Medicare Act (1965)

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Medicare Act (1965)

Kevin Outterson

Unlike most industrialized nations, the United States does not guarantee access to health care or health insurance for all of its population. Employers are the major providers of health insurance for working people and their dependents. But two major government programs also exist to ensure that Americans have access to health insurance: Medicaid provides health insurance for the poor, and Medicare provides health insurance for individuals sixty-five and over and the disabled. Gaps in coverage are evident, and approximately forty million Americans are uninsured at some point in a year.

Medicare is a federal program, funded from a mix of payroll taxes, premiums, and general tax revenues. On the benefits side, the government spent roughly $271 billion in 2003, 13 percent of the federal budget. Medicaid, by contrast, is a cooperative program between the states and the federal government. States administer the health insurance, and the federal government provides oversight and funding assistance. Approximately half of the Medicaid costs are borne by the states, with the federal government contributing the balance out of general tax revenues. Total Medicaid expenditures in 2002 were $210 billion.


Congress designed Medicare to promote the general welfare of the United States. The program's financing mechanisms proceed under the taxing and spending powers, together with the commerce clause. Although some groups have challenged various features of the law, no litigant has challenged the Constitutional basis of the act as a whole.


Prior to the adoption of Medicare and Medicaid, health insurance in the United States was primarily an employee benefit. In the late 1950s, however, Congress observed that two groups were left out of the employment-focused model: the retired elderly and the unemployed poor. President Lyndon Johnson's landslide election in 1964 paved the way for the adoption of Medicare and Medicaid in 1965.

While the programs garnered much support in Congress, they were also subject to debate and negotiation. The American Medical Association, for example, opposed the federal intervention into healthcare as "socialized medicine." This opposition originally led Congress to make Medicare a voluntary program and led to provisions that awarded physicians with generous pay for their work. The language of the Medicare statute reflects the imprint of the American Medical Association:

Nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided ... or to exercise any supervision or control over the administration or operation of any such [health-care] institution, agency, or person.

More recently, however, Medicare has become less voluntary for the vast majority of providers, the payment rates are significantly less generous, and the federal government exercises great influence over the delivery of health care services.


The Centers for Medicare and Medicaid Services (CMS), a federal agency within the Department of Health and Human Services (DHHS) administers Medicare and Medicaid. DHHS also includes the Food and Drug Administration, the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH).

Medicare does not provide health care directly to seniors. The vast majority of physicians, hospitals, and related providers participate in the Medicare program. If a Medicare enrollee receives a "covered service" or product (such as a physician's visit or surgical procedure), Medicare will pay. Medicare only pays for covered services, which in 2003 still did not include important items such as outpatient prescription drugs or long-term nursing home care. A small minority of Medicare enrollees are able to purchase supplemental health insurance (known as "Medigap" policies) to provide coverage in these areas.

Congress divided Medicare into three parts, each of which covers unique services:

Medicare Part A covers inpatient hospital stays for ninety days per illness, plus sixty lifetime reserve days. Part A also covers up to 100 days per illness for post-hospital skilled nursing facility (SNF) care, hospice, and some home health care. Every person eligible for Social Security and over the age of sixty-five is eligible for Medicare Part A. Medicare enrollees are not charged premiums for Part A, but are subject to deductibles and co-insurance similar to commercial insurance programs. Part A is also a primary funding source for graduate medical education in the United States.

Part B covers physician services and many outpatient hospital, diagnostic, therapy, and many other medical services. Medicare Part B is optional, although most Part A enrollees also sign up for Part B. Part B enrollees must pay a monthly insurance premium to CMS, and are also subject to deductibles and co-insurance.

Part C is the Medicare HMO program, called Medicare Plus Choices. Medicare Part C is an optional Medicare HMO, which enrollees may choose instead of Parts A and B. The HMO sets the additional premiums for Part C, and any deductibles, coinsurance and additional benefits, within the limits set by CMS. For example, about 10 to 15 percent of Medicare enrollees receive some limited prescription drug benefit by enrolling in a Medicare HMO under Part C.


Many of the services now covered by Medicare were not part of the original benefit package. Over time, Congress has added coverage for home health, hospice, end-stage renal disease, and many other services in response to political demands and medical needs. Congress also added coverage for the disabled in 1972. The legislature is currently debating whether to add an outpatient prescription drug benefit to Medicare, one recommendation from the Bipartisan Commission on Medicare established under former President Bill Clinton.

The process of gradually adding benefits to Medicare is called incrementalism. In Medicaid, incrementalism has focused more on expanding eligibility to the near-poor and children. In July, 2003, Congress debated a new prescription drug benefit for Medicare. Expanded coverage predictably results in higher costs. National health care expenditures are more than 14 percent of the gross domestic product in 2003, up from seven percent in 1970. The median cost for health care in industrialized nations in 2000 was about eight percent. The growth in U.S. health care expenses continues to outpace the growth in the domestic economy, and to account for a large and growing share of government budgets at all levels. Medicare cost $7.7 billion in 1970; thirty years later the cost exceeded $224 billion per year. Medicaid and private health insurance have experienced inflation. Medicare has increasingly adopted price controls and managed care techniques in an attempt to control costs.

Cost-cutting measures in Medicare have either been patient-directed incentives to reduce medical utilization (deductibles, co-insurance, time limitations, and exclusions) and price controls to reduce payments to providers. Medicare now sets specific prices for most health care services to enrollees. While the price is technically the only amount Medicare will reimburse, in practice the provider is not allowed to charge the patient any additional amount, other than the deductible and co-insurance. Medicare also punishes a provider for any discounts or rebates to patients, as a form of "fraud." As a result, the Medicare price list controls a large slice of the U.S. health care market.


Medicare spawns much litigation nationwide. Some court controversies involve administrative issues, such as whether or not a particular service or product is covered by Medicare. Many providers run afoul of the complex Medicare rules and regulations regarding the provision of care and reimbursement under Medicare. Some of these cases are prosecuted as Medicare "fraud," although many providers claim the rules are so complex that innocent mistakes are common. The most significant litigation for patients has concerned the process that the government must follow when denying or limiting benefits, including the right to a hearing before benefits are restricted.

See also: Medicaid Act.


Jost, Timothy S. The Threats Facing our Public Health-care Programs and a Rightsbased Response. Oxford, NY: Oxford University Press, 2003.

Marmor, Theodore R. The Politics of Medicare. New York: A. de Gruyter, 2000.

Vladeck, Bruce C. "Medicare and the Politics of Incrementalism." 26 J Health Politics, Policy and Law 153 (Feb. 2001).

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Medicare Act (1965)

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