Blue Cross and Blue Shield

I

Introduction

Blue Cross and Blue Shield, network of companies that provide health insurance to people in the United States and Puerto Rico. The Blue Cross and Blue Shield Association governs the various health insurance organizations that carry its name. Member health insurance companies are operated locally, but they must abide by standards established by the national association. Historically, Blue Cross and Blue Shield insurers have been nonprofit organizations that receive tax-exempt status.

More than 100 million people are members of Blue Cross and Blue Shield health insurance plans. Most Blue Cross and Blue Shield organizations negotiate contracts with local hospitals and physicians to offer services to individuals who have paid premiums (fees) individually or through their employers.

Blue Cross and Blue Shield health insurance plans offer a broad spectrum of coverage options, including fee-for-service plans (also known as indemnity plans) and managed care plans. Fee-for-service plans allow members to visit any doctor or hospital for medical services. Managed care plans require members to visit designated physicians and include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service plans (POSs) (see Health Insurance: Types of Plans in the United States). Blue Cross and Blue Shield organizations also administer services for Medicare, a government program that provides coverage for elderly people and for people with certain disabilities (see Medicare and Medicaid).

II

History of Blue Cross

The idea for Blue Cross was born in 1929 when Justin Ford Kimball, an administrator at Baylor University College of Medicine in Dallas, Texas (now located in Houston, Texas), offered teachers in the area the first group health insurance policy. The plan guaranteed teachers 21 days of medical care at Baylor Hospital (now Baylor University Medical Center) in Dallas, should they need it, in exchange for a fee of $6 a year. The plan charged a premium that was based on the group’s overall claims rather than on the health of any one individual. This method was called community rating. At the time, other insurers based their premiums on experience rating, in which individuals with a higher chance of needing medical care are charged higher premiums. Kimball’s health insurance plan was immediately successful and gained nationwide attention.

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In 1931 members of the American Hospital Association, a national organization of hospital administrators, asked Kimball to help other hospitals throughout the country establish similar plans. Two years later a healthcare manager in Saint Paul, Minnesota, began using a corporate logo that contained a blue cross. Many hospital insurance plans that used the community rating system adopted the symbol.

In 1937 the American Hospital Association’s Commission on Hospital Service started establishing nonprofit organizations to administer plans that used community rating. It also began implementing nationwide standards for healthcare plans. The group officially adopted the blue cross logo in 1939 and changed its name to the Blue Cross Commission in 1946.

In 1960 the Blue Cross Commission became an independent group of the American Hospital Association and was renamed the Blue Cross Association. During the 1960s Blue Cross organizations began administering Medicare services. In 1972 the Blue Cross Association severed all ties with the American Hospital Association and became an independent organization.

III

History of Blue Shield

During the first half of the 20th century, some employers began making deals with local physicians to provide healthcare for their workers in exchange for a monthly payment. These health insurance plans, which also used the community rating system, usually covered the cost of doctor bills but excluded the cost of hospital care. A number of physicians formed alliances called medical service bureaus so that patients could visit more than one doctor under the plan. These bureaus became popular in the 1930s and 1940s. As Blue Cross plans gained more members, the demand for health insurance plans that covered medical care outside of hospitals also grew. In 1939 medical service bureaus in California became part of the first official Blue Shield plan. Like Blue Cross organizations, these groups received tax-exempt status.

In 1946 nine medical service bureaus joined together to form the Associated Medical Care Plans, an organization to oversee Blue Shield plans. Shortly thereafter it was renamed the Association of Blue Shield Plans. In 1948 the group adopted the Blue Shield logo, which was created by a healthcare manager in Buffalo, New York. The organization eventually became known as the National Association of Blue Shield Plans. During the 1950s and 1960s, Blue Shield organizations, like Blue Cross organizations, provided fee-for-service plans, employer-sponsored group insurance, and Medicare plans.

IV

Merger of Blue Cross and Blue Shield

Originally, Blue Cross covered the cost of hospital care and Blue Shield paid for physician care, but both groups eventually covered all healthcare costs. The two groups established similar policies in the healthcare industry, and subsequently some Blue Cross and Blue Shield organizations began to merge in the late 1970s. In 1982 the National Association of Blue Shield Plans merged with the Blue Cross Association. The new group changed its name to the Blue Cross and Blue Shield Association.

A major shift in the healthcare industry began in the mid-1980s, when many people switched from fee-for-service plans to managed care services. Managed care plans, which were first introduced in the 1970s, covered more healthcare services than fee-for-service plans. Many employers started using managed care plans because they emphasized preventive care and were generally less expensive. To retain employer-sponsored groups, Blue Cross and Blue Shield organizations began offering more types of managed care plans.

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