The tale of Blue Cross Blue Shield – American Healthcare Chronicles

I recently started building products focused on healthcare affordability in the US. As I was ramping up on a new space, the biggest question that sparked my curiosity was: how did we get here? This question is the inspiration for this weekly series chronicling the decisions, accidents, and breakthroughs that built the US healthcare system

Over the last several editions, we’ve traced how the US healthcare system accumulated its shape — a wartime wage freeze created employer-sponsored insurance, a tax ruling made it permanent, Medicare and Medicaid covered those the employer system left behind, and EMTALA turned every emergency room into a safety net for everyone else. Each decision solved an immediate problem and created new ones.

Running alongside all of it was an insurance model that was underneath all of it. Today’s story is about that.

In 1929, a hospital administrator in Dallas noticed something in the unpaid bills piling up on his desk. A disproportionate number belonged to schoolteachers.

Justin Ford Kimball was an educator who had a plan for this. As a former Dallas school superintendent who had become executive vice president of Baylor University Hospital, he knew teachers had steady jobs but modest salaries. A hospital stay could wipe them out financially. And when it did, the hospital didn’t get paid either.

His solution was straightforward: 1,250 Dallas teachers could prepay 50 cents a month — $6 a year — for a guaranteed 21-day hospital stay at Baylor. By December 1929, 75% of Dallas teachers had enrolled. The hospital got predictable revenue. The teachers got protection. Two problems, one solution.

The idea spread rapidly. By 1932, community-wide plans offering subscribers a choice of hospitals had emerged across the country. In 1933, a Minnesota administrator named E.A. van Steenwyk put a blue Geneva cross on his stationery — a universal symbol of healthcare — and the name stuck.

The philosophical core of “Blue Cross” was something called community rating. Everyone in a community paid the same premium regardless of age or health status. The healthy subsidized the sick. The young subsidized the old. Risk was pooled across the whole community — not priced to the individual.

This was explicitly a social compact. Boy Scouts handed out brochures. Preachers urged their congregants to join. Blue Shield emerged in 1939 to cover physician services, following the same model. By postwar America, Blue Cross Blue Shield had become one of the most trusted institutions in the country.

Then commercial insurers arrived — and the model that had worked beautifully in isolation met the logic of a competitive market.

Commercial insurers in the 1950s introduced experience rating — pricing premiums based on the actual health profile of a specific group rather than the whole community. A young, healthy workforce at a manufacturing company could now get cheaper coverage than Blue Cross offered. Commercial insurers competed aggressively for those groups.

Blue Cross, committed to community rating, was left covering the older, sicker, more expensive patients the commercial insurers didn’t want.

The math was brutal. As commercial insurers siphoned off the healthy, Blue Cross premiums had to rise to cover an increasingly sick pool. Rising premiums drove away more healthy members. A slow death spiral began because the competitive logic of the market punished the community rating model structurally.

One healthcare economist argued that this dynamic was a direct driver of Medicare and Medicaid in 1965 — that by the early 1960s, commercial insurers had made the elderly and poor effectively uninsurable, forcing the federal government to step in. The employer-based system had left them behind. Now the community rating model was failing them too.

The final blow came from the tax code. In 1986, the Tax Reform Act effectively stripped Blue Cross Blue Shield of its federal tax exemption — ruling that organizations providing commercial-type insurance couldn’t claim nonprofit status. The tax advantage of being nonprofit was gone. The competitive disadvantage of community rating remained.

By the early 1990s, Blues plans were hemorrhaging members — enrollment had fallen from 87 million in 1980 to 66 million by the mid-1990s. Fast-growing for-profit HMOs were taking their market share.

In June 1994, the Blue Cross Blue Shield Association changed its rules. Member plans could now become for-profit organizations for the first time in the association’s history. The primary motivation wasn’t to charge patients more. It was to access capital markets to erase mounting deficits.

Blue Cross of California moved fastest — converting, then acquiring Blues plans across a dozen other states. It was eventually renamed WellPoint, today known as Elevance Health, the second-largest health insurer in the United States. When Blue Cross of California converted, state regulators determined the transaction had failed to protect the organization’s charitable assets. After negotiations, the company agreed to distribute all of its assets — over $3.2 billion — to two grant-making health foundations. The California Endowment and the California HealthCare Foundation both still exist today, funding health access programs across the state.

The Blue Cross Blue Shield story is not a story of corruption or greed. It’s a story of a genuinely good idea — community risk pooling — that was economically unsustainable the moment a competitor was allowed to offer healthy people a better deal.

Once again, nobody made the explicit decision that health insurance should become a for-profit industry. It became one through competitive pressure, tax law, and the logic of markets operating without a defined social purpose.

