Your Medicare Advisor

Medicare’s Birthday: A Failed Centralized Program Turns 50

happy-birthday-medicare by Merrill Matthews and Grace-Marie Turner – The Galen Institute –

Fifty years ago, President Lyndon Johnson traveled to Independence, Mo., to sign legislation creating Medicare and Medicaid in the presence of fellow Democrat and former President Harry Truman, who during his presidency led unsuccessful efforts to establish a national health insurance system.

The battle over the legislation was long and bruising, with conservatives including then-General Electric spokesman Ronald Reagan warning it would lead to socialized medicine.

So on this 50th anniversary of Medicare and Medicaid, as our nation struggles with its latest effort at health reform, it’s a good time to reflect on the programs’ successes and failures.

Medicare and Medicaid passed with broad bipartisan support. Medicare was a new federal program designed to provide health coverage to senior citizens over age 65. Medicaid, something of an afterthought, would be a joint federal-state program to assist the poor.

The legislation passed the Senate with 57 Democratic and 13 Republican votes and the House with 237 Democrats and 70 Republicans. So both parties had a stake in fixing the program problems that inevitably arose.

Proponents saw the programs as major steps forward in expanding access to health coverage — moving toward their ultimate goal of a single-payer national health care system. They certainly have made progress toward that goal.

In 1965, only about half of seniors and very few poor Americans had health coverage. Today, Medicare covers 46 million seniors and 9 million disabled Americans, and Medicaid covers nearly 70 million lower-income people.

Critics of the 1965 legislation warned that both programs would spend much more than supporters predicted, that price controls and rationing of care would follow and that the quality of care would eventually suffer. All of the warnings have proved correct.

Take Medicare. In 1965, the House Ways and Means Committee estimated that Medicare Part A, which covers hospital bills, would cost $9 billion a year by 1990. But the actual cost after the first 25 years was $67 billion, and that didn’t include Medicare Part B, which primarily covers outpatient costs.

As health economist Theodore Marmor pointed out: “Hospital price increases presented the most intractable political problem for the Johnson administration. In the first year of Medicare’s operation, the average daily service charge in America’s hospitals increased by an unprecedented 21.9%. Each month the Labor Department’s consumer price survey reported further increases . … In the State of the Union Address, Jan. 17, 1968, Johnson … promised to ‘stem the rising costs of medical care.'”

Washington has been trying, unsuccessfully, to do that ever since.

Congress imposed a type of price-control mechanism in 1983 called Diagnostic Related Groups, or DRGs. And in the early 1990s, Congress tried to cut spending on physicians by creating the Resource Based Relative Value Scale.

Then there was the infamous Medicare “Sustainable Growth Rate,” later dubbed the “doc fix,” which passed in 1996 to contain Medicare spending by cutting doctors’ fees. It was repealed only recently, after Congress had postponed the vote 17 times.

Today, both Medicare and Medicaid have exploding budgets. Medicare spent more than $600 billion last year. Federal Medicaid expenditures are estimated at $331 billion, with the federal portion averaging about 57% and states and some local governments paying the rest.

Once Congress creates such a mammoth entitlement, it can’t seem to leave the program alone. In 1973, Medicare began covering the disabled and patients with end-stage kidney disease. In 1980, Medicare expanded to cover the cost of home health care services and in 1982 included hospice care for the terminally ill.

In 1988, Congress tied Medicaid to the federal cash-assistance welfare program, known as Aid to Families with Dependent Children. States were required to cover AFDC-eligible, first-time pregnant women and children up to age five. That coverage now extends up to 185% of the federal poverty level. As a result, Medicaid pays for 40% of all U.S. births.

Budget pressures eventually will force cutbacks, though the politicians will usually claim the cuts are “improving” or making the program “more efficient.” Those cuts usually mean less access to care. Less than half of physicians accept Medicaid, and a growing number refuse to see Medicare patients because of low reimbursement rates and bureaucratic headaches.

