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The University of Texas at Austin

Lyndon B. Johnson School of Public Affairs

Conference Paper

The Evolution of Medicare and Medicaid and the Challenges Ahead

Professor of Public Affairs
and Wilbur C. Cohen
Professor in Health
and Social Policy

Medicaid and Medicare were one of the major accomplishments of the Great Society. They provided coverage to most of the 46% of the over 65 population who had no health insurance in 1965 and to at least many of the indigent disabled. President Johnson provided “unqualified and intelligent support” according to one of the sponsors and the three layer cake Medicare parts A and B and Medicaid, a matching program for qualifying state programs passed. In order to achieve passage a number of commitments regarding physician autonomy and payment of physicians and hospitals were made. These and President Johnson’s insistence on the applicability of the Civil Rights Act meant that more than 90% of the eligible elderly were enrolled in the first year and had access to services.

By 1972 Medicare had been extended to disabled Social Security beneficiaries and SSI was federalized. Through the 1980s and 1990s while Medicare payment methods exhibited some changes Medicaid was growing very rapidly and being extended to cover a number of social services and also to compensate hospitals for indigent persons as well as for beneficiaries. The growth in cost of the two programs has been rapid and is generally thought to be unsustainable. Most projections of cost assume that medical inflation will continue to exceed general inflation. In fact if the US spent 12% of GDP on medical care rather than nearly 17% [Europe generally spends less than 12%] medical care would cost more than $500 billion less. The run of 42 years of Medicare and Medicaid under these arrangements has exacerbated these cost problems and also created a number of winners.

Some initiatives that hold promise include motivating a medical home for patients, restricting payment to effective regimens and pharmaceuticals, and reducing the incentives for unnecessary procedures and many redundant facilities. It would appear that President Obama is most likely to achieve major change if he pushes immediately for broad coverage as he has proposed in the campaign. After that is accomplished he would be well served to take John McCain’s advice and appoint a bipartisan Blue Ribbon Commission to work out how to make Medicare work for the 21st Century and to make other recommendations regarding cost as well. After these two initiatives are completed it would be time enough to convene a Commission composed of Governors, Members of Congress, and other interested parties to tackle the residual issues related to Medicaid.

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