Over 50 Years, Medicare and Medicaid Evolve, With a Greater Role for Managed Care

With a stroke of a pen, on July 30, 1965, President Lyndon B. Johnson signed the law that created Medicare, giving Americans age 65 and older the ability to see a doctor without fear. At the ceremony, Johnson immediately registered 81-year-old former President Harry S Truman and his wife, Bess, giving them the first Medicare cards.

The act recognized Truman’s efforts to create universal healthcare—as a US Senator, Truman was aghast at how many young men failed their Army physicals—but it also sent a powerful message after the brutal fight with Congress. The American Medical Association had called Medicare “socialized medicine,” and opponents deemed it “communism.” But if Medicare was good enough for a president, it truly was for everyone.

Johnson’s vision of Medicare as a universal benefit for America’s seniors was key to its entrenchment in the culture and the political landscape. Almost instantly, persons over 65 became a voting bloc united in the cause of preserving healthcare benefits, which for many proved transformative. Today, 55 million Americans are enrolled in Medicare, which also covers the disabled.

Older Americans went from being the population least likely to be insured to the group with near universal coverage, a status that continues to this day. “No longer will older Americans be denied the healing miracle of modern medicine,” Johnson said at the bill-signing. “No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime, so that they might enjoy the dignity of their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and their uncles and their aunts.”

With Medicare, seniors could now be proactive about their health and take Medicare into account when planning for retirement. In the succeeding decades, seniors were lifted from poverty to lead richer lives, and longer ones. Fifty years ago, according to the Social Security Administration, the average life expectancy at age 65 was 13.5 years for men and 18 years for women; today, it is 19.3 years for men and 21.6 years for women.

Medicaid the Same Day

When Johnson signed the amendments to the Social Security Act 50 years ago, he also created Medicaid; while that program grew much more slowly, today it covers many more people at 71.6 million, with more than 12.8 million coming in just the past 2 years due to the Affordable Care Act (ACA).

Both programs have evolved over the past 5 decades to cover more groups of people and include many more benefits. As with their creation, each expansion has involved a tug-of-war between an observed need and concerns about long-term costs. Benefits that were barely foreseen in Johnson’s day have become major pieces of both programs. In 1965, few would have imagined disease management with pharmaceuticals on the scale that now exists; the creation of Medicare Part D to pay for prescription drugs was seen as a sign of the times when it took effect in 2006 under President George W. Bush.

In 2014, $78.2 billion of the $597 billion spent on Medicare was for Part D, according to the Congressional Budget Office.

Medicaid’s best-known and most controversial expansion has occurred due to the ACA. A 2012 US Supreme Court decision gave states the ability to decide whether to extend benefits to households up to 138% of the federal poverty line; the court ruled that the change called for under the law marked a distinct change in the program, not an expansion of the existing one. For decades prior, Medicaid had quietly grown to more and more groups, often through actions by lawmakers from the same states that now so vocally oppose expansion.

In Johnson’s day, Medicaid was limited to those receiving cash assistance, or welfare. In 1967, Medicaid grew to include services for low-income elderly and persons with disabilities who were eligible for new Supplemental Security Income program. Over time Medicaid included mandatory coverage for pregnant women and children, and it continued to cover more children in poor families until 1996, when the historic link between welfare and Medicaid was severed under President Bill Clinton. The following year saw the establishment of the Children’s Health Insurance Program (CHIP) which would give states flexibility to continue to cover children whose families were among the working poor. At this time, states could require that Medicaid beneficiaries enroll in managed care.

Because it served the poor, rather than a politically potent group like seniors, and because of its dual management between the federal government and the states, Medicaid early on became not only a leaner program but also a laboratory for experiments in public benefits administration. This included managed care, and today it is estimated that 48% of Medicaid beneficiaries receive at least some services through managed care. This figure could rise as high as 73% by the end of 2015, as more states look for savings and automatically enroll new beneficiaries in managed care. According to figures reported by the Kaiser Family Foundation, total Medicaid spending for FY2014 was less than Medicare at $475.9 billion.

Medicaid was well ahead of the curve on the need to rein in drug prices. It has the ability to use its market power to negotiate costs, something that Medicare did not gain with creation of Part D. President Barack Obama now seeks this power in his current budget. A recent estimate said that the federal government could save $16 billion if Medicare Part D gained negotiating rights.

Greater Role for Managed Care

What’s ahead for Medicare and Medicaid? Johnson’s desire for a program that would cover all seniors equally has eroded in the past decade; the growth of benefits, exploding drug costs, and longer life expectancies have forced changes to preserve Medicare’s long-term health. Premiums for parts of Medicare are now means-tested, something that supporters once believed would kill widespread support.

While Part A, the hospital benefit, is still universal, Part B, which pays physician fees, and Part D, the drug benefit, both require cost-sharing, with premiums rising in increments after $85,000 for singles and $170,000 for married couples.

Managed care promises to play an ever-increasing role in both programs, as evidenced by the recent hiring of former CMS Administrator Marilyn Tavenner to become the President and CEO of America’s Health Insurance Plans, the lobbying arm of the health insurance industry. Tavenner has said that managed care is high on her priority list, with 30% of all beneficiaries enrolled in a Medicare Advantage plan in March 2015.

A recent report form the Kaiser Family Foundation suggests that the future of both Medicare and Medicaid depends, in part, on their ability to peacefully coexist with managed care, which will increasingly administer their benefits. While this could aid cost-containment, it could also expose Medicare beneficiaries to higher out-of-pocket costs without strict controls or better consumer education. In the case of Medicaid, advocates fear narrow networks and delays in getting care. These are issues that will be addressed in the rulemaking currently underway within CMS for Medicaid managed care.

One thing that has not happened—at least so far—is a decline in public support. Recent surveys found strong majorities favor both, although sentiment for Medicare is stronger. What’s more, three-quarters of Americans want to keep Medicare the way it is—a defined benefit program, not a voucher plan that forces consumers to do even more navigating in the health insurance market.

When critics of the ACA fought so hard to keep it from taking effect, some cited the popularity of Medicare as a case study—if universal healthcare became the norm, political leaders would never be able to look back.

"It's hard to imagine a world without Medicare and Medicaid," HHS Secretary Sylvia Mathews Burwell said yesterday during a ceremony marking the anniversary. "Medicare and Medicaid aren't just about healthcare; they are about who we are as a nation, about living up to our own values."