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Medicare

In 1965, President Lyndon B. Johnson and the 89th Congress came together to extend the scope of Social Security coverage by amending into the original legislation a program of social medical insurance called Medicare.

Their new health care system was separated into two distinct, yet integral parts: Part A (Hospital Insurance) covered inpatient hospital stays, food, tests, and doctor's fees, while Part B (Medical Insurance) helped pay for outpatient costs, medical equipment, and prescriptions administered by doctors' offices. The goal of the combined parts was to cover the majority of health-related costs for those who might not have otherwise been able to afford such health care services.

In theory, the purpose of this system was to provide a cost-efficient, universally acceptable package of health care services for the maximum amount of American people. In reality, however, the system has been nothing short of a jumbled mess of expensive (and unsustainable) bureaucracy.

President Johnson, in his 1965 address and again in his 1971 memoirs, originally promised that Medicare would only cost the American people $500 million a year. The cost today? Upwards of $440 billion a year, with a composite cost ('65-present) of over $74 trillion.

Since its inception, this inefficiency has been a major Congressional stumbling block--not to mention a major factor for the utter lack of presidential success in formulating feasible reforms.

Within this page you'll discover the history of Medicare by looking at the original legislation, view the cutting edge financial projections of the program's health, and read expert commentaries and analyses on how to best reform Medicare for the future.

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Commentary or Blog Post

If Congress unveils legislation to reform the health care system that reflects the policies outlined by President Obama, then this would "centralize control over the health care system in Washington." Owcharenko writes that "the chief danger of this approach is that it would directly interfere in the personal health care decisions of Americans." Instead, the author argues, "there is a much...

This thorough study of the impact of the Medicare Prescription Drug Benefit (otherwise known as Part D) discovered that the program led to a 13.1 percent decrease in overall out of pocket expenses for patients complimented by a 5.9 percent increase in prescription use. The authors "found that the program saved people who enrolled before the May 15, 2006, deadline about $6 a month and gave them...

Dionne argues that when it comes to "health care, the two parties are far apart on the fundamentals." Hence, "[t]rying to achieve full bipartisanship by squaring those two views is a recipe for incoherence."

"When describing spending growth in federal programs, I often need to use words like 'soaring' and 'explosive.' But growth in federal health spending is almost beyond superlatives to describe it, and it will increase even faster as a result of President Obama’s new health legislation."

"In February 2009, as the Obama administration was beginning to make its pitch for a major health care overhaul, then-White House budget director Peter Orszag made his closing pitch for the law at a summit in Washington: 'To my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform,' he said. 'The path of fiscal...

While Congress may look to Massachusetts' health care reforms as a model for potential national reforms, Tanner cautions that they think twice. He writes that "experience suggests the 'Massachusetts model' actually provides an object lesson in how not to reform health care. The program has failed in its main goal of achieving universal coverage, it has failed to restrain the growth in health-...

"The controversy over below-market government reimbursement rates has led the famed Mayo Clinic to close off access for many Medicare and Medicaid patients.

According to Mayo, Medicare was reimbursing doctors at the Mayo Clinic in Arizona for only about 50 percent of the cost of the primary care treatment they were providing,...

In 1965, and again in his 1971 memoirs, President Lyndon B. Johnson promised the American people that Medicare would cost the American people a scant $500 million a year. The total cost today? Try $74 trillion. This article by former Reagan White House political director Jeffery Lord warns that just like Lyndon Johnson, President Obama is promising a new Medicare plan that will ultimately cost...

"I happily support a social safety net (preferably financed by the private sector but I'm OK with the public sector taking up the slack), especially for people who cannot care for themselves. But we have taken the idea of a safety net and transmogrified it into an entitlement state that gives more and more money (and cheap drugs!) to folks who can afford to pay their own freight. That just ain...

This report from the left-leaning Center on Budget and Policy Priorities suggests that "by lowering the costs that Medicaid and Medicare pay for prescription drugs, Congress could generate substantial savings to help pay for comprehensive health reform that achieves universal coverage." It goes on to say that "improving the Medicaid drug rebate program, adopting best practices in managing...

