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SAL KHAN: I'm here with Dr. Laurence Baker from Stanford Medical School, who specializes in health care policy. And I have just a very basic question. We see these Blue Cross and Blue Shield all of the time. And sometimes they're used together, sometimes they're used differently. And it just seems confusing to me. What are these things, and how are they related to each other? DR. LAURENCE BAKER: So they're related in some really interesting ways. They go way back in time. So Blue Cross and Blue Shield began as separate things. Let's see if I can get this right. Blue Shield was started by doctors who wanted to set up a health care plan to help their patients get coverage. SAL KHAN: Kind of a preventative shield to help things from getting to you. Right. Right. Right. DR. LAURENCE BAKER: Yes. So that was started a long time ago. These both go back, Blue Cross and Blue Shield, to the 1930s, really, they're getting started. Blue Cross was started by the hospitals, separately from Blue Shield originally, and they got together later as a way to help patients get coverage for hospital care. SAL KHAN: And I guess the cross because once you're in the hospital, you might get a little religious. DR. LAURENCE BAKER: Exactly. I mean, I'm not sure that's what they had in mind originally, but-- SAL KHAN: And what about the blue? DR. LAURENCE BAKER: I don't know where the blue comes from. SAL KHAN: Is that just a color that makes people feel good, it's like a health care color? DR. LAURENCE BAKER: I think it must be a health care color. SAL KHAN: Red would be inappropriate. DR. LAURENCE BAKER: Let's go with blue. You're not bleeding with blue. SAL KHAN: Blue is-- you look at the sky. OK. And so what happened? So, I do see these words used together. So these were separate plans. Doctors created the Blue Shields. Hospitals created the Blue Cross. DR. LAURENCE BAKER: And then they grew over time and changed. So they got started in the '30s. They were around through the '40s and the '50s, '60s, '70s, and so a couple things happen along the way that starts to make things confusing a little bit. One is that they're operating in every state, to some extent, independently. So, states regulate health insurance in this country, or have a lot to do with regulating health insurance in this country. And so, every state had its own laws. And as a result, the Blue Cross and the Blue Shield plans in different states grew up in different ways. So what you come down to today is really different plans in every state because of this history of development. As states develop their laws differently, the plans would evolve in the different states. SAL KHAN: I see. So this is just to give myself a kind of a framework of what's happening, is that pre-1920s, early 1930s, there really weren't health care plans. DR. LAURENCE BAKER: Not to speak of. SAL KHAN: The physicians said, hey, we want a way for people to see us without having to-- some way for them to be paying a little bit every month or every year, and that if something were to happen, they could see the doctors. The hospitals kind of had the same model. But they did it differently in every state because the state is the regulatory-- DR. LAURENCE BAKER: The state especially-- well, in the '30s, there weren't a lot of state regulations about health insurance. There wasn't health insurance. SAL KHAN: Right. DR. LAURENCE BAKER: But as states evolved, as the health care system evolved, as the plans evolved, it grew separately in slightly different directions in every state. So that led to the formation really of, you see Blue Cross of Tennessee, or Blue Shield of Florida, or Blue Cross Blue Shield of Michigan. They're all different, because they're all in their own state environment and they've all grown up differently. SAL KHAN: So, normally-- these kind of are brands. We've all heard of them in that way. But normally, a brand means something. It means more quality, or less quality, or some type of spin on-- you know, Apple means fun consumer experience or something like that. But in this case, if I'm hearing you correctly, if there's Blue Cross of California and Blue Cross of Texas, they have nothing to do with each other, or very little to do with each other? DR. LAURENCE BAKER: So they all had their start kind of together in the '30s, and then they've all grown in their own ways. But they've stayed related, and some of them to greater extents than others. And so one of the things that happened along the way was they formed an association. There's now something in the US called the Blue Cross Blue Shield Association, which is a I guess an association of a lot of the plans in different states that allows them to talk to each other, to try to work together. SAL KHAN: And this is an umbrella for all of the Blue Cross and all of the Blue Shields. So that's why we hear them used so frequently together. People say Blue Cross Blue Shield. DR. LAURENCE BAKER: Yeah. So there's two reasons you hear that together. One is the association that tries to work with plans from both groups. The other is that, in some states, over time, the two got together and actually became one health insurance plan. So there are states where the health insurance plan is Blue Cross and Blue Shield of a state. And there are other states where they stayed separate. So, we're here in California, where Blue Shield and Blue Cross have historically stayed as separate plans. But there are some states where they're the same thing. And then you'd hear Blue Cross and Blue Shield. SAL KHAN: So if someone tells you Blue Cross of state x, that just means to you health insurance plan. There's nothing else that you can really take from that. DR. LAURENCE BAKER: So, once upon a time, you may have been able to take more from it. But these days, it's possible for them to vary in quite a few different ways. Some of the Blue Cross and Blue Shield plans, especially the Blue Cross plans, have become for-profit plans. So, historically these were always nonprofit. But in the last-- SAL KHAN: So Blue Cross especially, some of them have gone for-profit. DR. LAURENCE BAKER: Yes. I think, in both cases, but Blue Cross is the one that I pay more attention to. SAL KHAN: Right. DR. LAURENCE BAKER: So they may be for-profit or not-for-profit plans. They