Horizon Blue Cross-Blue Shield of New Jersey says its subscribers will be charged out-of-network fees for using Children's Hospital of Philadelphia or the Hospital of the University of Pennsylvania starting next spring.
The insurer, which is trying to become for-profit, says the payments to the Philadelphia hospitals are too high.
Some 28,000 people insured by Horizon use the two facilities.
Cancellation threats are common during negotiations between health care providers and insurers and usually they end up striking deals before their contracts expire.
Horizon says it is an effort to get New Jersey residents to use New jersey-based hospital networks, such as Cooper or Virtua. Some raise concerns about the political nature of the move, as Cooper is close to NJ Democratic party boss George Norcross. And Horizon is trying to re-organize to become a for-profit company.