Former Clinton administration adviser Stanley Greenberg compares the polls he did during the Clinton health care debate to his recent polling on President Obama’s proposed reforms. He finds that "[t]hen and now, the country proclaimed its readiness for bold reform. In both instances, one-quarter say that the health care system 'has so many problems that we need to completely rebuild it'; half...

"Here’s some bad news: The latest report of the Social Security and Medicare trustees shows an unfunded liability for both programs of $63 trillion. That is equal to about 4.5 times the entire U.S. gross domestic product.

The unfunded liability is the amount we have promised in benefits, looking indefinitely into the future, minus the payroll taxes and premiums we expect to collect. It’...

"With Medicare expenditures threatening to crush the federal budget," Professor Tyler Cowan writes that the Obama Administration's approach of "spending more now so we can spend less later runs the risk of becoming the new voodoo economics. If we can't realize significant savings in health care costs now, don't expect savings in the future, either...The most likely possibility is that the...

"This week, Mercatus Center Research Fellow Veronique de Rugy examines the annual share of the U.S. budget spent on programs benefiting senior citizens (i.e., those aged 65 and over). Data on Social Security and Medicare spending from the Congressional Budget Office is used to show the historical trends and projected share of the budget between 1970 and 2084."

This article stresses the importance of addressing health care reform in a bi-partisan manner. Aaron writes that "I don't know whether the vision of liberals or that of conservatives would be realized if a health exchange proposal were implemented --probably some of each. It would not be a first. The 1965 law that created Medicare and Medicaid was a legislative marriage of distinct initiatives...

Butler gives a brief commentary on the positives and negatives of the Baucus Plan. He sees positives in the drive toward a health insurance exchange, the desire for affordability for Americans with the most health problems, and the discussion of changing the federal tax code. Butler sees...

"Numerous lawmakers embrace a discredited theory of the Constitution that would not only end Medicare outright but also cause countless other cherished programs to be declared unconstitutional. Under this theory, Pell Grants, federal student loans, food stamps, federal disaster relief, Medicaid, income assistance for the poor, and even Social Security must all be eliminated as offensive to the...

Book, a Ph.D. Senior Fellow at the Heritage Foundation explains the foolishness behind the idea that increasing health care costs might stimulate the economy. He writes that "at the crux of the argument are the notions that increasing spending on health care will create jobs that can be filled by those losing jobs in other areas of the economy--and that implementing long-proposed reforms (such...

Former George W. Bush Senior Advisor and Deputy Chief of Staff Karl Rove suggest in this article that "Republican credibility on health care depends on whether the party offers positive alternatives that build on the strengths of American medicine. As long as the choice was between reform and the status quo, the public was likely to go with the reformers. But if the debate is whether to go...

Marchibroda argues that the healthcare reformers "can't succeed without harnessing the massive data generated by modern medicine. Getting the best information into the hands of doctors and patients, while protecting patient privacy, is not just a desire but an overriding need if we are to get a handle on spiraling costs and also improve care."

"Trustees of the Medicare program today forecast increased financial troubles as a result of an aging population and rising health care costs, increasing the visibility of an issue that is already proving divisive in the 2012 presidential and Congressional campaigns.

'Both programs took a turn for the worse this year,' trustee Charles Blahous III, a senior research fellow at George...

Chart or Graph

"In 1965, the official estimate of Medicare’s costs was $500 million per year, roughly $3 billion in 2005 dollars. ...

• The actual cost of Medicare has turned out to be 10x that estimate."

"This chart shows total real spending by the Department of Health and Human Services, which includes the Medicare and Medicaid programs. Spending has increased almost nine-fold since 1970, and that’s after adjusting for inflation. And note how the slope of the bars increased around 1990. Health spending is truly skyrocketing and Obama has just put us into orbit."...

"Medicare and Social Security accounts are currently in cash flow deficit, these deficits are projected to continue and grow into the future, from around 3% of GDP in 2010 to 16% of GDP in 2083. These accounts represent a liability of $45.9 trillion over the next 75 years."

"This chart by Mercatus Center Senior Research Fellow Veronique de Rugy uses data from the Congressional Budget Office to illustrate the change in federal income tax rates that would be required to pay for federal entitlement spending.  Even for the lowest tax bracket, taxes would have to more than double to pay for current Medicare, Medicaid and...

