Medicare: A political battle, then and now

By ELLEN BECK, United Press International  |  Sept. 8, 2003 at 3:06 PM
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This is the first in a series of UPI articles giving context and background as Congress debates expansion and reform of the U.S. Medicare program.


WASHINGTON (UPI) -- To understand the Medicare debate you need to look at the senior health insurance system as it came into being on July 30, 1965. Then, as now, it was a huge government entitlement forged through arduous compromise and old-fashioned political maneuvering.

Medicare, which covers some 40 million Americans, was signed into law by President Lyndon B. Johnson and culminated decades of partisan battles over whether there should be a national health insurance program. Not only are the program's basic guarantees and structure very similar today to what was passed 38 years ago, the current debate over how to reform and update what many consider an obsolete social program -- to prepare for the retirement of millions of baby boomers -- also calls forth many of the same basic partisan arguments that made its enactment such a difficult and lengthy process.

Now, approaching autumn 2003, after years of failed legislation and negotiation, a congressional conference committee is poised to craft a final bill that could partially privatize Medicare -- a concession to the Republicans -- and add a prescription drug benefit -- a long-time goal of Democrats and an expansion some say is the largest in program history.

"Because the need for this action is plain, and it is so clear indeed that we marvel not simply at the passage of this bill but ... that it took so many years to pass it," Johnson said during the 1965 bill-signing ceremony. LBJ's words easily could be used to sum up the political tussle of the past five years should a prescription drug bill reach President Bush's desk.

The debate goes back much further -- Americans have been arguing about national medical insurance since the early part of the 20th century.

"Originally the American Medical Association was for national health insurance and labor was against it," Joseph Califano, LBJ's assistant for domestic affairs and secretary of health, education and welfare from 1977 to 1979, told United Press International. "That totally flipped in later years."

Dr. Julius B. Richmond, a former U.S. surgeon general and founder of the Head Start Program, was a young physician in the 1930s. He said the AFL-CIO took on the AMA and it "became a huge political battle."

Richmond said the AMA stand was contrary to its decision in 1917 when, as a less powerful entity, it passed a resolution favoring national health insurance.

The AMA in the 1930s changed its position, saying a national program could threaten the medical profession's independence and the doctor-patient relationship by forcing physicians to accept set rates and government control.

In 1939 a bill was introduced in the Senate to create a national health insurance program for workers and their dependents. It received no action, Peter A. Corning chronicled in his 1969 book, "The Evolution of Medicare ... from idea to law."

In 1944, President Franklin D. Roosevelt's State of the Union address called for an economic bill of rights that included the right to adequate medical care. FDR wanted to include national health insurance as a part of the Social Security Act, Califano said, but the idea failed because it was too expensive compared to Social Security.

In 1945, President Harry S. Truman, in a special message to Congress, proposed a prepaid medical insurance plan through Social Security. The plan would cover physician care, hospitalization, laboratory work and dental services. In his State of the Union address in 1949, Truman again called for compulsory national health insurance paid for by a payroll tax. The AMA opposed it and the idea stalled until the early 1960s.

In 1950, however, the U.S. Census showed the population above age 65 in the United States had grown to 12 million from 3 million in 1900. Two-thirds of older Americans had incomes less than $1,000 annually and only 1 in 8 had health insurance -- which was becoming difficult to obtain because insurance companies saw the elderly as illness-prone and a poor risk. By 1963 the number of elderly was at 17.5 million and the cost of hospital care was increasing by 6.7 percent annually.

In 1962, President John F. Kennedy called for the Social Security Act to be amended to provide health insurance for the elderly. In 1963, he sent a special message to Congress on problems with the elderly. A bill was introduced but stalled after Kennedy's assassination that November.

The Senate Special Aging and Health of the Elderly Subcommittee in 1964 released a report, titled, "Blue Cross and Private Health Insurance Coverage of Older Americans." It said private health insurance could not provide most senior citizens with "adequate hospital protection at reasonable premium cost."

Corning noted it was Johnson's special "Health of the Nation" speech to Congress in February 1964, advocating the creation of Medicare, that got the process back on track.

Califano said health care costs were rising in the 1960s when legislation sponsored by Rep. Wilbur Mills, D-Ark., chairman of the House Ways and Means Committee, and Sen. Robert Kerr, D-Okla., passed and gave states reimbursement for what they spent on indigent health services. Rather than going to the most needy areas in the nation, however, "the (five) big states gobbled up the lion's share" -- 90 percent of the funds, he said. The bill later would become the basis for the Medicaid program, which provides health coverage for the indigent and is funded by the states and federal government.

