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Other views; Blue Cross history holds lessons for public health insurance option

Other views; Blue Cross history holds lessons for public health insurance option

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The following editorial appeared Thursday in the St. Louis Post-Dispatch:

Back to the future for a public option. Nothing about health care reform has inspired more overheated rhetoric than the so-called public option.

Opponents say it would unleash a government juggernaut against which no insurance company could compete. Supporters envision the public option as a nonprofit insurance company that would offer lower-cost health coverage.

If that sounds vaguely familiar, there's a good reason: For decades, most Americans got health benefits through just such a company. It enrolled everyone who applied, something it considered part of its social mission.

It used what's called "community rating" to set reasonable rates for all. And it offered the same standard benefit package across the country.

Its name? Blue Cross/Blue Shield.

These days, many of the "Blues" have either turned themselves into for-profit insurance companies or consolidated and begun operating exactly like their investor-owned competitors.

How that happened, and why, has important implications for health care reform.

Health insurance hasn't always been dominated by corporations bent on maximizing profits and minimizing "medical losses," their term for money spent on patient care. The first plans were sold by nonprofits that operated like community service organizations, the same as most hospitals.

A former school superintendent named Justin Ford Kimball, then head of Baylor Hospital in Texas, created the first plan in 1931. He called it Blue Cross.

Mr. Kimball's idea was to make the cost of hospital care less worrisome to families - and create revenue for hospitals.

Blue Cross was later supplemented by a plan that paid for doctor visits, called Blue Shield. The idea spread across the country; local affiliates opened in every state.

In those early days, commercial insurance companies weren't interested in health care coverage. Unlike life and casualty insurance, they couldn't figure how to do the underwriting.

Blue Cross initially used a simple formula to set premiums. Executives estimated how many members would need care in the coming year and how much it would cost. They then divided those expected expenses by the number of "subscribers." That's called community rating.

When commercial insurance companies got into the market after World War II, they used a different system based on actuarial tables, like life and casualty insurance. They tried to identify who was most likely to get sick and charged them higher rates.

While nonprofit Blues made money by enrolling more people, for-profit companies found they could make more by excluding people who were more likely to become sick. That left someone else - relatives, hospitals and eventually the federal Medicaid program - to cover the sick and the poor.

Market segmentation eventually spelled trouble for Blue Cross. Unless it also segmented markets and excluded the sick, it couldn't match prices charged by other insurance companies.

Nonprofit Blues tried merging, building ever-larger companies that spread across several states. But that didn't control costs. So beginning about 20 years ago in California, Blue Cross plans started transforming themselves into for-profit companies.

The lesson for health reformers is clear: Despite opponents' dire predictions, for-profit companies are the ones with the power to drive out nonprofits like a public option plan.

That power is enhanced when the public option can't use its great market clout for tough price negotiations with doctors and hospitals. And it's enhanced when private insurers can attract the healthiest people for their plans, leaving the sickest to the public option.

The Congressional Budget Office has estimated that the relatively weak public option in the House health reform bill actually will have to charge higher premiums than private health insurance. And, it says the public plan would attract "a less healthy pool of enrollees."

The history of the Blues shows that's a recipe for failure.


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