by the National Association of Insurance Commissioners or would cause the insurer to be in hazardous financial condition as defined in administrative rules adopted by the commissioner which reflect the standards set forth in the Model Regulation adopted by the National Association of Insurance Commissioners to define standards and the commissioner's authority over companies deemed to be in a hazardous financial condition.

(cf: P.L.2014, c.81, s.1)

19. (New section) a. The provisions of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be severable; and if any phrase, clause, sentence, or provision is deemed unenforceable, the remaining provisions of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be enforceable.

b. The provisions of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be liberally construed to effectuate its purposes.

20. This act shall take effect immediately.