Blue Cross's course change

From charity to public-option foe

October 28, 2009 

— When one thinks about Blue Cross and Blue Shield of North Carolina and its recent actions regarding national health-care reform, it is often too easy to forget the history of the nonprofit company.

N.C. Blue Cross today is still a nonprofit. For over 60 years it enjoyed broad tax breaks as a charitable organization -- tax breaks that helped it grow and prosper into the commanding market position it has today.

Indeed, Blue Cross would not control 96.8 percent of the individual market for health insurance in North Carolina and over 70 percent of the overall market for health coverage if it wasn't for those 60 years of tax breaks.

Due to IRS scrutiny and multi-million dollar salaries for top executives, those tax advantages are gone today. But the effect of those advantages and, even more importantly, the state and nonprofit foundation support Blue Cross enjoyed for years, gave the company enormous leverage over the competition for more than half a century.

Today N.C. Blue Cross is fighting hard to oppose a public health-insurance plan option as a part of national health reform to give North Carolinians more choice of affordable public and private health-care plans. This plan would compete with the modern Blue Cross and offer alternative health plans for North Carolinians.

The insurer's stance against this strategy for affordability would likely horrify many of the prominent North Carolinians who worked so hard to create the nonprofit organization for the greater good of the state. As Blue Cross conducts a statewide postcard campaign encouraging its members to oppose a "government-run" health-care plan, a look back at the company's own history is in order.

Prominent philanthropists, physicians and hospitals came together in the 1930s to provide a private, nonprofit health insurance plan for North Carolinians. This plan, sold through employers, would make hospitalization and physician services more widely available in what was then a very poor state. The result of these efforts was the genesis of today's Blue Cross and Blue Shield of N.C.

The organization was originally split into two separate nonprofits -- one to cover hospital services and one to cover doctors. The original nonprofits were called the Hospital Care Association and the Hospital Saving Association. In 1938, both associations received permission to display the Blue Cross emblem of approval. The groups merged functions in 1968 to become the modern Blue Cross and Blue Shield of N.C..

Blue Cross would not exist here without support from what is still the largest charitable foundation in North Carolina, the Duke Endowment. A Blue Cross Hospital Saving Association advertisement in 1951 celebrated the organization's success arising from Blue Cross's Duke Endowment grant, the only start-up capital for the organization. The ad related that "the generous grant of $25,000 by the Duke Endowment to Hospital Savings Association for its organization expenses, along with the cooperation of the public, the physicians and hospitals of North Carolina has made this [growth] possible."

Dr. I.H. Manning, former dean of the UNC School of Medicine and president of the state Medical Society, was another founder of N.C. Blue Cross. Manning acknowledged the Duke Endowment's "generous support of a program which gives promise of great relief to the hospitals and to the underprivileged people of this state."

Other charitable contributions that were critical to the survival and growth of N.C. Blue Cross included substantial contributions from George Watts Hill, a prominent local philanthropist and board chairman of Watts Hospital. Critical cash contributions came from both Duke and Watts hospitals in the tough early years when it looked as if Blue Cross might fail from lack of capital and subscribers.

Graham Lee Davis of the Duke Endowment and Dr. W.C. Davison, dean of the Duke University School of Medicine, also played prominent roles in the creation of the organization and stayed involved through many years.

In one of its own histories, the motive of the Blue Cross founders was described in 1968 as "a community project whose motive was never pecuniary gain for those who promoted it. This enterprise was designed to make available the proper medical attention needed for persons who could least afford it and to enable the self-respecting person to pay their way without jeopardizing their future welfare by sacrificing other needs equally important."

Today, the "community project" of N.C. Blue Cross pays its chief executive nearly $4 million in compensation and is gaining national media attention for stridently opposing critical parts of national health-reform plans designed to make coverage affordable for all North Carolinians. The philanthropists and health leaders who created the organization would likely be very disappointed.

Adam Searing is project director of the N.C. Justice Center's Health Access Coalition.

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