MEDICARE

At its inception in 1966, the Medicare program was understood as a way to assure elderly persons a stable place in the mainstream of American medicine. Over the first quarter-century of its operation, however, Medicare increasingly came to be viewed as an instrument to influence the character and costs of doctors, hospitals, and health insurance. In 1986 Medicare marked its twentieth birthday with considerable fanfare. In 1991, along with American medicine, Medicare faced severe financial pressures, and its silver anniversary was not celebrated; nor was its thirty-fifth anniversary much celebrated on June 30, 2001.

The Origins of Medicare

When the Great Depression made economic insecurity a pressing national concern, the social insurance reformers thought health insurance should be part of a comprehensive American scheme of social protection. From 1936 through the late 1940s, there were recurrent calls to incorporate universal health insurance within America's nascent welfare state. But, despite the broad public support for national health insurance, a conservative coalition in Congress defeated such measures (Marmor, 1973).

By 1952 the original architects of Social Security, well aware of this frustrating opposition, had formulated a plan of incremental expansion of government health insurance. The proponents of what became known as Medicare restricted the category of beneficiaries to retired persons, while retaining the conceptual link to social insurance. Medicare would provide retirees with limited hospitalization insurance—a partial plan for that part of the population whose financial fears of illness were as real as their difficulty in purchasing health insurance at an affordable cost. So began the long battle to turn a national health insurance proposal acceptable to the public into one passable by the Congress.

These origins had much to do with the initial design of the Medicare program—and with the expectations of how it would develop over time. The incrementalist strategy assumed that hospitalization coverage was the appropriate first step in benefits and that wider benefits would be enacted later under a common pattern of Social Security financing. Likewise, the strategy's proponents assumed that eligibility would be expanded gradually to include most, if not all, of the population, extending first, perhaps, to children and pregnant women. Medicare enthusiasts took for granted that the rhetoric of enactment should emphasize the expansion of access to medical care, not its regulation and reform. The clear aim was to reduce the risks of financial disaster for older people and their families, and the clear understanding was that Congress would demand a largely hands-off posture toward the doctors and hospitals providing the care Medicare would finance. Some twenty-five years after the program's enactment, it is taken for granted that how—or how much—one pays for medical care affects the care given. In the buildup to the passage of the Medicare bill (in July 1965), however, no such presumption existed.

Once this incrementalist proposal was outlined, who and what shaped its fate? Medicare's principal antagonists, and their adversarial methods, illustrate a familiar American form of ideological politics. The most prominent opponents—national medical, business, and labor organizations—engaged in open, hostile communication and brought into their opposing camps many groups whose economic interests were not directly affected by the Medicare outcome. Both the contest and the contestants remained remarkably stable from 1952 to 1964—two well-defined camps with opposing views reigned, and few groups remained impartial or uncommitted.

The particular features of the political environment in 1965 help explain details of the original Medicare program that remain problematic decades later. The overwhelming Democratic victory of 1964 seemed to guarantee that hospitalization insurance for older Americans would pass in 1965. President Lyndon B. Johnson's commitment to Medicare was made plain in his presidential campaign, and the new Congress of 1965 acted to prevent further delays in the president's Great Society agenda. The result, however, was far more complex than expected. The certainty that a Medicare bill would be enacted transformed the struggle from a polemic over Medicare's wisdom to a complicated strategy game about exactly what the program would do. Out of that game came the benefits, financing, and administrative design of the operational Medicare program. Few participants had expected Medicare to pay physicians at all, let alone their "reasonable and customary" charges in a new "Part B" of the program. And, while reimbursing hospitals (under Part A) using the Blue Cross formula of reasonable costs was anticipated, the Department of Health, Education, and Welfare hardly imagined the inflationary impact this would have.

The Development of Medicare

Initially, Medicare's administrators accommodated the demands of medical providers for a largely hands-off stance by public regulators. Out of this period—described by Columbia University political scientist Lawrence Brown in 1985 as "consensual corporatism"—emerged rapid inflation in Medicare's expenditures and the fumbling efforts to find acceptable means to control its costs.

From 1972 to the beginning of the 1980s, Medicare's woes were masked by the national preoccupation with the mix of inflation and unemployment known as stagflation, with broader proposals to reform American medicine, and with the growing appeal of pro-competitive alternatives to public regulation of discrete programs like Medicare and Medicaid. This period was characterized by the growing dispersal of government regulation among federal and state agencies (what Brown called "inverted corporatism"). The frustrating experience with health planning, with experiments in hospital reimbursement, and with the rapid growth of costs prompted broader reform approaches. A striking illustration of both the problems and the frustration was the addition of a special disease program under Medicare: one for all Americans suffering from renal failure. Enacted with great fanfare in 1972, the End-Stage Renal Disease Program grew rapidly—in beneficiaries, in costs, and in complexity. And it soon became a symbol of disappointment with traditional ideas of government health insurance (Starr). Throughout the 1970s, health policy experts produced a bewildering array of reform proposals, but Medicare's reform remained a special world of policy specialists, congressional committees, and the responsible executive agency, Social Security's Bureau of Health Insurance, until the Health Care Finance Agency (HCFA; now called the Centers for Medicare and Medicaid Services, or CMS) took over in 1977.

A third period of Medicare's administrative history—which Brown labeled "technocratic corporatism"—flowered in the 1980s. With universal health insurance dislodged from the national agenda, the attention of policymakers and technical experts returned to Medicare itself. Medicare and Social Security had been protected under the mantle of social-insurance theories of entitlement, and by the elderly population's reputed political clout. That protected status was what the budget and tax politics of the 1980s were to challenge.

