CHAPTER
1

History of Medicare

In This Chapter

• The principles behind Medicare
• How Medicare differs from Medicaid
• Important advances in Medicare
• What to expect from Medicare today

Summarizing Medicare is not an easy feat. The government program has evolved considerably over the last half-century, making it difficult to keep tabs on all the details. This chapter will look at how and why the program began and cover some of the major milestones in its development. Understanding where we have been and where we are going with Medicare will make it easier for you to get the most out of it.

Medicare in a Nutshell

I have found myself on all sides of the Medicare fence—looking in, looking out, and even sitting right on top of it. As a family member, I have cared for loved ones relying on Medicare for their health-care needs. As a consultant, I have advised hospitals sorting through the administrative regulations of Medicare. As a physician, I have held the hands of my patients as we worked together to get the care they needed. What I have learned best from these experiences is that most people, patients and health-care providers alike, are confused about what Medicare does and does not do.

Medicare has as many twists and turns as a corkscrew roller coaster. It can be overwhelming, even jarring, if you do not know how to secure yourself. The first step is understanding what Medicare is and why it came to be.

What It Is

Medicare is a federally funded social insurance program aimed at helping seniors and people with disabilities gain access to health care. The program was signed into law in 1965 and took effect in 1966.

The key objectives guiding Medicare legislation at that time were as follows:

• To provide health-care access to elderly people regardless of their health status, income, or race
• To offer insurance coverage without allowing governmental interference in the practice of medicine
• To pay doctors, hospitals, and health agencies for services rendered

DID YOU KNOW?

Medicare helped to end racial segregation in hospitals when it stated that reimbursements would only be granted to facilities that were integrated.

The program eventually added people younger than 65 years of age to its roster if they suffered from specific medical conditions or long-term disabilities.

The program is divided into four key parts, each labeled by a letter. Part A covers hospital care, Part B medical care, Part C supplemental care, and Part D medications. Medigap, which is not officially a part of Medicare, is a supplemental insurance plan that you can purchase from a private company to help pay for health-care costs that Medicare did not cover.

Medicare, overall, is health insurance offered through the government to aged and disabled Americans but functions similarly to a private insurance plan.

What It Isn’t

Medicare is not a hand out. Many people misunderstand Medicare to be a freebie of sorts that allows people access to health care at no charge. However, this could not be further from the truth. As with most things, you get what you pay for.

Many people pay into the system for years in order to have access to Medicare services later in life. These taxes are paid into the Medicare Trust Fund. Once enrolled in Medicare, out-of-pocket expenses continue to increase as beneficiaries pay annual deductibles and monthly premiums on their chosen plans. Medicare may be a less expensive option for health insurance than some private insurance plans, but it is not cheap.

It is also far from an all-encompassing health-care program. There are many aspects of health care not addressed or covered within the benefits package. For example, vision and dental care are excluded, though problems in these areas are common in an aging population. As a Medicare beneficiary, you need to understand that there are many health-care services you may need for your specific medical problems that are not covered by Medicare.

DEFINITION

A beneficiary is someone who is covered by an insurance policy, whether that be Medicare or a private insurance plan.

Why Do We Need It?

When the stock market crashed in 1929, the Great Depression took its toll on America. Families that had relied on the paychecks of hardworking sons and daughters struggled to survive amid a near 25 percent unemployment rate. With few insurance options available at the time, health-care access was dependent upon income. This left a large portion of the population unable to afford health care of any kind. With conditions like tuberculosis and malnutrition running rampant, the Great Depression raised awareness of the need for improved access to resources for the nation.

Something needed to be done. The degree of poverty was destroying the American way of life. The Social Security Act was enacted in 1935 to provide federal assistance to those in need. Though it provided funds to the states for maternal and child health services as well as general public health concerns, it stopped short of providing a national health insurance plan. Federally funded health care was controversial and would take decades to gain a majority consensus. Many government leaders, especially Republicans, were wary of increasing federal spending. Ultimately, Medicare would be created under an amendment to the Social Security Act in 1965.

