A Brief History of the Blues
Blue Cross and Blue Shield, America's oldest and largest system of independent health insurers, arose as two simultaneous but separate solutions to the health care worries of workers' organizations. In 1929, faced with the economic pressures of the depression, an executive at Baylor University in Dallas devised a plan for teachers to budget for their future hospital bills. The teachers paid six dollars per year into a fund and were guaranteed 21 days of free hospital care. The program met with immediate success throughout the Texas school system and quickly spread to other workers' groups and other states. Within ten years, the American Hospital Association officially embraced the concept of prepaid hospital care and symbolized their new program with a blue cross.
At the same time, workers in lumber camps in the Northwest developed a similar approach to deal with frequent logging accidents. Camp owners provided medical care for workers by paying physicians monthly fees for which a doctor would provide all of the care the camp's workers needed. Physicians formed groups, or medical service bureaus, which were linked to specific employers. The bureaus were identified with a blue shield, and they too quickly expanded in popularity.
Originally, Blue Cross plans covered only the cost of hospital care, while Blue Shield plans covered physicians' services. After years of a mutually reinforcing, but often competitive coexistence, the two organizations merged in 1982. The Blue Cross and Blue Shield system is now a network of independent, locally operated insurance companies that together insure about one in four Americans. No longer just hospital and physician organizations, the Blues encompass the full spectrum of healthcare coverage, including traditional fee-for-service, preferred provider organization (PPO) products, and health maintenance organization (HMO) programs. In most states, there is only one Blue organization. Idaho is one of only three states that is home to competing Blues, with both Idaho plans providing comprehensive, statewide coverage.
The Blue Cross and Blue Shield Association (BCBSA)
The Blue Cross and Blue Shield system is a confederation of 39 independent, community-based Blue Cross and Blue Shield plans. Collectively, these plans enroll more than 102 million people -- about one in four Americans. The Blue Cross and Blue Shield Association is the coordinating body for all of these plans, connecting them through brand identification, and licensing the use of the Blue Cross and Blue Shield names and symbols. The Association also serves as a trade association and as a federal government contractor. The BCBSA, with headquarters in Chicago, has nearly 880 employees. The member plans have 150,000 employees nationwide, making the Blue Cross and Blue Shield System the nineteenth-largest employer in the United States.
Unlike large commercial insurance companies, Blue Cross and Blue Shield plans are locally based and maintain their commitment to serving community needs. Each plan operates independently in its own service area, where it has the flexibility to respond to local healthcare needs. Plans can be organized as not-for-profit corporations or as for-profit companies, depending on the general business climate, their capital needs, and the regulatory environment.
Blue Cross of Idaho - 64 Years of Service
Blue Cross of Idaho can trace its roots to a luncheon meeting in 1945 when representatives from local hospitals, a Boise physician, and two business executives met to incorporate Idaho Hospital Service (IHS). Idaho Hospital Service began by offering prepaid hospital services to employee groups, including several Northern Idaho mining operations. By the end of its first year, statewide enrollment exceeded 10,000, and by the end of the second year, 615 groups had enrolled more than 35,000 subscribers.
The original premiums were $1.00 per month for an individual and $2.50 for families. Contracts with participating hospitals set reimbursement levels at $10.00 for the first day's coverage and $5.00 per day thereafter, with a 31-day limit per year. With group enrollment moving ahead, IHS opened plan membership to the general public in the fall of 1948.
Until 1949, IHS provided benefits for hospital care only. That year, a subsidiary of the national Blue Cross Association began to cover certain physician services throughout Idaho. By the middle of the decade, IHS had expanded enough to take over the underwriting of physician benefits itself. In the 1960s, coverage for outpatient x-ray and laboratory tests, along with additional accident benefits and major medical programs, joined the plan's benefit portfolio.
