In June 1994, the national Blue Cross and Blue Shield Association reversed a 60-year tradition of nonprofit health service, and decided to allow its member plans to become for-profit companies that could sell stock to the public, to raise money from investors in order to compete in the rapidly changing national health care market.
Blue Cross plans at the time provided coverage for 67 million people, roughly one in four Americans. In many parts of the country, the Blue Cross and Blue Shield organizations (approx. 69) competed with well-financed insurance companies and health maintenance organizations, many of which have been combining amid a surge of health care consolidations.
Dr. James S. Todd, executive vice president of the American Medical Association opposed the idea, saying, "we think this is very bad to have the delivery of health care in the hands of profit-making organizations, because...healthy profits become more important than healthy patients."
In December 1998, Weiss Ratings, Inc (the only independent provider of insurance company ratings and analysis) reported that "more than two-thirds of the nation's Blue Cross Blue Shield plans (68%) are losing money on their core underwriting operations. Weiss' latest review, covering 31 of the nation's 61 Blue Cross Blue Shield plans, reveal aggregate underwriting losses of $174 million during the first half of 1998. However, offsetting these losses, the 31 plans earned $770 million from investment income and capital gains, primarily in the stock market."
This comes on the heels of a similar pattern during the 12 months ending year-end 1997, when 69% of the Blues reported a losing year on their operations. In aggregate, the 61 Blue Cross Blue Shield companies lost $802 million on their underwriting, while earning $1.9 billion on their investments.
"Since most of the Blues have expanded heavily into managed care, they have been adversely affected by many of the same factors as those afflicting HMOs—public demands for better service, rising costs, and resistance to higher premiums," commented Martin Weiss, Ph.D., Chairman of Weiss Ratings, Inc. "But the stock market has been a life saver for many of these companies. What remains to be seen is how they will fare if the stock market does not continue to rise."