may act in similar ways. And they do, because at least the ones in the association, tend to act with some similarity from place to place. SAL KHAN: And just to-- because I've explained this all the time about even-- Khan Academy is a not-for-profit. A not-for-profit is an entity, it can, in theory, charge revenue-- Khan Academy doesn't-- but it could charge revenue. But there's no owner of the organization who can become rich off of it. It's owned by the public. While a for-profit has shareholders, and it can be bought and sold, and it can issue dividends, and all the rest. DR. LAURENCE BAKER: Yeah. So, historically in America, most health plans were not-for-profit entities. They couldn't take money that they earned and give it out to people who might be the owners. They'd have to be reinvested. SAL KHAN: Exactly. DR. LAURENCE BAKER: In fact, even in the early days of Blue Cross and Blue Shield in some states, they were treated as quasi-public entities. SAL KHAN: Right. Right. Right. DR. LAURENCE BAKER: And they've kind of grown away from that a bit more. But there's this history, especially with Blue Cross and Blue Shield, of very not-for-profit, public-spirited entities. When you get to for-profit plans, which we really didn't have in the US in a big way until maybe the last decade or two, where we've seen some conversions. These are situations where the plan can act explicitly as a profit generator for its shareholders, for its owners. SAL KHAN: And some are now publicly traded and they're on the stock exchange. DR. LAURENCE BAKER: They may be publicly traded, yeah. SAL KHAN: And so when we talk about some of them becoming for-profit here, it's that literally-- I don't know, the license to use the name either Blue Cross or Blue Shield, or maybe some of the assets of the former not-for-profit are somehow transferred, or I guess a for-profit buys them. DR. LAURENCE BAKER: So we had a series of these things. We call them conversions. And when the company converted from being a not-for-profit to a for-profit, there were a lot of states in which those conversions, or situations in which they happened, where the public, the government, somebody compelled the for-profit entity in the conversion to create a public good. So there are some foundations that now exist-- SAL KHAN: Oh, I see. DR. LAURENCE BAKER: In the conversion, they allowed a transfer of a not-for-profit to a for-profit, but you had to create something valuable for the public. So some of the things that we see now in states, some of the big foundations that exist in health care, are conversion foundations around the for-profit conversions of Blue Cross and Blue Shield. SAL KHAN: I see. But when we see things like-- I think it's, I always get confused between Blue Cross and Blue Shield-- but I believe Anthem has a kind of a-- Let me see here, Anthem was a Blue-- DR. LAURENCE BAKER: Blue Cross in California. So, Anthem is a company that is a large company that has Blue Cross, I think mostly Blue Cross or all Blue Cross affiliates or entities in different states. I think there are 14 or 15 of them. SAL KHAN: So these are for-profit Blue Crosses if they have Anthem with them. DR. LAURENCE BAKER: I believe that's correct. SAL KHAN: Right. Right. Right. And is there any, I guess in how they operate, from a consumer point of view, any difference between a for-profit Blue Cross or Blue Shield, or is there anything that we can tell? DR. LAURENCE BAKER: So, that's actually a really interesting question. There are people who've gone to look, and they've tried to sometimes find some evidence for differences. There are a few studies out there where people can find some differences. But there's not a lot of evidence that they behave really differently. At the end of the day, they have to compete in the same marketplace for the business of the same companies and the same people. And if they behaved really obviously different, if one was obviously way better than the other, the market would sort out who's going to win this. And the market has allowed both types to exist. So, there are certainly differences in the written charters, and maybe differences in the preferences in the stated ideals of the people who run these organizations. And that might make a difference in some cases. But it's hard when you get it all together, and you really go try to do national data or something to find a big difference between them. SAL KHAN: So the big picture here is, as much as I've looked at health care plans even when were trying to figure out for employees at Khan Academy, which health care plan to choose and which not. And I've stared, oh, what's the difference between Blue Cross and Blue Shield? There's actually very little I can tell just by looking at those brands. I would really have to dig deeper into the actual health care policy. And that's going to be different from state to state, and some will be for-profit, some will be not-profit. Even that's not enough to tell you a general rule of thumb. You really just have to look at the health care plans. DR. LAURENCE BAKER: You have to look at the health care plans. And it's Blue Cross and Blue Shield. But there's other plans out there. There's Kaiser around here. There's Aetna, and Cigna, and other plans. And they can vary from state to state. And even within, you can see variations. So, Blue Cross in California, Blue Shield in California, might offer some different types of choices. So, if you said, I've got a really nice plan from Blue Cross. And I look at another state, and you look at a Blue Cross plan, it might be that you're just looking at a less generous one, where there is another one that you can look at. So, you even have to look within a company at the specifics. SAL KHAN: Definitely when we go from state to state, it would be weird to have brand loyalty to some of these. DR. LAURENCE BAKER: It would. Yeah. You know Blue Cross Blue Shield-- SAL KHAN: Because they're not going to be the same thing. DR. LAURENCE BAKER: They have this history of being public-spirited entities, and some of that persists to this day. So maybe that's something to think about. But in a general sense, there are so many things that they could vary on that you'd want to be very careful with any choice you make. And know that it could really vary across state lines. SAL KHAN: Interesting.