The year was 1929, and hospitals were half empty, not because there were no sick but because the sick didn't have the cash to pay for a hospital bed.
In response, a Dallas hospital administrator invented hospitalization insurance. He promised a group of schoolteachers 20 days' care whenever they needed it in return for a regular payment of 50 cents a month each.
As the nation fell deeply into depression, hospital and business leaders all over the country took up the idea, and by the late 1930s they had begun forming what would gradually become a nationwide network of regional plans under the name Blue Cross.
By 1939 doctors, organizing largely through their medical societies, were selling similar medical bill insurance under the title Blue Shield, and by the late '40s Blue Cross and Blue Shield plans dominated the health insurance field.
The Washington area was no exception. By 1979 Blue Cross and Blue Shield insured 750,000 federal workers, retirees and dependents here and an equal number of non-federal subscribers, 1.5 million enrollees altogether.
Then came competition. The Blues came under attack by new or newly aggressive federal employe plans offering lower rates to attract younger and lower-paid workers; by prepaid health plans such as Kaiser Permanente Health Plan, an expanding Group Health Association, the new George Washington University Health Plan and soon more; by commercial insurors; and by a shift to self-insurance by many employers.
This year Blue Cross-Blue Shield enrollment is 1.2 million, still far greater than any other area health plan -- Kaiser and Group Health each enroll about 145,000 persons -- but considerably down from the 1979 high point.
The Blues' response?
"We're a whole new company," Joseph T. Gamble, president, claims.
"And our main corporate objective is customer service. Frankly, service is a major factor in today's competitive market."
"So is price," adds Barry Wilson, vice president for public affairs. "It's quite clear that people are price-shopping these days."
What have the Blues done to try to offer better service for less? Or, more accurately, at competitive rates in most cases, yet, paradoxically, at higher rates for some employe groups?
In addition to federal employes, the plan has contracts with some 10,000 employe groups. Many are small. Some consist heavily of older workers, expensive to insure. Two years ago the plan began "age-rating" groups, that is, increasing premiums according to workers' ages, instead of spreading the high cost of a few groups among many.
In a few cases this doubled rates overnight. As a result, the Blues lost some groups to competitors. But it enables the plan to keep its rate structure for other groups competitive and compete more effectively with the many new plans that make a hard pitch to young, healthy subscribers.
As social policy, this kind of move puts a heavy burden on groups with many older people. Sadly, this is part of an inevitable contest among health insurors in a nation that has declined to enact some form of universal health coverage to spread the costs of care among everyone.
Federal workers do better. In 1983 the Blues began a hard new sell of low or "standard option" coverage versus more expensive "high option" coverage. This has proved highly attractive. In the Washington area in 1982, 569,000 federally covered persons had high option coverage; only 70,000 had standard. This year 277,000 have high option, 257,000 standard.
The main differences: high option pays 80 percent of usual charges for doctors' and other services (including prescription drugs); standard pays 75 percent. Only high option covers home health care and much more mental illness coverage. But only standard has some dental benefits.
The 1986 federal Blue Cross-Blue Shield rates will be lower than this year's, thanks to less use of hospitals and more care in doctors' offices and other less expensive places.
The chart below shows how 1985 and 1986 federal rates compare.
As to service, last Jan. 1, the two parallel organizations here -- Blue Cross for hospital bills, Blue Shield for doctor bills -- were merged into Blue Cross-Blue Shield of the National Capital Area. The two had long jointly marketed their products. But they had had separate boards of directors, administrators and staffs, down to the people who answered subscribers' questions or complaints.
In addition, the plans were organized into departments by functions -- telephone service, correspondence and others -- as well as entirely separate Blue Cross and Blue Shield claims staffs. A subscriber with a problem might write a letter and be answered by one person, then make a phone call and be answered by another and go on for weeks with successions of people who lacked the whole picture.
"Our organization hindered our ability to respond to the customer," Gamble says. Now, he reports, the Blue Cross and Blue Shield staffs have been merged, and "all accounts are being assigned to dedicated units" that will process all that account's claims, answer all questions and try to handle all problems. "Now, we believe, you can talk to the same person every day of the week if you want to," Gamble says.
Another goal is to process every claim and get out a check within two weeks. The problem will be to do that in the months from mid-November through February when, Gamble and Wilson say, subscribers by the scores suddenly decide to get together all their previous year's medical bills and make claims. The lesson for subscribers: don't wait until late in the year to make a whole bundle of claims, if you want prompt action.
More payments are being made directly to doctors, with Blue Cross-Blue Shield "participating doctors" -- most area physicians -- or their staffs doing more of the paperwork.
An aggressive new subsidiary, Health Management Services, is offering several new services to employe groups to lower costs. Among them: preadmission review of hospitalization to make sure it is needed; on-going scrutiny and review of hospital stays to eliminate unnecessarily long hospitalization; second and even third opinions before surgery.
Does all this mean better service and better coverage for the Blue Cross-Blue Shield subscriber?
It had better, or more of them will soon be moving elsewhere.