"Medicare and Medicaid, which did not exist in 1960, rose to 35% of total healthcare spending in 2009, while out-of-pocket spending declined to 12% of total healthcare spending in 2009 (or $894 per person per year*), down from 47% in 1960 (or $478 per person*). ...

*Adjusted for inflation, in 2005 dollars."

"The Medicare Modernization Act (2003) requires that the Board of Trustees determine each year whether the annual difference between program outlays and dedicated revenues (the bottom four layers of Chart C) exceeds 45 percent of total Medicare outlays in any of the first seven fiscal years of the 75-year projection period. In effect, the law sets a threshold condition that signals that a...

" - 46 million elderly Americans (15% of population) received an average of $8,325 in tax-payer funded payments for healthcare in 2009 ($5,079 for hospital care; $3,246 for medical insurance & prescription drugs).

- On the surface, $8,325 in free healthcare benefits every year certainly seems like a high number – 23% of annual per-capita income – (although working Medicare...

"Part D plan growth exploded in 2006 - the first complete year of the program - when more than 22 million beneficiaries enrolled in the new plans. Over the last three years growth has continued at a steady rate, and there are now more than 25 million beneficiaries. Midway through the 2008 plan year, more than 51 percent of all Medicare eligible beneficiaries received coverage through a Part D...

"Over the long term, Medicare will face significant financing challenges. Among these challenges is the aging of the American population. The first of the 'Baby Boom' generation will turn 65 and become eligible for Medicare in 2010. Between 2001 and 2030, the number of Medicare beneficiaries is projected to almost double, rising from 40 million to 77 million.

The number of beneficiaries...

"Median income is a measure of what is happening in the middle of the population. Poverty statistics reflect what is happening at the bottom, and they tell a familiar story of changes in economic status for young and old.

Among households headed by adults younger than 35, the share with income below the poverty line has jumped since 1967. Among households headed by adults ages 65 and...

"In 2007, about 14.4 million out of 24.2 million Part D enrollees potentially faced the full cost of medications if they reached the coverage gap because they did not receive the low-income subsidy or have full gap coverage for brands and generics from their plan. Adjusting for the 9 percent of Part D enrollees who do not take prescription drugs leaves about 13.1 million enrollees. Applying...

"Half of the entire budget will be consumed by payments for senior citizens by 2030.

In 1970, spending on Social Security and Medicare was one-fifth of the budget (blue portion). This portion has since grown to nearly 37 percent of the budget in 2010; this amounts to over twice spending on defense or 8.4 percent of the country’s gross domestic product. Other spending (red portion),...

Analysis Report White Paper

Satirizing the Medicare "Part" plans in the title of this paper, Anderson and Waters present a case for a new universal health insurance reform called Part E(veryone). They write, "several principles govern the creation of our Medicare Part E(veryone) proposal. First, universal health insurance coverage is necessary. Second, there should be no gaps in coverage. Third, coverage should be...

This report focuses on the House Ways and Means Committee bill Medicare Modernization and Prescription Drug Act of 2003 (H.R. 2473), which "establishes a universal, but voluntary, drug benefit as an entitlement in the Medicare program. The bill also makes changes in traditional Medicare and creates a new competitive system for Medicare that will take effect in 2010."

The analysis itself...

This White Paper calls upon Congress to craft "meaningful health reform legislation that achieves coverage for every American while also addressing the underlying problems in our health system." However, Senator Baucus carefully explains that "it is not intended to be a legislative proposal. Nor is it an exhaustive exploration of every health care issue that should or needs to be addressed, or...

"These programs will cost Illinois more than $100 billion during the next 30 years. Because the state has not designated money for these three programs, they operate on a yearly pay as you go basis. This means that as retiree health care costs rise faster than the state’s total revenues, they will squeeze out state spending on other core services."

"In less than a decade, members of the baby boom generation will begin reaching their retirement years. At that time, 77 million people will begin to leave the labor market. They will cease to be taxpayers and begin to receive Social Security and Medicare benefits. This will mark the beginning of an enormous conflict over resources. Indeed, it is probably no...