Over the years, the economy has recovered but not without setbacks. The country is still feeling the effects of the recession that took place between late 2007 and mid-2009, when unemployment shot up and individuals and families had to decide how to best use their limited funds. With Medicare in effect, those over 65 years old and those with disabilities have a means to attain health care despite economic hardships. They do not have to struggle without health care as people did during the Great Depression.

The debate over Medicare runs long and deep. Some politicians favor enhancements of federally regulated programs while others prefer a more privatized system. Regardless of how you look at the issue, a health insurance strategy of some sort is needed to support American citizens with increasing health issues as they get older, and those with severe health issues that prevent them from gainful employment. Access to health care is needed when times get rough. At present, Medicare fits the bill.

Medicare vs. Medicaid

People often confuse the terms Medicare and Medicaid, for understandable reasons. They both start with “medic-,” they both have a long a sound, and they both were enacted in 1965 as amendments to the Social Security Act. Beyond that, however, they are very different programs.

Medicare (medical care) offers health care for the elderly and the disabled. Participation in the program is not based on income or earnings. The program is managed by the federal government alone.

Medicaid (medical aid), on the other hand, is a federal and state-run program offered to anyone regardless of age or existing health conditions. Participation in the program is based on financial need with eligibility requirements set by each state and the District of Columbia. The United States territories of American Samoa, Guam, Puerto Rico, the Northern Mariana Islands, and the Virgin Islands are also included in the Medicaid program, though they receive a smaller percentage of federal funding. The program is intended to support those who do not have the means to pay for health insurance on their own. The federal government provides funds to the states to run their Medicaid programs, but the states are not required to accept these funds. In fact, any state can refuse to offer Medicaid. No state has deferred Medicaid offerings to date.

With the passage of the Patient Protection and Affordable Care Act of 2010, federal funding to Medicaid has changed. The act aims to expand Medicaid and offers increased funding to states that agree to its provisions. Not all states have chosen to be compliant with the new legislation, but this does not mean that they lose all federal funding. They may continue to receive federal funds for Medicaid at levels offered prior to the passage of the law.

Socialized Medicine

As the debate about national health insurance began in the 1940s, Americans found themselves entering a Cold War and wary of communist ideology. The prospect of a socialist program brought fear into the hearts of many. The term “socialized medicine” was in fact coined by the American Medical Association as a derogatory term in 1945 in opposition to President Truman’s proposal for national health insurance. The fear tactic worked and the bill was not passed.

When the proposal for Medicare was made a key issue by virtue of John F. Kennedy’s 1960 presidential campaign, there was an uproar between the political parties, with many Republicans adamantly opposed to the prospect of socialized medicine. Ronald Reagan, speaking in support of the standpoint of the American Medical Association (AMA) on the issue, stated “…if you don’t [stop Medicare] and I don’t do it, one of these days you and I are going to spend our sunset years telling our children and our children’s children what it once was like in America when men were free.” He expressed these concerns in a 1961 LP record, Ronald Reagan Speaks Out Against Socialized Medicine for the AMA.

Doctors, too, were fearful that implementing national health insurance would impact their ability to care for patients. It was thought that enacting Medicare would allow the government to dictate what physicians could and could not do from a medical perspective. The truth was that the government would offer coverage like any other private insurance plan and would cover or not cover certain services as per its policy. Physicians could choose whether or not to accept Medicare for payment.

DID YOU KNOW?

The World Health Organization ranked the world’s best health systems in 2014 out of 190 countries. 13 of the top 20 countries participated in some form of universal health coverage. France ranked first and the United States thirty-seventh.

