Ill-Fated Medicare's Money Problems Traced to Its Beginnings

Article excerpt

A TELLING MOMENT in the annals of Medicare: Early in 1965, Lyndon Johnson and his aides discuss political strategy in a hideaway next to the Oval Office. The president's Medicare bill is stuck in a Senate committee, and he wants it voted out. NOW.

A deal to shake the bill loose would add a half-billion dollars to its cost, an aide warns.

Johnson waves him off. "Five hundred million. Is that all? Do it."

Fast forward to today, when Medicare is swelling like a monster souffle, and Washington doesn't know how to keep it down. How did this thing get so big?

There are various reasons why Medicare costs total $178 billion and are rising 10 percent a year:

America's population is aging and living longer.

Medical costs are up, with new technology and specialists.

Coverage was extended to younger people with disabilities.

Some doctors and patients abuse the system.

Medicare's problems date to its birth. In the early 1960s, about half of the nation's elderly lacked health insurance. Private insurance for the elderly was hard to find, didn't offer much coverage and cost more than many people could afford.

President John F. Kennedy had proposed a federal health plan for the elderly, but it lacked support. After his assassination, sentiment in Congress shifted toward passing the dead president's programs. Johnson's team seized the advantage.

"All of our focus was on access, not cost," said Joseph Califano Jr., Johnson's top domestic adviser. He describes that 1965 meeting with Johnson to illustrate the administration's priorities: "We wanted to give old people health care."

Critics today say Medicare's design induced overspending. It invited doctors and hospitals to raise fees and perform unneeded tests; it encouraged the elderly to use health care services imprudently; and it indirectly forced workers and companies to subsidize the medical care of even the wealthiest retirees.

"The reason we have insolvency around the corner goes back to 1965," said John Liu, senior health care analyst at the conservative Heritage Foundation. "The way this program was designed was structurally unsound."

But Califano said cobbling together a flawed compromise was the only way to get Medicare through Congress. Even Liu admits, "Back then, there truly was a need."

It was a rough fight. The elderly and the unions were pushing for Medicare. But doctors hated Johnson's plan, and hospitals were fearful. Opponents called it socialism, said it would destroy the doctor-patient relationship and bankrupt insurance companies.

Time proved those arguments wrong, but others had staying power: In 1965, American Medical Association President Donovan Ward warned against the "evils of unpredictable expense."

Ironically, the compromise that neutralized Medicare's opponents expanded the program and piled on more costs.

Under Johnson's proposal, the government would provide hospital coverage for everyone eligible for Social Security, regardless of income.

The Republicans offered a voluntary plan that would cover doctor bills as well as hospital bills for the elderly who signed up - and paid a monthly premium. …