"In 2003, sweeping Medicare legislation expanded the role of private health plans in providing coverage to Medicare beneficiaries," culminating in the creation of the Medicare Part D drug coverage plan-"the  single largest change to Medicare since the program's inception since 1965." This helpful White Paper reviews the successes, while offering suggestions for potential opportunities and...

Foster explains that "as a basic element of the nation's social safety net, Medicare is a vital program for senior citizens. Yet the needs of seniors change over time, as do health care markets and the practice of medicine. Medicare needs to change accordingly, and many dimensions of the program should be reviewed as part of reform.

Reforms are needed for many reasons, but the...

"This paper provides a detailed overview of Medicare spending and financing, beginning with a review of the factors contributing to the growth in Medicare spending, including the effects of the 2010 health reform law." At this point in time, projections suggest that the PPACA will decrease Medicare spending overall.

Although the Obama Administration has yet to produce a specific reform plan, this White Paper analysis by Cato Fellow Michael Tanner reviews possible reform components which may soon come from Congress. One of these possibilities includes a plan where "every American would be required to buy an insurance policy that meets certain government requirement. Even individuals who are currently...

This partnership study from individuals at Georgetown University, the University of Chicago and the Kaiser Family Foundation "quantifies, for the first time, the number of Medicare Part D plan enrollees in 2007 who reached a gap in their prescription drug coverage known as the 'doughnut hole,' as well as the changes in beneficiaries' use of medications and out-of-pocket spending after they...

"Households headed by older adults have made dramatic gains relative to those headed by younger adults in their economic well-being over the past quarter of a century, according to a new Pew Research Center analysis of a wide array of government data."

"This report looks at the federal government as if it were a business, with the goal of informing the debate about our nation’s financial situation and outlook. In it, we examine USA Inc.’s income statement and balance sheet. We aim to interpret the underlying data and facts and illustrate patterns and trends in easy-to-understand ways. We analyze the drivers of federal revenue and the history...

Video/Podcast/Media

Audio clip of address by President Lyndon Johnson on April 9, 1965 following passage of the Medicare bill in the House of Representatives. This passage in the House was a key event because the bill had previously been blocked in the House. In his brief 5-minute speech, President Johnson discusses this new program in the historical context of the original Social Security Act of 1935.

 

...

"Can Medicare vouchers, such as the proposal authored by House Budget Committee chairman Paul Ryan (R-WI) that has passed the House of Representatives, restrain Medicare spending without harming the health of enrollees? Health economist Lorens Helmchen suggests that cash payments to patients, either through a lump sum or negative co-payments, could allow Medicare to 'spend less by paying more...

President Obama "gives his most extensive remarks to date detailing his vision for health care reform to the American Medical Association in Chicago."

Dr. Ken Bertka of Mercy Health Partners explains that while "it's a great idea to give coverage and access to the more than 45 million Americans who don't have health insurance, some are concerned with how it would get paid for and how the system would work." He outlines some basic services one might expect from an expanded system of universal health, and some of the problems which may tax the...

Primary Document

This speech by Senator Enzi highlights unsustainable nature of the US health care system and the immediate need for reform. Explaining that the legislation behind such sweeping reforms must be primarily bipartisan in nature, Enzi offers a number of solutions which include expanding "health insurance coverage so that every American has access to affordable, high-quality health insurance," using...

"This is a chronological list of the major changes in law governing various aspects of the Medicare program, taken from SSA's Annual Statistical Supplement."

The official speech transcript from the White House Briefing Room for President Obama's presentation at the Conference of the American Medical Association is below:

"11:13 A.M. CDT

THE PRESIDENT: Thank you so much. Good to see you. (Applause.) Thank you so much. Please, everybody be seated. Thank you very much. You're very kind. (Applause.)

Let me begin by thanking Nancy...

"Recent studies show that the U.S. health care system is not buying enough recommended care and is buying too much unnecessary care, much of it at very high prices, resulting in a system that costs significantly more per capita than in any other country...

If current spending and utilization trends continue, the Medicare program is fiscally unsustainable. The share of the nation's gross...

This report by Peter Corning was originally contracted by the Social Security Administration's Office of Research and Statistics to discuss the "history of developments in health insurance leading up to the passage of Medicare in 1965. Mr. Corning's history is a very accessible, highly-readable account of Medicare in the broader historical context of social insurance in America."

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