By 1939 these loose-cost containment plans began to be marketed under the Blue Shield name. That same year, Blue Cross was endorsed by the American Hospital Association. Already in existence for ten years, Blue Cross had begun as a hospital insurance plan for Dallas school teachers that allowed them to pay for up to three weeks of hospital care with low monthly payments.
"After this, organized mainstream medicine waged an intense war on non-Blue plans. Goodman (1980) contends that some physicians lost hospital privileges and even their licenses for accepting non-Blue plans. The Blues also gained government-supplied advantages not available to non-Blue plans. In many states, they paid no or low premium taxes and sometimes no real-estate taxes. They also weren't required to maintain minimum benefit/premium ratios and could have no or low required reserves. With government advantages, the Blues steadily came to dominate the industry. By 1950, Blue Cross held 49 percent of the hospital insurance market, while Blue Shield held 52 percent of the market for standard medical insurance. They merged in 1982 and today cover one of every three Americans.
Blues-created "insurance" was anything but true insurance.
*Hospitals were paid on a cost-plus basis. Insurers paid not a sum of prices charged to patients for services but artificial "costs" that bore no necessary relationship to the prices of services performed.
*Insurance of routine procedures. This converted insurance to prepaid consumption that encouraged overuse of services.
*Insurance premiums based on "community rating." The word "community" meant that every person in a specific geographic area regardless of age, habits, occupation, race, or sex was charged the same premium. For example, the average 60-year-old incurs four times the medical expense of the average 25-year-old, but under community rating both pay the same premium (i.e., young people are overcharged and the elderly undercharged).
*A "pay-as-you-go" system. Unlike genuine catastrophic hospital insurance that placed premiums in growing reserves to pay claims, the new Blues' "insurance" collected premiums that only covered expected costs over the following year. If a large group of policyholders became ill over several years, the premiums of all policyholders had to be raised to cover the increase in costs.
These traits spell cost-explosion disaster, so naturally they were incorporated into the federal government's Medicare and Medicaid programs when they were created in the mid-1960s to address the problem of healthcare being unaffordable for the poor and elderly — a problem the state and federal governments created!"