No assessment of Medicare and Medicaid would be complete without mention of the rampant fraud and abuse plaguing both programs. Even the government pegs Medicare’s fee-for-service “improper payments” level at 12.7% — and that’s probably on the low side.

But now we face a new era where ObamaCare defenders are trying to expand health coverage and yet haven’t learned anything from 50 years of Medicare and Medicaid. Indeed, 6.5 million of ObamaCare’s newly insured were just dumped into an unreformed Medicaid system. As a result, we are already seeing many of the same problems emerge in ObamaCare.

States are struggling to balance their budgets as Medicaid spending soars, even for those that chose not to expand. States that created their own health insurance exchanges are facing financial challenges in operating these new bureaucracies. Health care costs are exploding as they did after the passage of Medicare and Medicaid, and the people who predicted the new program would force costs down are shocked.

Many lower-income, newly insured, who’ve been forced into policies with high deductibles (the average individual bronze plan deductible is $5,181, and $10,545 for a family), are returning to the few remaining free clinics for care. They may now have insurance, but not the money to cover the deductibles.

In short, it appears the Democrats who passed this massive and convoluted ObamaCare system learned nothing from 50 years of Medicare and Medicaid. Government involvement dramatically increases spending, followed by clampdowns on soaring prices, leading to restrictions on doctors and patients.

Perhaps next time, we might try market forces rather than another failed effort at centralized government programs.

Matthews is a resident scholar at the Institute for Policy Innovation. Turner is president of the Galen Institute.

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Debra Schulte
7 years ago

I am interested to know if you all can help me. I have been getting mixed feedback about medicare & social security.
I turn 65 next April and I plan on signing up but what I have searched is since I am still working I may/maynot be able to since I am covered in my job. I thought I could use my job insurance as the part B/D to cover for extra charges and prescriptions. Also not sure when to start drawing SS cause I make $22,000 a year and I believe that is too much for me to make or I have to pay a penalty or tax- not clear on that.
Very confusing, and I would like to start receiving both, you never know what might happen for the future.

7 years ago

Attention all you rocket scientists in Congress as well as your economic advisors! With 10 million seniors turning 65 every week, along with people living longer due to advances in modern medecine, how can the Medicare/Medicaid system sustain itself???? Better come up with some common sense solutions to curb this runaway growth in spending.

7 years ago
Reply to  MVR

The skyrocketing costs of Medicare and Medicaid are the result of for profit medicine. Half your medical dollars and the same portion of government dollars go into private pockets that have no hand in patient care. They are stockholders and corporations who sell medicine to the highest bidder as well as pharmaceutical companies. There is no reason one dose of chemo should cost $10,000. Your could buy an EKG machine and donate it to the hospital cheaper than they charge for 1 Cardiogram. Your treatment is not rationed by the government, it is rationed by medical corporations and stock holders. Hospitals are required by law to operate with the best interest of the stockholders first. Your doctor must treat you according to the profit or loss to corporate and their stock holders, corporate law. Without Medicare the bulk of seniors could not afford life saving medical care. A wage earner earning $50,000 annually pays $4000 in taxes for corporate subsidizes and tax breaks. They depend on taxpayer sponsored programs to pay their help. 47% of our citizens earn too little to pay taxes. Those programs cost that same wage earner approx. $100 taxes a year. They are the workers and SENIORS. Get a clue, unless you are among the very few independently wealthy you need to research who your friends are and what you are supporting. For profit medicine is bankrupting Medicare, Medicaid and the individual. Every country that has medical care that exceeds us in quality and availability funds it as a non-profit infrastructure expense. We are the only industrialized nation that sells it for profit to the highest bidder. If you are a veteran you got that status through military service funded by Socialism. Veterans care is funded by Socialism. If you want better affordable medical care quit blaming the government and look at the thief that is taking half of all medical dollars for personal profit without being involved in the medical system that provides your care.

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