The Blue Cross and Blue Shield Association coordinates the 58 Blue Cross/Blue Shield plans that operate statewide or regionally across the nation, mostly as nonprofit hospital and medical service corporations. These plans have tended to dominate the market for basic medical coverage in many geographic areas because of lower premiums from a favored tax status with the majority of states, and because of close ties to the hospitals and organized medical societies in the localities that they serve. Major medical and group dental insurance is also often available from Blue Cross/Blue Shield plans. At the end of 1996, more than 67 million persons were covered under Blue Cross and Blue Shield plans.
Blue Cross plans are nonprofit hospital expense prepayment plans. Most plans were organized by hospitals in the area served by the plan. Historically, member hospitals usually elected the board of directors, which normally included members from the public and the medical profession, as well as hospital administrators. Today, the composition of the boards has changed significantly to reflect more business and consumer representation. The plans provide for hospital care on a service-type basis, by which Blue Cross enters into contracts separately with member hospitals for certain types and amounts of hospital services and then reimburses the hospital directly for those covered services rendered to plan subscribers. The subscriber, the Blues’ term for the insured, is billed only for those services not covered by Blue Cross and, unlike commercial health insurance; there usually is no direct payment to the covered person.
The majority of Blue Cross plans are coordinated with Blue Shield plans. Blue Shield plans are nonprofit organizations offering prepayment coverage for surgical and medical services performed by a physician. Independently organized on a state or regional basis within a state, these plans are members of the National Association of Blue Cross and Blue Shield Plans and are now commonly controlled locally by a board of directors representing both the consumer and the medical profession. As in the case of Blue Cross, each plan operates autonomously, but the National Association’s comprehensive contract definitions assure common administration from plan to plan for subscribers in large national or multistate groups.
The typical Blue Shield plan provides benefits similar to those provided under the surgical and physicians’ expense benefit provisions of commercial health insurance policies. Blue Cross/Blue Shield major medical coverage is available on both a group and an individual basis; the major medical plans resemble those of commercial insurers. A deductible is involved and the subscriber usually must pay a 20 percent coinsurance until co-payment expenses reach a certain amount, after which no coinsurance applies, the benefit maximum for major medical expense may be $250,000 or more. Many, if not most, Blue Cross/Blue Shield plans offer comprehensive major medical for their local groups.
The distinct advantage enjoyed by Blue Cross/Blue Shield has been the favorable tax treatment given these organizations. Although commercial insurers have long been subjected to federal income taxes, a variety of state taxes—including a significant tax on premiums received—and even certain local taxes, Blue Cross/Blue Shield organizations traditionally have been virtually immune to significant state taxes and are afforded relatively favorable treatment under the federal income tax laws. The trend at the state level, however, seems to be to tax the Blues as any other health insurer, and the Tax Reform Act of 1986 eliminated their complete exemption from federal income tax. Although the tax act eliminated complete exemption, various deductions result in an average effective tax rate for Blue Cross and Blue Shield plans that is below the average tax rate for insurance companies.
The Blues historically have been among the largest indemnity insurers in the United States and they collectively make up the largest health care entity in the country. They have responded to market demand for managed care products and services. Today, Blue Cross and Blue Shield plans collectively comprise one of the largest providers of managed health care in the United States. More than 44 million people are enrolled in a Blue Cross and Blue Shield managed care network. From 1986 to 1998, enrollment in such managed care plans increased from 13 percent to 64 percent of total, collective Blue Cross and Blue Shield enrollment.
In the 1970s and the 1980s, there was a consolidation of most Blue Cross and Blue Shield plans. In nearly all cases, this involved a complete merger; in a few instances, the consolidation was partial, resulting in a single staff but separate governing boards. To compete with organizations with large amounts of capital or direct access to capital markets to fund future growth, some plans have converted to for-profit status. Others have demutualized, and still others are consolidating or affiliating to form regional organizations. Although consolidation will provide the capital resources and economies necessary for geographic expansion and may relieve some of the pressure on profit margins, the Blue Cross and Blue Shield plans will need to continue to increase enrollment to compete successfully.