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Creation of Blue Cross Blue Shield in 1929 - the Impact on Healthcare, Access, Technology, and Reimbursement

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Blue Cross Blue Shield Association (BCBSA) is a federation of 36 separate United States health insurance companies that provide health insurance in the United States to more than 106 million people.[2] It was formed in 1982 from the merger of its two namesake organizations: Blue Cross was founded in 1929 and became the Blue Cross Association in 1960, while Blue Shield emerged in 1939 and the Blue Shield Association was created in 1948. Association (BCBSA) is a federation of 36 separate United States health insurance compan ies that provide health insurance in the United States to more than 106 million people. It was formed in 1982 from the merger of its two namesake organizations: Blue Cross was founded in 1929 and became the Blue Cross Association in 1960, while Blue Shield emerged in 1939 and the Blue Shield Association was created in 1948.

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The modern health insurance industry in the United States was spurred by the onset of the Great Depression. In 1929, the Baylor University Hospital in Dallas created a pre-paid hospitalization benefit plan for school teachers after a hospital executive discovered that unpaid bills accumulated by local educators were a large burden on hospital finances as well as on the teachers themselves.11 Unlike earlier health insurance policies, subscribers were entitled to hospital care and services rather than a cash indemnity. While the plan did not cover physician bills, it did improve enrollees’ ability to pay those charges. The Baylor Plan was soon extended to other groups. Other hospitals in Dallas quickly followed suit with their own group hospitalization plans as a means of ensuring a steady revenue source in difficult economic times.12 For individuals, these plans offered a way to obtain hospital care at a reasonable and predictable cost. In 1932, local hospitals in Sacramento, CA, created a joint plan for group hospitalization benefits, and in 1933, hospitals in Essex County, New Jersey, offered a similar plan. Community-based plans in St

Paul, MN, Washington, DC, and Cleveland were created soon afterwards. The Blue Cross emblem, first used by the St. Paul plan, was widely adopted by other prepaid hospital benefit plans adhering to American Hospital Association (AHA) guidelines.

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For-profit organization in health care delivery has been a major public policy issue least since at least the 1980s, driven by the growth of for-profit hospital chains and a wave of conversions by nonprofit hospitals. As significant as these events have been, however, they pale in comparison with the potential impact of conversions by Blue Cross and/or Blue Shield plans (which we refer to generically as Blue Cross, abbreviated BC)

Because Blue Cross plans are the largest health insurer in almost every state (or substate region where they operate), these conversions could remake the corporate landscape of health care finance. Although BC plans no longer hold the overwhelming market share they enjoyed 50 years ago (when they commanded more than two-thirds of the commercial market; see Blackstone and Fuhr 1998), their share still is considerable. Blue Cross controls at least half the individual market in 33 states and more than a third of the group market in 29 states (Chollet, Kirk, and Chow 2000; McCann 2003).

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The success of the Blue Cross and Blue Shield plans showed commercial insurers that adverse selection could be overcome by focusing on insuring groups of young, healthy, employed workers

The commercial plans also benefited from a legal advantage: as non-profit entities, the Blues had to "community rate" their policyholders, while the for-profit commercial plans (strictly regulated insurance companies) were free to engage in experience rating

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Blackstone EA, Fuhr JP. Blue Cross: Health Insurance. In: Rosenbaum DI, editor. Market Dominance. Westport, Conn: Praeger; 1998. pp. 175–93. [Google Scholar]

Chollet DJ, Kirk AM, Chow ME. Mapping State Health Insurance Markets. Washington, D.C.: AcademyHealth; 2000. [Google Scholar]

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