Other countries have taken the lead and have offered universal health coverage to varying degrees. The Soviet Union led the charge in 1937 and was followed by New Zealand and the United Kingdom in the 1930-1940s; Finland, Iceland, Norway, and Sweden in the 1950s; Canada, Denmark, Finland, and Japan in the 1960s; Australia, Italy, and Portugal in the 1970s; Greece, Israel, Netherlands, Spain, and Taiwan in the 1980s; and Switzerland in the 1990s. Austria, Belgium, France, Germany, and Luxembourg also have programs in place.

Medicare and Medicaid may be considered by some to be socialized medicine, but neither program is universal. There are eligibility requirements that must be met in order to access these programs as well as exclusions to participation.

Separate and Together

The Centers for Medicare and Medicaid Services (CMS), once called the Healthcare Finance Administration, is a single federal agency that manages both Medicare and Medicaid. Again, this can be confusing because the programs are separate entities, one federally run and the other regulated by the states with federal funds. However, someone who is on Medicare may also be on Medicaid if they meet eligibility criteria for both. In fact, seniors seeking long-term stays in nursing homes not relating to a recent hospitalization often need to apply for Medicaid due to financial constraints and the high cost of living in these facilities.

Major Moments in Medicare History

Back on the Medicare roller coaster, the evolution of the program has had its ups and downs. Many government leaders have left their mark on the program, some positively, others with failures. Understanding the evolutionary steps will offer perspective on the services available to you now and where Medicare may be heading in the future.

Key Players

A long line of presidents have had their hand in guiding Medicare’s course. From the 1930s to the present, their influence has molded the program many of us rely on today.

The Social Security Act was enacted in 1935 under Franklin Delano Roosevelt (FDR). Health care coverage was not included as part of the act due to controversy about national coverage. Federal grants were given to states, however, to assist in public health measures.

Harry Truman succeeded FDR and proposed a national health insurance plan in 1945, but Congress stood firmly against it. Truman appealed Congress’ decision in 1948 to no avail, though he did sign amendments to Social Security in 1950 that provided Old-Age Assistance to the elderly poor.

President Eisenhower also proposed a national health and welfare program that was ultimately rejected by Congress in 1954. In his term, he signed Social Security Disability Insurance into law.

President John F. Kennedy rallied for Medicare prior to his assassination in 1963. Medicare and Medicaid were passed into law under President Lyndon B. Johnson in the Social Security Amendments of 1965.

DID YOU KNOW?

President Harry S. Truman, the so-called “daddy of Medicare” according to then-President Lyndon B. Johnson, was the first person to enroll in Medicare.

Under President Richard Nixon, eligibility for Medicare expanded to cover people with end-stage kidney disease and those with long-term disabilities. People with disabilities could apply once they had received 24 months of Social Security Disability Insurance benefits. Federal monies were also used during his term to encourage the development of Health Maintenance Organizations (HMOs) to shift costs to private payers.

With Medicare’s increasing price tag, President Jimmy Carter proposed a cost containment program for hospital stays but this failed to pass in Congress. President Ronald Reagan, who himself had voiced concerns about Medicare in the 1960s, encountered similar opposition when he enacted the Medicare Catastrophic Coverage Act of 1988. The law offered a prescription drug plan and improved inpatient coverage. While a well-intentioned program, the act was repealed by President George H.W. Bush the following year due to public outcry against the increased premiums and taxation.

Universal health-care coverage was once again the topic of great debate when President Bill Clinton proposed the Health Security Act in 1993. This too failed to be enacted.

The next major change to Medicare came when President George W. Bush passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) which implemented Medicare Part D.

President Obama expanded national health-care access with the Patient Protection and Affordable Care Act, commonly known as Obamacare, in 2010.

History in the Making

Medicare has had a rich history over the decades. Key changes to the program are highlighted in the following timeline, starting with the enactment of The Social Security Act in 1935.

The 1960s and 1970s

The Medicare program gets its start, establishing who should be covered and who should run the program.

1966 Medicare coverage begins on July 1. People aged 65 and older are automatically enrolled in Medicare Part A and given the option to sign up for Part B.

