Medicare and Medicaid

MEDICARE AND MEDICAID

MEDICARE AND MEDICAID. In most industrialized countries virtually everyone receives government-ally insured health care. The uniquely expensive U.S. medical system, however, consigns most citizens to private health insurance or to none at all. Medicare (federal government health insurance covering the costs of private medical care for seniors and, after 1972, the long-term disabled) and Medicaid (means-tested coverage for the medical expenses of the poor, jointly paid for by federal and state governments) stand as notable exceptions, accounting for one of every three dollars spent on health care in the 1990s.

Since the 1910s major government reform of the U.S. health care system has often seemed just around the corner. Despite overwhelming public support, it has usually foundered on pressures from the medical establishment; claims that these programs were socialist vehicles that would confer undeserved benefits on many who could be perfectly well served by hospital charity wards, private health insurance, and the private market; and predictions of burdensome, unsustainable expense along with an impersonal bureaucracy that would undermine family responsibility and the sacred doctor-patient relationship. President Franklin D. Roosevelt thus omitted health insurance from his social security proposals in the 1930s. President Harry S. Truman's proposed National Health Act in 1945 for compulsory medical expense insurance succumbed to conservative partisanship and an attack from the arch enemy of government health care activism, the American Medical Association (AMA), the medical profession's well-funded organizational center.

With the vast expansion of private health insurance, particularly union-negotiated medical plans, in the 1940s, government plans seemed doomed, but in the 1950s key officials in the Social Security Administration, a group commonly at the core of U.S. welfare state expansion, shifted strategy. To make government health insurance more politically marketable, they proposed that it be confined to seniors and tied to the hugely popular old age insurance social security program. After all, older Americans, who had to stretch far smaller than average incomes to cover far greater than average medical needs, could scarcely be cast as unworthy welfare cheats. The private health care market for the elderly had clearly fallen short; almost half of them in 1965 possessed no health insurance at all.

By the late 1950s government health insurance for seniors was backed by organized labor and many Democrats, including the candidate and future president John F. Kennedy, who recognized Medicare as a popular mobilizing campaign issue. Kennedy never was able to push the program through either house of Congress, and even the clear commitment and legendary legislative skills of his successor Lyndon B. Johnson at first could only secure Senate passage. In 1965, however, Kennedy's martyred legacy plus a strong economy and the overwhelming Democratic congressional majority elected on the coattails of Johnson's 1964 landslide combined to pass by partisan votes the Social Security Amendments of 1965, which established both Medicaid and Medicare as part of Johnson's triumphant Great Society. To honor former president Truman, Johnson signed the bill at the Truman Library in Independence, Missouri, on 30 July 1965.

Medicaid

Medicaid's enactment proved less of a legislative struggle than Medicare's. Medical interests saw some virtue in the government picking up the tab for hospital or doctor bills of "charity cases, " and confining government-funded health care to the poor was a common fallback position for opponents of more wide-ranging plans. As early as 1950, states had been allowed to make payments under federally subsidized welfare programs directly to hospitals, nursing homes, and doctors. An amendment to the Social Security Act in 1960 (the Kerr-Mills program) beefed up these so-called "vendor payments" for the elderly poor while adding coverage of the "medically indigent" elderly, whose health care expenses would otherwise leave them impoverished. In 1965 a new medical assistance program, administered by states but with federal matching grants funding 50 to 83 percent of expenditures, extended this coverage of medical costs from the elderly poor to low-income people of all ages.

This Medicaid program had a marked impact. By 2001 it paid for a third of all births and almost two-thirds of all nursing home patients, and it covered one-fifth of American children. It allowed the poor to receive much more care from doctors and hospitals (now desegregated, thanks in part to the financial leverage provided by Medicare and Medicaid) than previously, because the poor had often postponed treatment until they required emergency-room care. While two-thirds of its recipients by the 1990s were children and nonelderly low-income women, Medicaid served as a safety net for the American medical system, assisting in coverage ranging from the elderly poor's Medicare premiums and copayments to prescription drugs to long-term institutional services for the developmentally disabled and AIDS patients. It carried the stigma, however, of welfare, and wide disparities among state programs assured that many who needed medical treatment would receive inadequate coverage or none at all.

