Harry Nelson

Medicare and Medicaid: A Tale of Two Federal Health Programs

Medicare and Medicaid, the two giant federal health programs enacted in 1965, turned 50 years old this year. Their distinctive histories and evolution offer some insight into the challenges ahead for our healthcare system. In many respects, we are still playing out the same political disagreements that began way back when.

What Medicare and Medicaid have in common is that President Lyndon Johnson signed them into law in 1965 as part of the Great Society initiatives. Both grew out of growing public attention in the 1960s to the limitations of an employer-based system in providing access to care, and specifically to the fact that the largest uninsured segments of the U.S. population were the elderly and the poor. What distinguished the two programs was their focus on distinct populations: Medicare on the elderly and Medicaid on the poor.

American politics gave both programs distinct receptions, echoes of which still reverberate five decades later. Medicare, which provided federally funded health coverage for anyone over the age of 65, was relatively popular from its inception. Americans embraced the idea of a government program to ensure healthcare access for the elderly. Whether it was compassion for a generation that had lived through World War I, the Great Depression, and World War II, or the fact that everyone could relate to getting old and the importance of dignity and respect for the elderly, Medicare was popular. It may not have hurt was that it was also initially a short-term benefit, given that the average American man had a life expectancy of between 65 and 70 in 1965. In the year after its enactment, nearly 20 million Americans signed up, representing over 90% of those eligible.

Medicaid, on the other hand, was not universally embraced. Whether it is a contrast in shared experience (we all get old, but not all of us experience poverty), negative moral judgment about people who do not break out of poverty, or the lifetime cost of caring for the poor (as opposed to the relatively shorter, defined window after age 65 of caring for Medicare beneficiaries), Medicaid was met by ambivalence in some places and opposition in others to providing the able-bodied poor with free healthcare. This ambivalence about Medicaid manifested in several respects. In contrast to Medicare, which from the start was entirely federally funded and administered (through the U.S. Department of Health and Human Services’ agency, the Center for Medicare and Medicaid Services (CMS, which succeeded the former HCFA) and delegated private contractors), Medicaid required a compromise combination of mixed state and federal funding under state administration. In other words, each state had to partially fund and oversee the Medicaid program. As a consequence, each state had to make an initial decision about participating in Medicaid, a step that was absent in the Medicare program. The fact that each state operates the Medicaid program separately accounts for why it also bears different names in different places (e.g. Medi-Cal in California and TennCare in Tennessee). Just as 20 states have, as of this date, declined to participate in the Affordable Care Act expansion of the Medicaid Program, only 26 states initially agreed to participate in Medicaid. It took 17 years, until 1982, before all 50 states were participating.

The two distinctive receptions of Medicare and Medicaid, taken with employer-based coverage, translated to widespread coverage for the healthcare needs of the elderly from the late 1960s until today, but a gap for poor and working-class Americans who neither had access to Medicaid nor employer-based insurance coverage. This gap crept up from roughly 12%  of Americans in the late 1960s, to 17% in the 1990s (between 40 and 50 million Americans – the largest segment being the working poor).  Remediating these gaps in access to care was a central goal that the Affodable Care Act accomplished.

Medicare underwent subsequent, further expansion beyond the elderly. In the 1970s, for example, awareness of the gaps in access to healthcare led to calls from Democratic political leaders, most notably Senator Ted Kennedy, for universal national health coverage. Although none of these bills for national health coverage passed, a 1972 bill expanded Medicare to include the disabled (anyone qualifying for social security disability payment) and people with end-stage renal disease. Once again, Medicare grew as a purely federal program, while Medicaid languished as a mixed program, subject to distinct approaches at the state level and varying levels of competence in state administration.

Medicare’s political popularity has led to its enormous growth in cost, representing over 14% of federal spending (between $500-600 billion in 2014, depending on how you count). Even five decades later, when lifespans have climbed into the 90s, the fastest growing segment of the U.S. population is centenarians, and Medicare spending is such a huge part of the federal budget, there is no serious discussion about mandating a later age for Medicare eligibility.  (There are various incentives to encourage people to consider voluntarily deferring Medicare enrollment to age 70, but any notion of mandating a later start date is wildly unpopular and a political hot potato.)

By contrast, Medicaid continues to be bitterly divisive.  Federal spending on Medicaid is almost half as much as on Medicare (about 9% (about $287 billion in 2014), with about $188 billion being borne by the states, for a roughly 60/40 federal/state split.  (The federal/state split varies widely among the states, from as little as 51% federally funded in Massachusetts to 76% federally funded in Kentucky.) This past week, the New York Times describes a divide that has opened between more pragmatic Republican governors in many states, wanting to provide coverage for their poorest residents, and Republicans in Congress, fighting Medicaid expansion as part of the battle against Obamacare. The recent collapse of health insurance cooperatives that offered coverage through the exchanges is the latest sign that has given hope to the opponents of the ACA that the law is vulnerable.  Given that it took seventeen years for some states to adopt Medicaid in the first place, I suspect that this conflict will continue on a “low boil” for years to come.

While undermining the ACA may be the short-term goal, the bigger question in the background is whether providing the poor with healthcare coverage is morally correct or, alternatively, whether, in the words of South Dakota Governor Dennis Daugaard, doing so presents too much risk that “some people who can work will become more dependent on government” in the process. Governor Daugaard gets to the heart of a key underlying sentiment of those who oppose entitlements in general and the ACA in particular — that at least some of the poor may be motivated not to work by the benefits they get.

Between this sentiment and the ongoing political war on the ACA, it is no wonder that Medicaid is dealing with much more fundamental challenges. The political divisiveness that marked its entry 50 years ago is still reflected in the fact that 40% of the states have opted out of the Affordable Care Act expansion. Just as it took over 15 years for every state to decide they would participate, it may well be a decade or more away before we even know which currently non-participating states will elect to opt into the expansion. Similarly, the fragmented administration through the various state agencies means that the program’s adaptation is a much more complex, ad hoc process from state to state, with varying levels of competency.

The challenges also extend to the beneficiary population, which is more difficult to manage than the Medicare population. The poorest Americans are also the most beset by pandemics like obesity and addiction, the most difficult to communicate with (by virtue of having large pockets of non-English speakers and the most difficult to reach), and have the most serious chronic health problems, such as heart disease, diabetes, asthma, and hypertension.

By contrast, for Medicare, there is no question about who is covered, only how much they should have to pay. The big challenge ahead is how to deal with the aging of America, as the entry of the Baby Boomers into the program over the next two decades and the longer lives Americans are living represent enormous growth in the number of beneficiaries.  Through cost sharing and increased premiums, wealthier seniors who can afford to do so will shoulder more financial responsibility. Similarly, from a Medicare perspective, the care delivery system is largely in place, and the focus is on making it function more efficiently and reducing cost, by shifting risk to providers (such as through bundled payment) and forcing higher levels of acuity out of hospitals and further downstream to lower-cost settings.

Both Medicare and Medicaid have big but distinct challenges ahead. While Medicare has overcome the big political questions and is able to begin working through the challenges of reforming our care delivery system, Medicaid continues to struggle with political divisiveness.  Let’s hope that 50 years forward, we’ll be able to reach a consensus on who should be covered, so that we can get to the challenges of providing better care at a lower cost.


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