JURIST Guest Columnist Sallie Thieme Sanford of University of Washington School of Law discusses the birth and growth of Medicare and Medicaid. She argues that in this, their 50th year, health care’s fraternal twins are coming more to resemble each other, with Medicaid adopting some of the characteristics of its historically more favored twin, with both facing some similar challenges and with each flexing its financial muscle to support health system changes…

Medicare and Medicaid are 50. They were signed into law on July 30, 1965, and began to be implemented—with what in retrospect seems surprising rapidity—in the following year. As remarked upon in an excellent Yale Law School symposium, these extremely influential health care programs are as fraternal twins.

As with fraternal twins everywhere, they were born together, and created in the same context. Yet from the beginning, as Professor Abbe Gluck notes, they have had “distinct personalities and life stories.” Both have improved the lives of many, many millions of people and made ours a better society. They have done so in different, though overlapping health care spheres.

In common with many fraternal twins, in their adulthood they are coming more to resemble each other. Medicaid is adopting some of the characteristics of its historically more favored sibling. While they retain their separate identities, both face similar questions about how they will develop in the future in the face of competing political visions, budgetary pressures, changing demographics and health care advances. Each is also flexing its financial muscle in support of overarching health system reforms.

This essay first considers the circumstances of Medicare and Medicaid’s birth as part of the Great Society push. Next, it summarizes their growth over the decades as they expanded to address evolving health care challenges. And finally, it assesses where these prominent American fraternal twins stand today.

Turning first to the circumstances of their birth. Whether and how to create a universal health care system has been a perennial issue [PDF] in the United States, dating back to the early 1900s. Theodore Roosevelt championed the cause and FDR considered including health coverage as part of the original Social Security Act. President Truman sent a bill to Congress that would cover all Americans, with subsidies for the poor. It did not get far, but in 1960 Congress passed the Kerr-Mills Act [PDF], which gave federal financial support to states for programs for medically indigent seniors. Not all the states adopted it, though, and a substantial portion of the funds went to those in wealthier, Northern states.

In 1964, with the Democrats holding a decisive majority in Congress, President Johnson pushed for a broader program. The health care needs of the elderly were increasingly prominent, as most lacked sound health insurance. A serious illness could bring financial devastation.

President Johnson’s initial plan was only for those 65 and older and for coverage only of seniors’ hospital bills. That became Medicare Part A. As the bill progressed, coverage of physician bills was added as well. That became Medicare Part B. These were both federally financed programs. In a bid for further support, key lawmakers added another program to the legislation—support for Americans on welfare. That became Medicaid. It built on the earlier Kerr-Mills program to provide federal financial support for state programs to cover certain populations of low-income people.

These were what are sometimes termed in the academic literature the “deserving poor” [PDF]—here low-income people over age 65, some of the disabled and some families with children on welfare. In support of these state programs, the federal government would provide matching funds of between 50-75 percent depending on the wealth of the state. So, whereas Medicare was a “social insurance program” with relatively uniform administration by the federal government, Medicaid was “welfare medicine” with an emphasis on state-based discretion.

From its inception, Medicare has influenced the health care system as a whole. For example, in 1965 about 1,000 of our nation’s hospitals were racially segregated. If hospitals wanted to receive Medicare payments, they had to desegregate. They did, in short order. And not just in regard to patients, but also for physicians and staff. Along with the Civil Rights Act, Medicare has been an important factor in improving the health care environment for black Americans, and not only those over 65.

Both twins have grown steadily over the decades. This growth has encompassed both who is covered and also what types of health care services are included. Medicare’s development has been the more staid of the two. From the beginning, it has been quite popular and enjoyed a high degree of political support.

In 1972, Medicare was expanded to cover people with serious permanent disabilities. They would be covered after a two-year waiting period. Also added that year was immediate coverage for people with end-stage renal disease. One of the key drivers of this expanded coverage was an invention a few years prior at the University of Washington. In the 1960’s, physicians and scientists had developed what came to be known as the Scriber shunt, which allowed for routine kidney dialysis. Loss of kidney function was no longer a death sentence—as long as there was a way to cover the cost of the treatment.

Several decades later, Congress addressed one of the gaping holes in Medicare coverage. Since its inception, the program had not covered out-patient prescription medications. And, in light of so many advances in pharmaceuticals, prescription medications were increasingly important to the health of seniors and increasingly a source of financial difficulty. In 2003, a Republican Congress passed and President Bush signed into law the Medicare Modernization Act. This established Part D prescription drug coverage, a subsidized program administered through private companies. This law also provided a boost for private Medicare managed care plans, now known as Medicare Advantage plans. These continue to be a popular choice among beneficiaries, with nearly a third now enrolled in MA plans.

While Medicare was not a focus on the Affordable Care Act of 2010, this major law did impact the program in various ways. For example, the ACA expands Medicare coverage by eliminating out-of-pocket costs for preventative care, such as mamographies and colonoscopies. In addition, it also progressively closes the Part D donut hole, providing discounts for heavy users of prescription medications.