Medicare

Medicare, by contrast, was a federally administered, contributory, social insurance program, provided to Americans, rich and poor alike, aged sixty-five and over as a right they had purportedly earned through the earmarked social security hospital insurance taxes paid by their employers and themselves over their working lives. The AMA and other Medicare opponents sought to limit the government's role by proposing a last-ditch alternative of government-subsidized voluntary private insurance for needy seniors. This "eldercare" plan, they noted, would cover a wider range of medical services, including doctor bills, than the original Medicare bill. The rural Arkansas Democrat Wilbur Mills, the powerful and previously obstructive chair of the House Ways and Means Committee, cannily adapted this alternative into a new Part B of Medicare. Thus Medicare Part A, financed by payroll taxes on employers and employees, reimbursed recipients for ninety days of hospital care per single "spell of illness" and another hundred days of posthospitalization nursing home care plus additional home nursing visits. Part B, "Supplementary Medical Insurance, " offered Medicare recipients a voluntary government insurance program that combined monthly premiums deducted from social security checks with even more substantial subsidies from federal general-revenue funds to pay for doctor visits, ambulance charges, and certain lab tests (though significantly not out-of-hospital prescription drugs, which eat up a sizable share of the out-of-pocket medical expenses that have long required more than a fifth of the annual incomes of Medicare beneficiaries).

Post-1965 History

Despite or perhaps because of the gap between the perception of Medicare as an earned benefit and the reality that most of this program's costs were financed from current social security taxes and government subsidies rather than from the accumulated lifetime contributions of the elderly themselves, Medicare became popular. But it also proved much more expensive than advocates had anticipated, even though the Social Security Administration's overhead to administer the program was gratifyingly low.

To gain the cooperation of medical interests who had opposed Medicare as intrusive "socialized medicine, " Medicare originally had no cost-control provisions to speak of. Being guaranteed reimbursement of all customary or reasonable fees, hospitals and doctors cashed in, pushing up medical prices far faster than general inflation, and provided medical services, lab tests, and technologies that a more cost-conscious system might have precluded. Medicaid reimbursement rates were less generous, enough so that many doctors refused to participate. Even so, Medicaid expenditures also rocketed, fueled less by sensational cases of provider fraud than by a combination of greater use of medical services and a manyfold increase in the number of recipients (by 2001 it covered 44 million low-income Americans). With exceptions, such as the financial incentive provided for states to move the chronically mentally ill from state-supported mental hospitals to overcrowded but Medicaid-eligible nursing homes, this program growth was a boon for the health of the poor but an increasingly resented bust for state budgets (in 2001 Medicaid was the fastest-growing item in most state budgets, accounting for nearly a fifth of their outlays).

Also facing mounting costs, Medicare kept increasing payroll taxes, deductibles, and copayments; established systems to limit allowable charges by hospitals and doctors; and encouraged enrollment in health maintenance organizations. Medical schools and their teaching hospitals, which had provided most of the free or below-cost charity ward care for the poor, were in turn transformed by these new streams of revenue, shifting faculty time from research and teaching toward now more lucrative clinical practice. As the United States entered the twenty-first century and faced the prospect of a declining ratio of contributing taxpayers to baby boom retirees, Medicare, Medicaid, and medical and pharmaceutical costs in general approached financial crisis, assuring further reform.

BIBLIOGRAPHY

Berkowitz, Edward D. America's Welfare State: From Roosevelt to Reagan. Baltimore: Johns Hopkins University Press, 1991.

———. Mr. Social Security: The Life of Wilbur J. Cohen. Lawrence: University Press of Kansas, 1995.

David, Sheri I. With Dignity: The Search for Medicare and Medicaid. Westport, Conn.: Greenwood Press, 1985.

Ludmerer, Kenneth M. Time to Heal: American Medical Education from the Turn of the Century to the Era of Managed Care. New York: Oxford University Press, 1999.

Sundquist, James L. Politics and Policy: The Eisenhower, Kennedy, and Johnson Years. Washington, D.C.: Brookings Institution, 1968.

Zelizer, Julian E. Taxing America: Wilbur D. Mills, Congress, and the State, 1945–1975. New York: Cambridge University Press, 1998.

Mark H. Leff

See also Social Security .