(Bloomberg) -- New Jersey extended its health benefits contract with Horizon Blue Cross Blue Shield for another year even after state officials alleged the health insurer failed to meet the terms of the deal.

The state will pay lower fees in exchange for reducing the scope of some services Horizon was originally hired to provide to state employees, according to the revised document posted on a state website. It removed a requirement for Horizon to provide a web tool where people can compare prices for medical care, for example. The state had accused Horizon of not providing that tool.

The document, dated Dec. 27, leaves most of the core agreement between the state and Horizon intact for 2023, even as the state is embroiled in a dispute with Horizon and seeks to recover millions in fees for services it says the company failed to provide.

Unions representing public employees have criticized Horizon and the administration of Governor Phil Murphy over rising expenses in the state employee health plan. The plan administered by Horizon sometimes paid far more for medical care than hospitals charged, payments that the state said violated the agreement, Bloomberg News revealed last month. Premiums in the plan had increased by about 20% for 2023, and the state’s budget for health benefits rose by more than half a billion dollars.

Along with earlier disputes the state had with Horizon, the reports of “egregious claims overpayments certainly raise serious questions why this contract was not rebid,” two labor union representatives on the State Health Benefits Commission wrote to New Jersey State Treasurer Elizabeth Muoio on Dec. 29. 

Horizon, a nonprofit, has disputed the state’s allegations that it’s not meeting its obligations. A company representative declined to comment and referred questions to the state.

Melinda Caliendo, a spokesperson for the New Jersey Treasury, said the contract was extended “to timely deliver health benefits and related services to our plan members in a cost-effective manner” with limited disruption. The extension doesn’t “end or foreclose our ongoing review of the contract compliance issues,” Caliendo said in an email. She said New Jersey continued to “pursue any and all amounts owed to the state, regardless of how long that process may take.”

  • Read more: New Jersey Hospital Puzzle: Paying $2 Million for $674,856 Bill

The medical plan contract covers more than 600,000 public employees, family members and retirees. It’s an important account for Horizon, New Jersey’s largest health insurer. The company won an initial three-year term that began in 2020, with options for two one-year extensions after 2022. State bidding documents described the 2020 agreement as a “significant departure” from earlier contracts, with new features meant to improve care and reduce total costs.

The state paid the company extra for services like the transparency tool, intended to help members find lower-cost medical services and steer them to top-quality doctors. But state officials later determined that Horizon wasn’t doing that. In 2021, the Treasury sought to recover $34 million in fees from the company through an internal complaint process meant to resolve conflicts between state agencies and their vendors.

Days before Horizon’s response was due, though, the complaint was halted, allegedly under pressure from Murphy’s office, Bloomberg News reported in June, citing the former state official who managed the contract. Murphy, a Democrat and former Goldman Sachs Group Inc. senior director, said he didn’t intervene.

  • Read more: New Jersey Backs Down From $34 Million Fight With Health Insurer

Last May, the state Treasury said in a letter to Horizon that it would reinstate the complaint by May 27 “so that it can be fully adjudicated” if the dispute wasn’t resolved. That didn’t happen. Despite the dispute, New Jersey officials didn’t attempt to seek new bidders.

The state has paid Horizon $75 million for the disputed health-navigation portion of the contract, according to a letter this fall from the state auditor, with payments still ongoing at the time. Under the revised contract, Horizon’s fees for that portion of the work will drop from $9.45 per employee per month to $4.25 starting in February. Horizon’s total fees for administering the medical plan range from about $32 to $50 per employee per month, depending on the type of insurance plan a member chooses.

©2023 Bloomberg L.P.