If Medicare has been the staid and steady twin, Medicaid is the scrappy one. It has not enjoyed the same degree of affection and support as Medicare and has seen repeated calls for significant cuts. Despite that, it also has grown over the years, including significant expansion under Republican leadership.

After its enactment in 1965, not all states signed up right away. Medicaid was not available throughout the country until 1982, when the last state, Arizona, joined the program. From its inception, Medicaid has differed from state to state. While the program has always had key mandatory elements in terms of populations to be covered and services to be offered, it has also allowed states a great deal of flexibility in terms of optional populations and services, as well as financing structures.

In the 1980s, Congress expanded Medicaid to require coverage of many more pregnant women and children. This was prompted, in significant part, by concerns of Southern governors about persistently high rates of infant mortality in their states. Other changes expanded coverage for services for people with disabilities, especially in the areas of home and community-based care.

In the late 1990s with the enactment of the Children’s Health Insurance Program, more children in low-wage households received health insurance. In addition, to varying degrees throughout the country, states tweaked their programs to provide coverage of low-income parents of young children. However, low-income adults under age 65 who were not pregnant, not disabled and not the parent of a young child generally remained ineligible for Medicaid coverage no matter how low their income.

Until, that is, the Affordable Care Act of 2010. As written, the law requires all states to expand their Medicaid populations to cover all otherwise uninsured citizens with incomes below 138 percent of the Federal Poverty Level. Per the ACA, the federal government will cover 100 percent of the cost of the expansion population for the first few years, ratcheting down ultimately to 90 percent.

In its 2012 decision, the Supreme Court effectively made this expansion an option for the states. Thus, each state could decide whether to cover this new population of low-income adults. Washington State was one of the ones that expanded its Medicaid program as soon as allowed under the ACA; Alaska is the most recent, with signups beginning in the fall of 2015 to be effective January 2016. Thus far, about 30 states have established expanded Medicaid under the ACA’s terms.

Now entering their 50th year, these programs have immensely improved the health of millions. Medicare today covers about 46 million seniors and 9 million younger disabled people. As of today, about 66 million people nationally are in the Medicaid program. Together, these programs now cover about 111 million people, or about 1 in 3 Americans, including 10 million dual-eligible people covered by both programs. By 2025, the total is projected to reach 139 million people. Spending on the programs accounts for nearly a quarter of the federal budget and comprises more than 40 percent of hospital revenues.

The twins are rightly credited with improving the health of the nation’s citizens. Medicare has been a huge success in improving life expectancy, enhancing health status and reducing poverty among the elderly. It has also been a key driver in helping to modernize our health care system. In recent years, the rate of growth of Medicare spending slowed dramatically, helping to put the program on more secure financial footing. In both Medicare and Medicaid, spending per enrollee has been increasing at a slower rate than in private insurance, though there are concerns about the growth trajectory into the future.

Medicaid’s direct impacts are felt across the age spectrum. Without Medicaid, there likely would not be a modern nursing home industry. Medicaid is the primary payer for long-term care services. The program also covers about one in three of the nation’s children and nearly half of the childbirths. And it has been a lifeline for many citizens with disabilities.

Looking to their future, these fraternal twins are coming more to resemble each other and face some of the same challenges. Medicaid is adopting some of the key positive characteristics of its historically more favored sibling. It is evolving, in some parts of the country more than others, from an often stigmatized welfare program for some of the nation’s poor into the nation’s primary insurer for low-wage families. In expansion states, it functions in many ways more as a social insurance program and no longer leaves out major categories of low-income citizens.

As is Medicare, Medicaid is flexing its financial muscle to promote changes that aim to improve health outcomes while reigning in unnecessary spending. These include support for new payment models related to “value-based purchasing” and for new delivery systems, including medical homes and accountable care organizations. Both Medicare and Medicaid face similar questions about how they will develop into the future given competing political visions, budgetary pressures, health care advances, and changing demographics.

Back on July 30, 1965, when President Johnson signed Medicare and Medicaid into law, he noted that the law’s passage showed we were not a nation “indifferent to despair.” “No longer,” he said, “will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy [their] savings” or those of their families. He predicted that these programs would improve “the health and medical services for Americans of all ages.” In the 50th year of these fraternal twins, and in the face of their ongoing development challenges, President Johnson’s prediction has been borne out.

Sallie Thieme Sanford is an Associate Professor at the University of Washington School of Law, with an adjunct appointment in the School of Public Health, Department of Health Services. This essay is based on a presentation at a CMS- and HHS-sponsored event held on July 30, 2015, the 50th anniversary of the day President Lyndon Johnson signed Medicare and Medicaid into law.

Suggested citation: Sallie Thieme Sanford, Health Care’s Fraternal Twins at 50: The Birth and Development of Medicare and Medicaid, JURIST – Academic, Nov. 1, 2015, http://jurist.org/academic/2015/11/Sallie-Thieme-Sanford-healthcare.php.