Johnson was determined to get Medicare passed, however, and negotiations, though still very difficult, progressed after the 1964 elections left the Republicans -- already the minority -- fewer in number and demoralized.

"(Sen. Barry) Goldwater (running for president on the Republican ticket) scared the merry hell out of everybody," recalled Rep. John Dingell, D-Mich., "and lost in a landslide."

Even then, Dingell said, the battle over Medicare was basic politics -- the Republicans were unhappy creating the large government-run entitlement program being put forth by Democrats. He said the GOP ended up supporting the program "because they were afraid to do otherwise."

Califano said even with the Democratic gains from the 1964 election, "we had to give significantly" and those concessions ended up shaping Medicare and affecting the entire U.S. health care system for decades.

To garner AMA support, Democrats added language allowing doctors to determine their "usual customary fees" for reimbursement, which private insurance had not allowed. The American Hospital Association dropped its resistance after language was included allowing hospitals to bill Medicare at cost-plus -- the cost of providing services plus additional reimbursement based on a complex formula. As a balance to the big government entitlement aspect of the program, the Medicare bill gave private insurance companies the responsibility of administering the program in regions across the United States.

Part of the GOP concessions also included splitting the program. Part A became the hospital insurance side, which is paid for by the Hospital Insurance Trust Fund, financed mainly by payroll tax deductions. Part B, about 75 percent of which is financed by general tax revenues, covers physician and other health care services.

"Packaged together, it sailed through," Califano said.

As of July 1, 1966, everyone over age 65 was covered automatically, at a cost of $3 per month, under all of the hospital insurance provisions of the new legislation, except for the nursing home provision.

By 1968 Califano said the government saw problems with the way Medicare paid physicians but was unable to push through revisions because physicians "were all making a lot of money on (Medicare)."

In 1969 Robert H. Finch, the secretary of health, education and welfare in the Nixon administration, released the report from the Task Force on Prescription Drugs, as required by 1967 amendments to the program. Dr. Philip R. Lee's committee was to study the possibility of adding prescription drug coverage to Medicare.

For most of the next three decades, Medicare's growth was incremental and administrative -- but not entirely without controversy:

--In 1972 the program was extended to include people with disabilities and end-stage renal disease. Payment to health maintenance organizations also was allowed.

--In 1977, the Health Care Financing Administration was created to administer Medicare and Medicaid.

--In 1983 HCFA changed the hospital payment method, going from paying at "reasonable cost" rates to a fixed-amount payment process called a prospective payment system. It established the diagnosis-related groups -- the DRG system --used today for hospital inpatient services. The PPS later would be extended to most other Medicare paid areas, including physicians.

--A 1988 overhaul of Medicare provided an ill-conceived catastrophic illness and prescription drug plan, which was repealed in 1989 after seniors nationwide demonstrated in opposition to it.

Then, in 1997, the Balanced Budget Act forced several sweeping changes to Medicare -- in particular to its payment systems -- and expanded a small program that allowed private insurance plans to participate. The new program, called Medicare+Choice, allowed seniors to select among health maintenance organizations, many of which offered drug coverage, which was seen as a growing need at the time.

Congress has debated adding prescription drugs to Medicare since then. Each year, whatever legislation was proposed dissolved amid partisan bickering. The costs of the benefit, especially in light of some 76 million baby boomers, born from 1946 to 1964 and heading into retirement -- as well as philosophical differences on the future direction of the program -- were enough to harden political lines and make compromise impossible.

Truman, present at the 1965 Medicare bill-signing ceremony with his wife, Bess, the first recipient of a Medicare card, spoke of America's commitment to its elderly and their dignity, which remains at the heart of the debate in 2003.

"Not one of these, our citizens, should ever be abandoned to the indignity of charity," Truman said. "Charity is indignity when you have to have it. But we don't want these people to have anything to do with charity and we don't want them to have any idea of hopeless despair."

Many health care analysts have become convinced adding prescription drugs to Medicare must be part of a larger reform for the program. They say America again needs to engage in a nationwide debate about health care priorities and re-establish the parameters of how health care is provided and paid for by the public and private sectors.

In that context, all eyes on Capitol Hill are watching to see which version of history repeats itself -- prescription drug legislation falling victim to partisan politics or emerging as another hard-fought victory won through compromise.


Next: Traditional or fee-for-service Medicare, which provides health care benefits for some 35 million Americans who are disabled or over age 65, is like a wonderful old house -- you love it but it could cost an arm and a leg for updates and additions as your family grows larger.

(Editors: UPI Photo WAX2003090801 is available)

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