1972 Medicare is offered to people younger than 65 years old who have kidney failure and/or long-term disabilities, if they are on Social Security Disability Insurance (SSDI) for two years or more. Chiropractic services, physical therapy, and speech therapy are added to Medicare’s list of covered benefits.

1977 The Healthcare Finance Administration is formed by the Department of Health, Education, and Welfare to manage Medicare.

The 1980s

The Medicare program focuses on cost cutting and improvements in standards of care.

1980 The Department of Health, Education, and Welfare is renamed the Department of Health and Human Services. The federal government begins oversight of Medigap plans. Home health services are expanded. 

1982 The Tax Equity and Fiscal Responsibility Act (TEFRA) increases premiums for Part B and sets limits on hospital and nursing home payments. Medicare adds hospice care to its covered benefits. Federal employees begin to pay Medicare payroll taxes.

1983 Hospitals are paid fixed amounts based on the diseases they treat, diagnosis-related groups (DRGs), rather than what the hospital chooses to bill.

1984 Laboratory service fees are set. The Participating Physicians Program comes into effect.

1985 The Consolidated Omnibus Budget Reconciliation Act (COBRA) mandates Medicare coverage for state and local government employees.

1987 Medicare-enhanced quality standards for nursing homes are introduced. The Medicare and Medicaid Patient and Program Protection Act aims to prevent Medicare fraud and abuse.

1988 The Medicare Catastrophic Coverage Act (MCCA) is enacted. The Clinical Laboratory Improvement Amendments (CLIA) improves the quality of laboratory testing.

1989 MCCA is repealed. Limits are set on the amounts physicians can bill patients. Physicians can not refer Medicare beneficiaries to laboratory facilities if they have a financial stake in them.

The 1990s

Medicare expands its coverage options by working with private insurance companies and also enacts powerful legislation to protect health-care information.

1990 Medicare adds mammography and certain services at community mental health centers to its coverage. Medigap policy packages are standardized by the federal government.

1995 The Department of Health and Human Services separates from the Social Security Administration.

1996 The Health Insurance Administration Portability and Accountability Act (HIPAA) is established to protect patient information and improve Medicare efficiency.

1997 Medicare Part C (Medicare+Choice, later renamed Medicare Advantage) is developed. Payment systems are established for inpatient and outpatient services, including rehabilitation. The law also provides assistance to the qualifying poor to help pay for Medicare Part B premiums.

1999 Qualifying individuals with disabilities can return to work and maintain their Medicare eligibility under The Ticket to Work and Work Incentives Improvements Act (TWWIIA).

The Twenty-First Century and Beyond

Medicare undergoes the most significant changes since its inception, adding prescription drug coverage offerings and provisions under the Affordable Care Act.

2000 People with amyotrophic lateral sclerosis (ALS, commonly known as Lou Gehrig’s disease) no longer have to wait 24 months before they became eligible for Medicare.

2001 The Healthcare Finance Administration becomes the Centers for Medicare and Medicaid Services.

2003 The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) sets the groundwork for Medicare Part D to start in 2006. It also increases the cost of Medicare Part B premiums for those with higher incomes starting in 2007.

2005 Medicare adds “Welcome to Medicare” visits and increased preventive screening services, including diabetes testing.

2006 Medicare Part D benefits begin.

2010 The Patient Protection and Affordable Care Act, commonly referred to as Obamacare, is established.

2013 The “Two-Midnight Rule” sets timelines to define what qualifies a patient for an inpatient hospital stay.

Medicare Today

Although the Medicare program has come a long way, it still has much further to go. With an accelerating number of people eligible for Medicare every year, questions have been raised as to whether there is enough money to keep it going. The focus of Medicare today is to continue to offer quality health care while decreasing overall costs. Without intervention, projections estimate that Medicare will not have enough money to pay for hospital stays after 2030.

