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Happy Birthday Medicare and Medicaid

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Richard F. Keevey
July 31, 2015

happy birthdayThis week marks the 50th birthday of Medicare and Medicaid — the two principal health care programs in the United States. President Johnson signed both programs into law July 30, 1965. Today, Medicare covers 56 million Americans – 46 million over age 65 and 9 million younger disabled people. Medicaid is a program for the poor, which provides coverage for 67 million people.

Some people will view these two programs as the principal reason why government is so expensive and why our nation’s debt to gross domestic product ratio is high and will increase significantly in the future. Others will observe with a celebratory party as these two programs have changed the lives of many Americans for the better.

Some basics program facts are worth noting about Medicare and Medicaid.

In general, Medicare Part A covers hospital costs; Medicare Part B covers doctor visits and out- patient visits. Part D covers prescription drugs, while Part C (Medicare Advantage) is a private insurance option providing the same services with some additional benefits and in some cases at additional costs. Revenue is provided principally by a payroll tax (2.9 percent on both the employee and employer) but also from beneficiary premiums and co-pays — and federal revenue.

Medicaid is a joint state-federal funded program for low income Americans, including children, pregnant women, adults with dependent children and disabled and elderly. The program is administered by the states with fiscal assistance from the feds. Federal assistance is based on the wealth of the state –ranging from 50 percent reimbursement to 83 percent. If states agree to participate (and all do), they must provide certain services, such as physician care, hospitalization, laboratory services and long-term care. States can also elect to provide optional services, such as dental care and prescription drugs.

Unlike Medicare, depending on where one lives medical services are provided at different levels. For example, in Texas, childless adults are excluded and only parents who earn up to 15 percent of the federal poverty level –less than $4,000 a year for a family of four — are covered. Other states, such as New Jersey, New York and California offer much better coverage.

Medicaid is the largest provider of long-term care services, including nursing homes and services for blind and disabled, and represents the largest single cost center in the Medicaid budget. Consider the following: poor children represent 48 percent of the Medicaid population but only 21 percent of costs while aged and disabled represent 17 percent of the population but 64 percent of spending.

Together, these programs expend $1.3 trillion. In future years, Medicaid costs will increase because of the Affordable Care Act (ACA) and more long-term care for the elderly. Medicare will also rise, as the eligible population will increase from 56 million to 85 million by 2030. More significantly, both programs will increase because of rising costs of health care – not the least being the current fee-for service cost model of Medicare, prescription drugs and new technology.

A more important fact to considerer, however, is the very significant role these two programs have had on American society despite initial strong opposition.

For almost a generation before 1964, government health programs were viewed as pariahs. As noted by Professor Julian Zelizer in his chapter essay — Origins, Vision and the Challenge of Implementation, “The struggle leading up to the passage of Medicare and Medicaid was nothing short of explosive … as proposing health insurance was viewed as the third rail of politics.” Attempts by President Truman were fought bitterly by the American Medical Association and Republicans in Congress.

Not until President Johnson built on the success of his civil rights legislation and his very significant presidential election in 1964, was he able to overcome gridlock in Congress and orchestrate the passage of this land mark legislation. The rest is history. Evolution and revolutions are never easy.

Medicare has changed the lives for the better of the elderly and disabled. For example, 50 percent of all Medicare recipients live on incomes less than $24,000 per year. Without Medicare, they and millions of others would be without adequate health care.

Medicaid, as well as ACA expansion, has had an even more substantive impact on relieving poverty and improving health care. Struggling and poor families depend on Medicaid for health care for their children and for their nursing home-driven parents. But, unlike Medicare which is now popular because folks consider it an entitlement program (as they have contributed to its cost via payroll taxes) Medicaid has much weaker support because of its dependence on taxpayer funds and therefore harder to sustain.

Americans have supported each program with both a moral and financial compass. As we move through the next 50 years, these programs should be financially strengthened and made more efficient and effective so they do not strangle the country’s finances. This will require better cooperation and coordination among all the health care providers from hospitals, physicians, pharmaceuticals companies, laboratories, research entities, governments and the insurance industry.


Author: Richard F. Keevey is a senior policy fellow at the Bloustein School of Planning and Policy, Rutgers University and a lecturer at the Woodrow Wilson School, Princeton University. He was the budget director and comptroller for two New Jersey Governors, the deputy under secretary of defense and assistant secretary and chief financial officer at HUD. He can be reached at [email protected]

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