Assignment: Blue Cross Plans

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Assignment: Blue Cross Plans

Assignment: Blue Cross Plans

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In the mid-1940s, a type of plan called a commercial indemnity plan allowed employers and/or employees to prepay an insurance company, which would reimburse a hospital or physician of the employee’s choosing. Commercial indemnity plans initiated the concept of the third-party payer, because the insurance company was relatively independent from both the employer/employee and the provider (see exhibit 5.4).

Between 1945 and 1949, group commercial indemnity plans increased from 7.8 million subscribers to 17.7 million subscribers, and individual commercial indemnity plans increased to 14.7 million subscribers. By 1953, commercial insurance plans, which were for-profit, provided coverage to 29 percent of Americans. Blue Cross, which was a not- for-profit plan, provided coverage to 27 percent of Americans. Through the 1950s, use of commercial indemnity plans grew steadily, often at the expense of the less aggressive Blue Cross plans (Starr 1982).

Blue Cross typically set premiums using community rating (all groups paid essen- tially the same premium, resulting in low-risk groups subsidizing high-risk groups). Com- mercial insurance companies such as Prudential and Metropolitan, which had had significant histories in life insurance, set premiums using experience rating (groups paid different premiums based on their risk). Commercial insurance companies often solicited low-risk Blue Cross groups by offering lower premiums.

By the late 1950s, 66 percent of Americans had some form of health insurance; it was usually provided by the employer. Part of this increase is attributable to a 1954 Internal Revenue Service (IRS) tax ruling that confirmed that employers’ contributions to health insurance plans were tax-exempt (Starr 1982). Medicare and Medicaid were introduced in 1966 (Medicare is discussed in more detail in chapter 6, Medicaid in chapter 7); the percentage of covered Americans subsequently increased to 87 percent by 1968 (Harris 1975). Changes in federal Employee Retirement Income Security Act (ERISA) laws dur- ing the early 1980s allowed large employers to self-insure and gain the full benefit of any reductions in costs. Some of these reductions were actually a transfer of costs to employees.

community rating

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