How Medicare Began

In 1965, Medicare was created as Title 18 of the Social Security Act. It was to provide health care to most Americans age 65 and older, certain disabled person under age 65, and certain working people who needed special treatment like severe kidney disease.

Medicare is administered and financed by the Federal Government. Initially, Medicare was for all people who were eligible for Social Security payments whether they were retired or working.

The original Medicare program has 2 components: Part A and Part B. Part A is the hospital coverage and skilled nursing coverage which is funded by taxes on American earned income. Part A provides some benefits for inpatient hospital, skilled nursing, and home care that is medically necessary.

Part A of Medicare has deductible which started out at $40 in 1966. Today the deductible is over $1400. ($1132 in 2011)

In addition to the deductible, Medicare beneficiaries must pay copayments or carry Medicare supplement insurance for the costs that exceed the Medicare limitations. (A Medigap Policy is Medicare Supplement insurance)

The Part B component of Medicare provides medical benefits for doctors services, outpatient therapy and care, medical equipment and home health care. Part B coverage is a voluntary program and it is financed by Federal taxes and there is a monthly charge for the Medicare beneficiary who enrolls in Part B.

Just like Part A of Medicare, Part B requires beneficiaries to pay a deductible and coinsurance charges. Medicare beneficiaries can carry a medicare supplement policy (Medigap Policy) to help cover Part B limitations also..

Medicare Claims for Part A and B are paid electronically directly to the medical provider. Payment made by Medicare initially start at an 80% coinsurance plus 20% is paid by the Medicare beneficiary.

The term “Medicare” was the label attached to the state sponsored health plans by the Health, Education, and Welfare  Secretary Arthur Fleming, during the President Eisenhower period. Later, the “Medicare” plan introduce by President Lyndon Johnson was very different than a state sponsored plan. But the term “Medicare” was used by all future Presidential administrations.

Medicaid is a term used today for health plans run by the individual states. Medicaid is quite often confused with Medicare. Medicaid is a state administered program that includes a health care plan for the financially needy. Medicaid varies state by state in terms of benefits and other details. Medicaid can be used with Medicare beneficiaries.  Medicaid eligibility is based on a person’s financial ability.

Medicare is administered and financed by the Federal Government with no financial need requirement. Medicaid is administered by the state government with a requirement of a financial need.

In January 1965, as part of the State of the Union address by President Lyndon Johnson, he urged Congress to pass the Medicare Bill.

On April 9th, 1965, the House of Representatives approved the Medicare bill.

Initially, AARP was not at the forefront of support for Medicare. Possibly, they were more concerned with protecting the income of the senior citizens. Understandably, AARP may have been weary of the linkage of Medicare to Social Security and seen it as a threat to the long term economic interests.

On July 10, 1965, the Senate approved the Medicare bill.

President Lyndon Johnson signed the Medicare Bill into law in Independence, Missouri on July 31, 1965.

The Medicare Bill was to take effect on July 1st, 1966.

After Medicare was signed into law, there was still opposition by the members of medical associations. Eventually, in November 1965, the President of the American Medical Association half heartedly urged all doctors to cooperate with Medicare.

There were racial tensions in the 1960s and Medicare became entangled in the civil rights struggle. In 1964, the Civil Rights Act, barred discrimination by any institution that received federal financial aid. This problem was prevalent by hospitals, particularly in the South.

But, by 7-1-1966, the date Medicare started operating, over 90% of hospitals were in compliance with the Civil Right Act and ready to participate in Medicare.

Health Care costs became an issue right from the start. It was reported in the New York Times in August 1966, that some New York Doctors had raised their fees 300% in less than 8 weeks. Another factor was that hospital costs were increasing at 5 times the rate of cost of living in the 1960s.

From the time Medicare was passed to the end of the first 2 years, 7-1965 to 1968, the costs of medical care had doubled. Medicare had paid $3.2 Billion dollars in its first year.

The runaway costs of doctors and medical services eventually brought about many changes including an increased  strict enforcement of the term “medically necessary” in terms of nursing home care.

President Nixon’s administration proposed Medicare benefit and payment cuts and sought of ways to pass on health care costs to the private sector. The current term for this is “cost shifting”.

As medical costs continued climbing, Medicare beneficiaries began purchasing Medigap insurance policies. A new problem developed as fraudulent insurance companies were created, along with other schemes to milk the elderly of insurance monies.

Today, a “scope of appointment form” was created and other strict laws to defer the abuses of fraud to the Medicare population.

In the beginning of Medicare, doctors found that if they embellished the language they used in their Medicare billings, they would receive enhanced payment from Medicare.

This caused the need to create a standard medical procedures and coding system that is used today.

Because of the continual  increased costs of medical services and costs, in 1981, a few new directions emerged with the Tax Equity and Fiscal Responsibility. (TEFRA)

Medicare Beneficiaries changes were: 1. Automatic increases in Part B deductible 2. Part B premiums were set at a constant percentage of medical costs.3. Employers were required to offer the same benefits to workers age 65 thru 69. 4. Medicare was downgraded from the first to pay to the second to payer of health care costs and shifted the responsibility and costs to the private sector.

In 1983, Social Security amendments introduced changes in Medicare for classifications and reimbursement known as diagnostic related groups. (DRGs)

Hospitals were paid a specific amount based on previously established flat fees per illness classification. Previously, hospitals were paid for each day as well as other services after the hospital stay. DRGs were paid only a flat fee and was viewed as a way to contain costs and encourage efficiency with manpower and utilization of services.