When President Lyndon B. Johnson signed Medicare into law on July 30, 1965, he vowed that the program would give seniors access to the “healing miracle of modern medicine” and save them from exhausting their savings when they became ill.
For the most part, the program has delivered on those bold promises. Americans over age 65 years are living longer, healthier lives, and they are doing so without fear that a trip to the hospital will lead to bankruptcy. That security has only increased over time, as Congress added prescription drug coverage and most recently, free preventive care. In 1972, the Medicare program was extended to the long-term disabled and those with end stage renal disease.
Medicare “fundamentally changed the way we thought about health in our nation for our seniors,” said Dr. Georges C. Benjamin, executive director of the American Public Health Association. “This probably was the most important tool to lift seniors out of poverty. The economic benefit of this, in addition to the health benefit, was enormous.”
Along with coverage of hospital stays and physician services for seniors under Medicare, the Social Security Act Amendments of 1965 also created Medicaid, a voluntary federal-state partnership to provide medical care and long-term care services to low-income Americans.
Changing medical practice
When combined with the Civil Rights Act of 1964, Medicare desegregated all hospitals that participated in the program. Prior to the start of Medicare on July 1, 1966, a large number of hospitals around the country were still racially segregated in some manner. In many areas of the South, a separate hospital system served the black community and were the only places where black physicians could train and practice (Milbank Q. 2005; 83: 247-69). But in a matter of months, hospitals across the country integrated their facilities and staff in a relative peaceful manner, according to a study conducted by the Commonwealth Fund.
“Now, physicians of color could not be kept out of hospitals as a matter of policy,” Dr. Benjamin said. “It dramatically improved practice opportunities for physicians and access to care opportunities for patients.”
Stuart Guterman, Ph.D., vice president for Medicare and cost control at the Commonwealth Fund, said it’s one of the lesser-known elements of Medicare’s history that the law became an impetus to overcoming racial barriers for both patients and physicians.
Changing payment incentives
Medicare payments opened up a significant new stream of revenue for hospitals that made desegregation more palatable. But hospitals weren’t the only ones who benefited financially from the new program.
Despite the American Medical Association’s fight against the creation of Medicare, during which officials famously decried the program as “socialized medicine,” physicians were financial winners under the new law, at least at first.
Much like hospitals, doctors got paid for the first time for treating patients who they had previously seen as charity care. And, in those early years of the Medicare program, the government paid on a charge basis. The result was that Medicare spending was quickly out of control.
Cost controls were added first for hospital care. In 1983, Medicare adopted the inpatient hospital prospective payment system, which replaced hospitals’ cost-based payments with the diagnosis-related group (DRG) system.
“Changing the notion of what hospitals did from each individual service or each individual day to the hospital stay, really changed the way hospital care was looked at,” Dr. Guterman said.