At the same time, a physician's medical service bureau operated in affiliation with Blue Shield in northern Idaho. There were no physician plans available in the southern part of the state until 1962, when the Idaho Medical Association and local physicians formed South Idaho Medical Service Bureau (SIMS) to meet the demand for a similar service in southern Idaho. Also affiliated with Blue Shield, SIMS offered access to medical services by physician members throughout the southern counties. IHS and SIMS operated jointly throughout the 1960s, enabling SIMS members to combine their prepaid physician services with the prepaid hospital services of the Blue Cross plan.
IHS officially changed its name to Blue Cross of Idaho in 1973, and following a merger with SIMS in 1978, became Blue Cross of Idaho Health Service, Inc., a statewide Blue Cross and Blue Shield Plan. At the same time, the Northern Idaho Medical Service Bureau (now known as Regence BlueShield of Idaho) continued to operate as a Blue Shield plan and was granted permission by the Blue Cross and Blue Shield Association to expand statewide.
Today, Blue Cross of Idaho and Regence BlueShield of Idaho remain separate companies, operating independently of each other. Blue Cross of Idaho remains Idaho's oldest health insurer, with approximately one quarter of the state's population enrolled in its traditional, PPO, and managed care programs. At its headquarters in Meridian, Blue Cross of Idaho employs more than 850 workers, and additional employees work from our district offices in Coeur d'Alene, Lewiston, Twin Falls, Pocatello and Idaho Falls.
Changes in Healthcare and Healthcare Coverage
Dramatic advances in medical technology during the last two decades have brought new capabilities, increased utilization, and spiraling costs to the healthcare industry. New and expensive procedures like major organ transplants and neonatal intensive care have added millions of dollars to plan claims. In Idaho, healthcare reform legislation guarantees access to health insurance for all Idahoans, including those with high-cost medical conditions who previously were unable to obtain insurance. While this expanded access has made it easier for those previously denied coverage to pay for their healthcare costs, it has also significantly increased the number of customers with very high claims. For example, in 1998, the number of claims exceeding $100,000 increased by over 50 percent, resulting in $11.5 million dollars in provider reimbursements for less than four-one hundredths of one percent of our enrollee population.
In response, innovations such as individual case management, managed care, and preadmission review have emerged throughout the industry as attempts to reduce the overall cost of healthcare.
In 1990, Blue Cross of Idaho introduced HMOBlue, its first managed care group product, which has grown to be the state's largest commercial managed care group product. Today, Blue Cross of Idaho offers a complete line of managed care group products, each designed to target a different market segment. In late 1997, True Blue, an individual managed care health plan for Medicare recipients, was introduced in Ada and Canyon counties. True Blue is referred to as a Medicare Plus Choice product. In January 2003, the True Blue service area expanded to include Boise, Gem, Owyhee, Payette, and Washington counties in Idaho.
Blue Cross of Idaho has successfully adapted to the rapid changes within the industry through conservative fiscal management and strategic foresight. During the 1990s, cost-containment efforts resulted in a more than doubling of our invested reserves, and the plan continues to have one of the lowest administrative cost ratios of any Blue Cross Blue Shield plan. Blue Cross of Idaho has remained successful by adapting to changes in both consumer demand and in the healthcare marketplace, offering new solutions through managed care programs, benefit plan options, and customer service. Blue Cross of Idaho is committed to innovation in managed healthcare and traditional coverage, and to remaining Idaho's leading health insurer.
At its inception in 1945, Blue Cross of Idaho was chartered as a hospital and professional service corporation under a legislatively designed structure that granted nonprofit status and exemption from corporate income taxes. This tax exemption was given in return for tight regulatory controls and a public commitment to offer the people of Idaho a cost-effective mechanism for covering the expenses of healthcare.
Although Blue Cross of Idaho's overall corporate purpose has not changed, the healthcare environment has in the last twenty years. Commercial insurers and healthcare organizations entered the health insurance industry under a different, much-less-restrictive set of insurance laws that gave them financial advantages. In order to remain competitive in the changing market, Blue Cross of Idaho's board of directors realized that the corporate structure needed to change.