Once again, we go back to Victor Fuchs’ quote: “Part of the problem is that we have not decided what we want our healthcare system to do.”

Blue Cross Blue Shield is an instructive example of what happens when you build something on a social compact — and then surround it with a market.

When the environment enables caring

We ate at Otto’s Cache in Jasper recently. The food was good — but the experience was exceptional.

Everybody cared, and it showed. A fork slipped off the table and a replacement appeared within seconds. Someone was always checking in, always happy to help. Warm, attentive, welcoming. It was service at its best.

The same week, we rented a car from Hertz. It hadn’t been cleaned — there was a cup holder filled with leaked orange juice. As I knew better than to ask for help cleaning the car, I asked the counter for a cleaning cloth and got pointed to the bathroom for tissues.

A few days later, we realized that the previous renter had left their Kindle behind in the car. So we called Hertz with a simple ask: reach out to the person on file and let them know we had it. Ten minutes and one supervisor chat later, the answer was no. The employee agreed the request made sense. He just couldn’t act on it.

The magic of Otto’s Cache wasn’t just about a manager setting a high bar. It was that they built an environment where people were given the latitude to figure out how to clear it. Hertz, on the other hand, left its staff wanting to help and unable to.

No false bravado

Erling Haaland is one of the best football/soccer strikers in the world, and by the time he’s done with his career, he’ll be remembered as one of the greatest to ever play the game. What I’ve loved about him at this World Cup, though, has nothing to do with his goals.

It was his refusal to carry any pressure.

Ahead of facing France in their group game, when people asked if France would win, he shrugged: “They’ll probably beat us and go on and win the whole tournament.” (And they did win 4-1 with Haaland rested).

Then Norway went and stunned Brazil to reach their first-ever quarterfinal. Asked about their chances against England, he called them “really low” — his belief was that other teams are far more likely to lift the trophy, and England is one of them.

None of this was humility for show. Norway genuinely weren’t favorites. But it would have been easy to lead with false bravado. Instead, Haaland choose self-deprecating humor to keep expectations low and to keep focus on just doing their best.

In keeping the pressure low, he quietly freed his whole team to finish in the top 8.

In the end, they were beaten by a better English team but walked out of the world cup as one of the winners for the way they approached the game.

Zion National Park

#OurWorldIsAwesome – Edition 22 | Context on this series – we live in a beautiful world and National Parks are akin to the crown jewels of this planet. These landscapes remind us of the fine balance and complexity woven into the fabric of the world around us. Every time I spend a while inside one of these places, I’m reminded of how precious that balance is, and how much it matters that we try to understand the complexity and our own small role within it.

I think that’s what awe really is. We reach for the word “awesome” in the moments something helps us see our own insignificance — and windows into nature do that for me every time. So this is my small way of sharing it, and passing it along.

The first thing that hits you at Zion is the red. The canyon walls rise straight up in deep, saturated rust and rose, and the whole place takes on an otherworldly glow.

The walls kept reminding me of two other places at once. Their sheer vertical scale — sandstone rising thousands of feet straight off the canyon floor — took me back to standing beneath the granite faces of Yosemite. But the color, those layered bands of red and cream stacked across the rock, belonged to the Grand Canyon.

That double echo isn’t a coincidence. Zion, Bryce, and the Grand Canyon are all part of a single formation called the “Grand Staircase” — one continuous stack of rock where the bottom layer at Bryce is the top layer at Zion, and the bottom layer at Zion is the top layer at the Grand Canyon. So, standing in Zion, you’re standing in the middle chapter of this beautiful story.

Interestingly, Zion’s canyon was carved by the relatively tiny Virgin river. However, the river’s gradient drops somewhere between 50 and 80 feet of drop per mile, one of the steepest stream gradients in North America. A steep, fast river carries far more rock than a lazy one. And most of the cutting doesn’t happen gradually — it happens in short, violent bursts during flash floods that rip out huge volumes of debris at once. This process continues today, these magnificent canyons are still a work in progress.

There’s plenty to do within Zion. You can wade straight up the Virgin River into the “Narrows” surrounded by sky-high canyon walls with “hanging gardens” on the walls. The water can be chilly in the morning and cool and inviting on a summer afternoon. There are many opportunities to hike. And it is also a wonderfully bike-friendly park with electric bike rentals available aplenty in nearby Springdale (a gorgeous town).

One of my favorite memories from the park was this single enormous tree near the heart of the park.

Its canopy shades at least a hundred and fifty people at once. Sitting under it, I found myself thinking about all the shade it has thrown over a lifetime — the countless strangers who rested beneath it and moved on while the tree listened quietly to their stories.