Three developments exemplify this period, which extended to the mid-1990s. First, there were continuing efforts to reduce the rate of expenditure growth in Medicare, efforts that initially shifted costs to the elderly population, and later burdened hospitals and physicians. Second, there was the surprisingly rapid enactment in 1983 of a new form of hospital reimbursement within Medicare: the widely noted diagnosis related group (DRG) method of prospective payment. Developed by technocrats in the academy and within HCFA, supported by policy experts within the Congress, and with some operational trials in New Jersey, DRGs dominated the hospital world of the 1980s and symbolized the faith in scientific, apolitical answers to Medicare's troubles. At this time, there was no specific provision for monitoring the quality of hospital care, though there was no question of the potential effects on patient care of changing hospital financial incentives so drastically (Smith).

The third development, a new federal institution named the Prospective Payment Commission, became the monitor of DRGs, and later in the decade it spawned a similar institution for Medicare's Part B medical insurance, the Physician Payment Review Commission. It was assumed that the associated peer review organizations would take care of balancing Medicare's cost and quality.

The irony of the Reagan era is that an administration committed ideologically to free markets produced the most obvious examples of administered prices—the payment of hospitals by the diagnosis related group method—in American medicine. At the same time, increases in the medical expenses paid directly by elderly persons prompted what came to be known as the catastrophic debacle of 1987–1989. The Reagan administration proposed, and the Congress more generously delivered, a complicated piece of legislation to cover the catastrophic expenses of the elderly. A firestorm of protest erupted over the financing of this benefit expansion (affecting largely the more affluent elderly), and in 1989, for the first time in Medicare's history, the Congress repealed a benefit that had been regarded as a gift to the program's beneficiaries.

Twenty-five years after enactment of the Medicare program, its budget woes were part of the national preoccupation with increasing public deficits. The catastrophic debacle had symbolized and worsened the charges of generational inequity, with greedy geezers caricatured as the enemies of America's children, future, and tradition of fairness. With deficits untamed, further cuts in Medicare's rate of expenditure growth remained on the policy agenda in 1992 and thereafter, even as the nation debated more comprehensive forms of medical-care reform.

Attempts at Reform

In fact, the period between 1992 and 2002 was full of surprises. Anyone who observed the fight over the Clinton health-reform proposal would hardly have expected Republican leaders in the Congress to later promote a system of vouchers for Medicare that resembled Clinton's model of universal vouchers. In debates over the Balanced Budget Amendments of 1997 and later, previous critics of managed competition for all Americans became advocates for using that model for Medicare. The puzzle is why this apparent reversal took place.

Understanding the reversal requires distinguishing Republican philosophical distaste for big government initiatives (like the Clinton proposal) from Republican pragmatism about how to control the budgets of existing federal programs (like Medicare). Vouchers for Medicare seemed, in the mid-1990s, an acceptable way to reduce federal expenditures and secure the balanced budget that fiscal policy conservatives had long sought (White). The presumption of the voucher advocates was that Medicare beneficiaries with a fixed sum (euphemistically described as premium support), would shop for the insurance plan they wanted, with competition among plans holding down inflation. Relying on that reasoning, advocates projected considerable savings from what Medicare had been predicted to spend in the decades ahead. And, with that, the game shifted to promoting expanded benefits, especially the coverage of prescription drugs that Medicare did not insure outside of the hospital environment. With cost control predicted, benefits expanded, competition at work, and choice to be enhanced, the conventional claim by the late l990s was that Medicare would finally be ready for the twenty-first century.

The suggestion that Medicare required fundamental alteration is precisely what a substantial proportion of the elite political community believed at this time. What is striking upon reflection is how unsubstantiated were the premises from which the reform proposals proceeded. Medicare was supposedly not sustainable in its traditional form. Sure to "run out of money" over time, Medicare was regularly labeled as archaic and out of touch with medical realities. This was what the Bipartisan Commission on the Future of Medicare sought to communicate in 1999, though their proposal fell short of enough votes in the commission.

In fact, Medicare was hardly unsustainable. In 1997–1998, Medicare's outlays increased by only l.5 per cent, and for most of its history its costs have increased no more than the private health insurance plans with which it has been compared. The claim that Medicare was archaic represented sheer perversity. The developments in American medical care during the 1990s had made managed care a source of jokes among ordinary Americans, not a model to be followed. The appeal to the supposed virtues of competition among managed-care plans was more interest-group rhetoric than a reflection of popular consultation or defensible policy analysis.

Just as with the birth of Medicare, the changing partisan composition of the Congress made a crucial difference in the nature of the claims about Medicare at the close of the century. The question for Medicare's future in the spring of 1999 was whether liberal Democrats could persuade President Clinton to reject the type of reform proposal his own rhetoric had helped to generate. And, by the fall, they succeeded.

Efforts to change Medicare reflect presumptions about the proper role of government in American life and the purposes of social insurance in paying for medical care. Medicare's fate will be linked to controversies about managed care and whether Medicare should embrace or reject its expansion. The agenda—and Medicare's place on it—is subject to transformation by both electoral and economic shifts, and no one can claim with certainty what the political and economic environment will be like a few years hence, let alone decades. What can be concluded, however, is that the politics of Medicare will continue to produce two types of policy disputes. First are the relatively narrow policy conflicts in which the ideological cleavages in the larger public are substantially irrelevant, and second are those relatively rare but important disputes where the deepest divides in the American political world are crucially relevant. This is what Medicare's origins and programmatic history reveal.

theodore marmor (1995)

revised by author

SEE ALSO: Access to Healthcare; Aging and the Aged; Health Insurance; Justice; Medicaid

BIBLIOGRAPHY

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