Overview of the Medicare and Medicaid Programs

Health Care Financing Review, Annual 1997 | Go to article overview

Overview of the Medicare and Medicaid Programs


Since early in this century, health care issues have continued to escalate in importance for our Nation. Beginning in 1915, various efforts to establish government health insurance programs have been initiated every few years. From the 1930s on, there was broad agreement on the real need for some form of health insurance to alieviate the unpredictable and uneven incidence of medical costs. The main health care issue at that time was whether health insurance should be privately or publicly financed.

Private health insurance coverage expanded rapidly during World War II, when fringe benefits were increased to compensate for the government limits on direct wage increases. This trend continued after the war. Private health insurance (mostly group insurance financed through the employment relationship) was especially needed and wanted by middle-income people. Yet not everyone could obtain or afford private health insurance. Government involvement was sought Various national health insurance plans, financed by payroll taxes, were proposed in Congress starting in the 1940s; however, none was ever brought to a vote.

In 1950, Congress acted to improve access to medical care for needy persons who were receiving public assistance. This permitted, for the first time, Federal participation in the financing of State vendor payments to the providers of medical care for costs incurred by public assistance recipients. In 1960, the Kerr-Mills bill provided medical assistance for aged persons who were not so poor, yet still needed assistance with medical expenses. But a more comprehensive improvement in the provision of medical care, especially for the elderly, became a major congressional priority.

After various considerations and approaches, and after lengthy national debate, Congress passed legislation in 1965 which established the Medicare and the Medicaid programs as Title XVIII and Title XIX of the Social Security Act Medicare was established in response to the specific medical care needs of the elderly (and in 1972, the severely disabled and certain persons with kidney disease), and Medicaid was established in response to the widely perceived inadequacy of "welfare medical care" under public assistance. In 1977, the Health Care Financing Administration (HCFA) was established under the Department of Health and Human Services to administer the Medicare and Medicaid programs.

Subsequent to their enactment, both Medicare and Medicaid have been subject to numerous legislative and administrative changes. The legislatures and administrations seek to make improvements, with financial considerations, in the provision of health care services to the aged and poor. Since 1965, growth rates in health care expenditures have consistently out paced growth in general revenues for all levels of government. National data for calendar year (CY) 1995 shows that the Nation's health care bill totaled $988.5 billion for the 273 million persons residing in the United States. The 1995 total health care spending within our country amounted to $3,621 per person -- 5.5 percent higher than in 1994.

Health care is financed through a variety of private payers and public programs. Private funds include out-of-pocket expenditures, private health insurance, philanthropy, and nonpatient revenues (e.g., gift shops, parking lots, etc.), as well as health services that are provided in industrial settings. For the years 1974 through 1991, these private funds paid for 58 to 60 percent of all health care expenditures. But by 1995, the private share of health expenditures had dropped to 53.8 percent of our Nation's total health care expenditures. The share of health care provided by public spending continues to increase.

Public spending represents expenditures by Federal, State, and local governments. Of the publicly financed health care expenditures for our Nation, each of the following account for a small percentage of the total: the Department of Defense health care programs for military personnel; the Department of Veterans' Affairs health programs; payments for health care under Workers' Compensation programs; health programs under the State-only general assistance programs; non-commercial medical research; and the construction of medical facilities.

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