In Red and Blue the Elite 4 are supposed to be the trainers you need to beat to become the Champion. The game makes it clear that you only fight Blue as a sort of tie breaker due to him beating you there by such a short period. You were never intended to have to beat an existing Champion in addition to the Elite 4.

The Champion doesn't even make sense. If somebody beats a Champion then why would the composition of the Elite 4 stay the same? The former Champion should move down a level and the first E4 member should be ejected from the group.