In 1994, Blue Cross of Idaho submitted legislation to convert its status to a mutual insurance company. Supported by the Idaho Department of Insurance, the state legislature authorized this conversion in 1995. The change in corporate structure gives policyholders voting status and allows the plan to form more direct business relationships with contracting providers. Blue Cross of Idaho now has the ability to participate as an equity partner in the development of its growing system of community-based healthcare networks.
The change also brought added taxes. While Blue Cross of Idaho has paid federal taxes since 1987, it had been exempt from Idaho's premium tax on insurers (paying instead a per-contract franchise fee). As a mutual insurer, Blue Cross of Idaho continues to pay federal taxes in addition to the applicable state taxes on all premium income.
Our mission remains much as it began more than 60 years ago: to work cooperatively with Idaho healthcare providers to ensure our customers' access to needed healthcare services and promote the delivery of quality, cost-effective care. We believe the best way to accomplish our mission is to work cooperatively with local healthcare providers to assure delivery of the best quality healthcare at the lowest possible cost within the communities they serve.
Today's headlines herald dramatic changes in healthcare as commercial insurers and managed care organizations vie to be part of a $1-trillion-per-year industry representing some 14 percent of our gross national product. Stiff competition has placed enormous pressure on insurers to keep premiums as low as possible. At the same time, an aging population, advances in medical technology, increased pharmaceutical costs for new and expensive drugs, legislative mandates, and the increased utilization of services, all combine to push costs upward. Faced with these pressures, healthcare insurers must continue to evaluate all options for increasing efficiency and decreasing costs if they hope to remain successful in a highly competitive marketplace.
The drive for cost control has resulted in an explosion of industry mergers, acquisitions, and strategic alliances. Commercial mergers have joined the likes of Aetna and U.S. Healthcare, Humana and Employer's Health, and United Health, Metropolitan, and Traveler's. Blues mergers and affiliations have driven the number of independent Blue Cross and Blue Shield companies from a high of 128 in 1975 to 45 today. Integrated delivery systems joining together hospitals, physicians, and insurance or managed care operations are emerging with increasing frequency. Despite all these consolidations, one thing stays constant -- the delivery of healthcare services remains a local affair. The healthcare providers within any given community -- its doctors and hospitals -- provide most of the needed healthcare services to the people of that community.
The most successful healthcare delivery systems of the future will align economic and quality-of-care incentives so that insurers and providers are working in unison to achieve shared goals. We have an important role to play in helping to develop systems that will better serve patients and customers. We believe the most effective healthcare delivery systems will be community-based, community-focused and essentially managed and governed locally.
Blue Cross of Idaho is not immune to market pressures for efficiency and new products. However, we find the merger mania and rush to centralize decision-making authority to be in conflict with our belief that healthcare delivery is truly a local affair. Strategic alliances provide us with the opportunity to blend resources while maintaining separate identities. They also enhance efficiency and expertise without sacrificing local autonomy, allowing us the flexibility to respond to local situations.
Our joint venture with WellPoint Health Systems is an example of this strategy. Through this alignment of local and national strengths, Blue Cross of Idaho is able to bring improved products to Idaho-based companies with employees in other states, as well as serve the needs of WellPoint clients headquartered elsewhere but with employees situated in Idaho. WellPoint's networks and contract pricing translate into lower costs for many of our multi-state customers and allow us to compete for previously unobtainable national business. In addition, we gain the opportunity to expand our specialized services, including an improved dental program and enhanced pharmacy benefit management.
We believe that providing the people of Idaho with the healthcare value they demand and deserve can best be accomplished by integrating the talents of Idaho's leading healthcare insurer and managed care company with healthcare providers throughout Idaho into community-based entities with shared goals and incentives. Blue Cross of Idaho continues its efforts to form jointly held healthcare financing and delivery partnerships with Idaho physicians, hospitals, and other healthcare providers who are uniquely qualified to deliver quality, cost-effective services within their own communities.