Dan Diamond, Managing Editor
Forty million seniors rely on Medicare for their health benefits. Hospitals count on the program for nearly half of their revenue. It's arguably the nation's most treasured entitlement.
But from 1961 to 1963, President Kennedy couldn't even get a Medicare bill out of committee.
Early battles lay groundwork
Kennedy's struggles to enact Medicare, and President Lyndon Johnson's relative ease in winning legislative victories, are revived in "The Passage of Power," Robert Caro's latest biography of LBJ that was published on Tuesday.
The book's backdrop is the early 1960s—a period when Medicare backers saw more failures than success, but a pivotal time for marshalling support and changing attitudes about the program.
Some Democrats had championed government-subsidized health insurance for the elderly since Franklin Roosevelt's administration, and Kennedy picked up the banner as part of his 1960 presidential campaign.
While JFK didn't live to see his Medicare vision become a reality—and "never got over the disappointment of [his] defeat," advisor Ted Sorenson later wrote—even his administration's seemingly futile attempts helped inch the program toward passage.
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While Medicare supporters had the program on the verge of passage by late 1964, Democrats' landslide victories in that fall's elections ensured its relatively speedy enactment the following year. The size of the Johnson administration's mandate—and an ingenious packaging of competing health care proposals—allowed Congress to take the program beyond its early ambitions, crafting a three-part health care expansion:
- Hospital insurance for the elderly (Medicare Part A);
- A voluntary program that offered physician insurance for the elderly too (Medicare Part B); and
- An expansion of federal health care assistance for the poor (Medicaid).
"The contest over Medicare thus ended with a broader government role in health insurance than anyone had anticipated," Jonathan Oberlander writes in The Political Life of Medicare.
Reshaping industry finances
What lawmakers didn't count on: A massive inflation in health care costs. Thanks partly to Medicare's reimbursement structure, hospitals increased their daily service charge in 1966 by an unprecedented 21.9%. Doctors' fees also shot up by 7.8%, more than double the previous year's increase, as Medicare's "open-ended payment model...gave physicians every incentive to raise their fees," Ted Marmor concluded in The Politics of Medicare.
And Medicare's adoption rapidly led to other major changes in financing and utilization. Out-of-pocket health spending represented about half of all U.S. health spending in 1960, but fell to 37% by 1970. Meanwhile, the number of 65-and-over hospital patients quickly jumped from 3.2 million in 1965 to 5.2 million in 1972.
Today, Medicare's influence continues to be deeply felt, from its ongoing cost-cutting reforms to its annual adjustments to payment rates. And as the Health Care Advisory Board documents, the program has led the health care industry to the cusp of another transformational moment.
About 7,000 Baby Boomers are now entering Medicare every day, helping to dramatically reshape hospitals' payer mix. And if the Affordable Care Act stands, millions of Americans will find themselves newly eligible for Medicaid, further contributing to hospitals' much greater reliance on public payers than in years past.
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Where's Medicare going?
The Advisory Board's Medicare Breakeven Project tracks changes to hospital payment in the face of demographic, pricing, cost, and case mix pressure.
Learn more about the project's Margin Improvement Intensive, helping hospitals and health systems prepare for ever-greater reliance on publicly insured volume. Read how the Supreme Court's decision on the ACA could further impact health care providers.
