The Formation of Blue Cross and Blue Shield Michael Francavilla, MD Mt. Sinai Medical Center Background • Blue Cross Blue Shield Association is the current name of a federation of 39 independent health insurance companies. • Originally, Blue Cross (BC) and Blue Shield (BS) were separate entities • Blue Cross traditionally covered hospital charges • Blue Shield originally paid for physician services • The Blue Cross and Blue Shield organizations merged in 1982 Blue Cross • The prototypical Blue Cross plan was formed in 1929 by a Baylor University administrator to provide health insurance to teachers • At the time, Dallas teachers had a relatively high rate of unpaid bills • The original plan covered 21 days of hospital stay for $6/year -- after the patient paid $5/day out of pocket for the first 10 days • Until this time, hospitals had billed patients directly for all services provided • The Depression exposed the fragility of this system: revenues dropped as patients paid less of their bill and preferentially went to government-run hospitals. The Rise of Hospital Care Insurance • To combat the decreased repayment, hospitals were eager to bill patients both regularly and in advance • Additionally, they sought to capture patients who might otherwise go to another hospital when sick • This style of plan provided benefits directly to the insured in the form of hospital services • There were no reimbursements to the policyholders; this model was similar to a prepayment plan Hospital Care Insurance • The American Hospital Association (AHA) sponsored community-wide plans which charged a monthly fee and promised that all participating hospitals would provide services • Community-wide plans eventually became monopolies in hospital prepayment. The AHA specified that each plan have its own defined territory; they would not compete with each other • The AHA lobbied to have tax exempt status for its plans and legal regulations favoring control over the plans by the participating hospitals • The plans were collectively known as Blue Cross plans Blue Shield • Before 1939, attempts to organize group health insurance were made by both consumers and local governments • The American Medical Association (AMA) squashed the attempts, but still worried about the spectre of compulsory insurance and consumer-organized voluntary prepayment plans • Specifically, they were concerned that hospital prepayment plans (like that of Blue Cross) would set the standard for how medical care is paid -- they did not want hospitals to negotiate doctors' payments • Thus, the AMA stipulated that hospital and medical insurance would be separate Blue Shield • The AMA sponsored different plans out of concern for being paid from a prepaid plan, such as Blue Cross • The AMA sponsored plans which: Reimbursed patients after paying up-front in cash (called “indemnity“) or, o Paid physicians directly, AND were physician-controlled. These were termed Blue Shield plans o • The Blue Shield concept emerged from the lumber and mining camps of the Pacific Northwest at the turn of the century. • Employers wanted to provide medical care for their workers, so they paid monthly fees to "medical service bureaus" composed of groups of physicians. • These pioneer programs lead to the first Blue Shield plan, which was established in California in 1939 References • Starr, Paul. The Social Transformation of American Medicine. New York: Basic, 1982. • "Mission/History - The Blue Cross Blue Shield of Massachusetts Foundation." The Blue Cross Blue Shield of Massachusetts Foundation. BCBS Massachusetts. Web. 07 Oct. 2011. <http://bluecrossfoundation.org/About-Us/Mission-History.aspx>. • "History of Blue Cross Blue Shield." Health Insurance from Blue Cross and Blue Shield Companies. BCBS.com. BCBS. Web. 07 Oct. 2011. <http://www.bcbs.com/about/history/>.