Baby Boomers

The conclusion of World War II in 1945 led to socioeconomic conditions in America that were highly conducive to increased birth rates. Rations were lifted. Soldiers came home. The G.I. Bill of Rights provided for low- or no-interest loans that fostered home ownership and pursuit of higher education. Economic growth was driven by consumer demand. During that period of celebration and prosperity from 1946 to 1964, many babies were born—an estimated 77 million of them! It is estimated that 20 percent of the United States population is attributable to the baby boomers.

DID YOU KNOW?

Kathleen Casey-Kirschling became the first baby boomer to enroll in Medicare.

With modern medical technology, life expectancies are getting longer. CMS reports that men born in 1955 are expected to live to 83.8 years of age and women to 86.1 years of age. This is increased from life expectancies of 66.8 years and 73.8 years, respectively, when Medicare was first enacted in 1965. Living longer is fantastic for people as individuals but a challenge for a federal budget bursting at the seams.

More than 10,000 baby boomers turn 65 years old every day, and will continue to do so until 2030. With more and more Americans becoming eligible for Medicare, more and more dollars will be spent. Questions remain as to how Medicare will adapt to those changes with the rising number of participants.

Costs on the Rise

There has been tremendous growth in Medicare spending since its inception. In 1965, 19 million people were enrolled and it took $64 million to operate the program. Today, more than 50 million people are enrolled, costing the system more than $540 billion per year.

Increasing Medicare Costs Over Time

Less than 10 years from the enactment of Medicare, costs doubled although the Medicare population only increased by a third. In 20 years, costs increased 5-fold and 10-fold for Medicare Part B and Medicare Part A, respectively, though the number of Medicare beneficiaries only increased by two-thirds. As you can see, costs continue to rise, and the increases are at a disproportionate rate. For every additional Medicare beneficiary, costs increase by more than a simple one-to-one ratio. How will Medicare curtail the spending?

The Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, has had significant impact on Medicare spending. While the media has focused predominantly on how ACA is increasing access to care with its Medicaid expansion, it does impact Medicare beneficiaries as well.

The ACA does not change eligibility criteria for those on Medicare. Therefore, it does not change who can apply for Medicare, but it changes how the care is paid for. Benefits have been added to include preventive screening tests and wellness visits. The Medicare Part D coverage gap, known as the donut hole, will gradually close under the legislation. These are all immediate benefits to patients.

Other effects of the law may be less palatable depending on how you look at it. The ACA increases Medicare premiums for those who earn higher incomes. This helps to reduce costs to the system, but individuals may feel they are paying more than their fair share.

The ACA also reduces federal spending on Medicare as a whole, decreasing payments to doctors, hospitals, and even to private insurance plans that contract with the government to offer Medicare Part C and Medigap plans. The cost cuts are estimated to be $716 trillion from 2013 to 2022 with the bulk taken from the following categories:

• $260 billion from hospital care
• $156 billion from Medicare Advantage
• $66 billion from home health services
• $39 billion from skilled nursing services
• $17 billion from hospice services

These reductions may make it less profitable for an insurance company to offer plans to beneficiaries. Concerns have been raised that some insurance companies will decrease options for beneficiaries or otherwise choose to discontinue participating in the Medicare Advantage and Medigap programs. Likewise, cost-cutting to physicians may result in some physicians not accepting Medicare for payment, which also limits options to patients.

There is controversy over whether the approach taken by the ACA is the best way to address health-care costs. It may be that no perfect solution exists. Regardless of what party takes the reigns of future administrations, there will almost certainly be more changes ahead on the Medicare roller coaster to address the evolving needs of the program.

The Least You Need to Know

• Medicare is a complicated, federally funded health insurance program.
• Medicare is distinct from Medicaid.
• Medicare evolved over time to include more benefits and services.
• The costs of Medicare are on the rise.
• The rising number of Medicare-eligible baby boomers is creating challenges for cost containment.