The saddest evolution

There’s a breed of human you meet when you’re out in the midst of an awe-inspiring vista -> The annoying photo taker.

This person refuses to take in anything with their own eyes. Every view has to be seen through the phone. Every viewpoint has to be snapped — fifty clicks, ten videos. Nothing counts if it isn’t on the phone. People get pushed aside, rude comments get made, all to make space for the perfect Instagram reel.

It might be the saddest evolution of our species — the people who travel somewhere beautiful and never actually see it.

Master in the art of living

“A master in the art of living draws no sharp distinction between work and play; labor and leisure; mind and body; education and recreation. He hardly knows which is which. He simply pursues his vision of excellence through whatever he is doing, and leaves others to determine whether he is working or playing. To himself, he always appears to be doing both.”

Minister and philosopher Lawrence Pearsall Jacks, on living an aligned life (Education Through Recreation, 1932 — via James Clear’s newsletter)

The fluidity implied in this quote hit me hard.

We spend so much energy negotiating the work-life trade-off, drawing the line in the right place, when the master that Lawrence Pearsall Jacks describes simply stops drawing the line.

It is one I’ll be thinking about and writing about for a while.

Job Lock and Victor Fuchs – American Healthcare Chronicles

I recently started building products focused on healthcare affordability in the US. As I was ramping up on a new space, the biggest question that sparked my curiosity was: how did we get here? This question is the inspiration for this weekly series chronicling the decisions, accidents, and breakthroughs that built the US healthcare system

Two questions have run through this series without a clean answer.

The first appeared in Edition 1: what happens when you leave your job? The employer-based system was built for a world where people stayed at companies for life. Nobody asked what happened when they didn’t.

The second appeared in Edition 5: what happens when costs have no ceiling? Medicare passed with no price controls — physicians and insurers set their own fees, and the federal government paid whatever was charged.

By the 1990s, both questions were arriving as lived reality for millions of Americans.

As healthcare costs rose through the 1980s and 1990s — driven partly by uncapped Medicare incentives, partly by the tax exclusion that rewarded ever-richer benefit packages — employer insurance became more valuable. And more dangerous to lose.

Each stakeholder was responding rationally to their own incentives.

Insurers, operating in a market where pre-existing conditions could be excluded, charged more for individual coverage and less for group plans. The math heavily favored staying with an employer.

Employers, benefiting from the tax exclusion, offered richer plans to attract talent. The more generous the plan, the harder it was to leave.

Patients faced a calculation that had nothing to do with job satisfaction or productivity. Before the Affordable Care Act, roughly 27% of non-elderly adults had a condition that would likely cause them to be turned down for individual coverage. For those people, leaving an employer wasn’t inconvenient. It was a genuine financial risk.

So, workers with employer-sponsored insurance were 25% less likely to voluntarily change jobs. They stayed on the job 16% longer and were 60% less likely to leave voluntarily. “Job lock” showed up three ways.

Workers stayed in jobs they disliked because switching employers meant losing coverage or facing exclusions for pre-existing conditions. Entrepreneurs didn’t start companies. Imagine you are a software engineer with a diabetic child or a designer whose spouse had MS — the individual insurance market was expensive, unreliable, and hostile to anyone with a medical history.

Finally, workers delayed retirement. Too young for Medicare at 62 or 63, they kept working because three years without coverage could wipe out a lifetime of savings.

A Gallup study found one in six American workers with employer-based insurance staying in jobs they wanted to leave, purely out of fear of losing coverage. The effect was strongest among lower-income workers — the people with the least ability to absorb the risk.

This takes us right back to the Victor Fuchs quote I keep coming back to:“Part of the problem is that we have not decided what we want our healthcare system to do.”

Job lock is a precise illustration of what that means. The system was never asked to preserve labor mobility. It was never asked to encourage entrepreneurship, or allow early retirement, or enable career changes. It was asked to cover employees — and it did that. Everything else was a side effect nobody counted.

The productivity lost to mismatched workers, the companies never started, the innovations never pursued — none of it showed up in a healthcare spending report. It was the cost of a system built for one era, running in a different one.

Good vs. great product strategy

A good product strategy is a well-articulated sequence of steps explaining how a team will achieve a goal. The logic is sound — it goes after goals that are valuable, leans into the organization’s superpowers, and leverages unique strengths. Something customers want, that the team can uniquely deliver, that builds on what they already do well.

But a good product strategy is still just something on paper.

It becomes great only when it meets the market. When it’s tested with customers, sharpened by reality, and forced to confront what’s actually true versus what was assumed. That contact is what brings it to life.

Until then, it’s a thesis. A good thesis is a good thing — but it does not a strategy make.