Time was you didn't say health insurance, you said Blu Cross.
Its mission was simple: be the insurer of last resort, use earnings to reduce premiums and provide quality health care at the lowest cost.
In its early years, everybody -- sick or well -- paid the same rates and received the same benefits. No one worried about how long he could stay in the hospital, or who would take out the children's tonsils, or whether knee surgery would be covered. Nobody fretted about monthly premiums leaping, either.
"People trusted Blue Cross-Blue Shield . . . People felt it was almost America. That's changed a lot," says Robert Hunter, president of the National Insurance Consumer Organization in Arlington, Va.
Technically, Blue Cross' mission hasn't changed -- but its characterhas. The non-profit company, which operates several for-profit subsidiaries, competes fiercely with commercial insurers.
And fairly or unfairly, Blue Cross-Blue Shield -- which touches one of every three Marylanders -- has come to symbolize a nationwide frustration over health care: declining benefits, double-digit increases in premiums, and concerns about whether insurers are solvent.
Today, as part of its sweeping probe into fraud and abuse in the insurance industry, a U.S. Senate subcommittee opens a
two-day hearing on Blue Cross-Blue Shield of Maryland. While health care costs skyrocket, federal investigators want to make sure that the company is not squandering money.
Ironically, Blue Cross says, the federal inquiry comes as the company is turning around. Its subsidiaries are making money, its reserves are at a healthy level and a new computer system to process claims will be operating within 18 months.
While consumers often seem confused, and sometimes angry, about Blue Cross, chairman Carl J. Sardegna says the company is misunderstood. "We are scrutinized when we lose money and criticized when we make money. We walk a tightrope," he complained before a legislative panel in Annapolis in July.
Indeed, the Blues' unique non-profit status has created an impression that the company should be beyond reproach. But the Maryland plan no longer resembles the company that set up shop in a one-room office on West Fayette Street in 1937 with a few thousand subscribers paying 75 cents a month for hospital benefits.
Instead of paying claims almost without question as it once did, Blue Cross-Blue Shield has become largely a company focused on managed care to control health care costs.
It has responded to the outcry for lower premiums by devising plans with reduced benefits. Its health maintenance organizations (HMOs) comprise nearly a fourth of its business. What's left from the old days -- individuals who sign up for themselves and their families -- account for only 9 percent of revenues.
And it is no longer just a health insurance company. To compete with commercial insurers, it ventured during the 1980s into for-profit subsidiaries, such as data processing. Overall, those subsidiaries have lost $140 million.
While Maryland's Blue Cross expanded, it spent more on administrative costs than other Blue Cross-Blue Shield plans. At the same time, it lagged behind Blues in other states in handling claims, according to a 1991 consultant study commissioned by Blue Cross itself.
Consumers and health care providers, such as doctors and hospitals, complained about not getting paid on time. This week, state insurance regulators fined the company $73,600 for violations, including failure to pay interest on late payments.
"Payments are diminished so doctors aren't happy. Hospitals aren't happy because they're pushing to keep down the length of stays. The public isn't happy either," says Dr. William Howard, a surgeon at Union Memorial Hospital.
In a July hearing before the U.S. Senate Permanent Subcommittee on Investigations, State Insurance Commissioner John A. Donaho lambasted the Maryland company for lavish spending and skirting regulatory authority and raised questions about the company's solvency.
Since then, federal investigators have been trying to determine whether the company is financially sound and whether its management practices have contributed to the rising costs of health care.
Are premiums rising largely because of burgeoning health costs -- doctors' fees, drugs and new medical equipment? Or has Blue Cross of Maryland been wasting money on risky ventures and exorbitant executive salaries?
"We're hearing a lot about what they're guilty of," says Ernie B. Crofoot, labor lobbyist and former member of the board that oversees Blue Cross. "In all fairness, people expect more of Blue Cross. And I guess we should."
Indeed, the Maryland company's non-profit status not only creates a special aura for Blue Cross, it also gives it financial advantages.
In 1986, Congress eliminated its tax exemption, saying Blues operated more like commercial carriers. But in most states, Blue Cross is still exempt from premium taxes that commercial insurers face. That saves Blue Cross-Blue Shield of Maryland roughly $12 million a year.
Blue Cross continues to accept all subscribers during open enrollment -- a high-risk proposition that costs the company money. But state regulations allow companies with open enrollment to get a 4 percent discount from hospitals, a whopping advantage to a company with nearly 1.4 million subscribers.
"It would seem to me that a non-profit company competing with [a for-profit] company would prevail," Mr. Crofoot says.
But the environment that once favored the Blues has changed dramatically.
Competition crept in during the 1970s. Commercial carriers began siphoning off younger and healthier customers by offering them better rates, leaving Blue Cross with the sickest and the oldest. In the past six years alone, the company's market share has shrunk from 48 percent to 37 percent.
"People tend to think of us as a utility. We are not," Mr. Sardegna said during an interview earlier this summer. "A utility assumes a monopoly . . . We're competing against Aetna, Metropolitan . . . We are fighting everyday in the marketplace."
As healthier people left, the Blues were forced not only to raise TC premiums but to also find new sources of revenue to underwrite its increasingly risky business.
Meanwhile, big employers such as Baltimore Gas & Electric Co. and General Motors Corp. discovered they could save money by providing their own health insurance and merely paying Blue Cross to administer the plans. Today, more than half of Blue Cross' business involves such administrative oversight, creating less risk -- but also less opportunity to enjoy higher profits.
As other insurers offered new coverage through HMOs, Blue Cross was pressed to compete. But unlike commercial insurers, Blue Cross couldn't issue new stock or debt to raise money, and it couldn't cut dividends to generate cash because it has no stockholders. To bankroll the subsidiaries, it turned to its surplus -- money leftover after payment of claims and expenses.
Today, non-profit Blue Cross seems neither fish nor fowl, often operating more like a for-profit company, leaving consumers confused.
Indeed, Maryland insurance regulators say they get complaints from Blue Cross subscribers and health care providers when the company makes money -- and when it doesn't.
The problem, says one former Blues executive, is that people don't understand that non-profit doesn't mean no money should be earned.
"An organization that does not make profit cannot exist," says Robert C. Heird, a former Blues executive who left in 1989 to work for an insurance company in Cincinnati. "The question is 'What do they do with the profits they make?' "
In a sense, that's all federal investigators want to know about the Blues.