Medicare and Medicaid Turns 50

As Medicare and Medicaid reach their 50th anniversary on July 30, 2015, the two vast government programs that insure more than one-third of Americans are undergoing a transformation that none of their original architects foresaw: Private health insurancecompanies are playing a rapidly growing role in both.  More than 30 percent of the 55 million Medicare beneficiaries and well over half of the 66 million Medicaid beneficiaries are now in private health plans run by insurance companies.  Enrollment has soared as the government, in an effort to control costs and improve care, pays private insurers to provide and coordinate medical services for more and more beneficiaries.

When President Lyndon B. Johnson signed the bill creating Medicare and Medicaid on July 30, 1965, he made clear his ambitions for the programs: They would extend “the miracle of healing to the old and to the poor.”  The architects of Medicare and Medicaid, among them Wilbur J. Cohen and Robert M. Ball, had concluded that private insurance was out of reach for many older and low-income Americans, who could not obtain affordable coverage in the commercial market. At the time, Mr. Ball was the Social Security commissioner, and Mr. Cohen was a top official at the Department of Health, Education and Welfare, who later became secretary. Both men had been inspired by the New Deal and had worked for decades on Social Security.  “They believed that commercial health insurance had failed the elderly, and they wanted to replace it with social insurance, as a first step toward similar coverage for the rest of the population,” said Theodore R. Marmor, a Yale professor and historian of Medicare.  In a secretly recorded telephone conversation in March 1965, Mr. Cohen described the Medicare bill that had just been approved by the House Ways and Means Committee. “Quite frankly,” Mr. Cohen told President Johnson, “there’s no longer any room for the private insurance companies to sell insurance policies for people over 65.”

In the original versions of Medicare and Medicaid, beneficiaries could go to any doctor who would take them, and the government would pay providers a fee for each service. By contrast, in private managed-care plans, beneficiaries use a network of doctors and hospitals, and the federal or state government pays insurers, which receive a fixed amount per member per month.  The original setup of Medicare and Medicaid began to change in the early 1980s after Congress and the Reagan administration created incentives for private insurers to contract with Medicare. Enrollment rose and fell as federal officials tinkered with reimbursement rates.  In the last decade, as private insurers accelerated their marketing of Medicare plans and baby boomers accustomed to managed care reached retirement age, enrollment in the private Medicare plans run by insurance companies, surged.  About 99 percent of beneficiaries now have the option to enroll in plans run by a private insurance companies, and the average beneficiary has a choice of more than a dozen plans.