How Did Medicare Come into Existence?

Key Takeaways:

• Medicare is a social program that helps Americans pay for certain health care costs, including hospital visits, medical supplies, preventative services, and prescription medications.
• President Lyndon B. Johnson signed the Medicare program into law on July 30, 1965.
• Since then, many changes have occurred to the program, including expanding coverage for individuals with certain disabilities and children, and adding various supplementary coverages.

What is Medicare?

In our article How Does Medicare Work, we explain that Medicare is a social program designed to help elderly and disabled individuals pay for health care services. In total, there are three different parts to Medicare, including:

• Part A — Covers inpatient hospital visits, care in a skilled nursing facility (whether custodial, long-term, or otherwise), some home health care, and hospice care.
• Part B — Covers medically necessary outpatient hospital services, medical supplies, and preventative services.
• Part D — Covers prescription medications.

Who Pays for Medicare?

The Centers for Medicare and Medicaid Services (CMS), a part of the federal government, administers the program’s different benefits. On the other hand, the Social Security Administration funds Medicare while also determining eligibility and coverage levels.

Related: How Is Medicare Funded?

These funds mostly come from payroll taxes, which amounts to 2.9% (1.45% from employees and 1.45% from employers). This means that if you’re self-employed, you’re responsible for the entire 2.9%.

With these details in mind, let’s take a closer look at Medicare’s history.

The Early Days of Medicare

Teddy Roosevelt first introduced the idea for a national health insurance program during his 1912 presidential campaign. But it wasn’t until 1945 that President Harry S. Truman called for the creation of a national health insurance fund—one that covered qualifying Americans of all ages—that the idea gained popular momentum.

Still, even after President John F. Kennedy pushed for a national health care program for seniors during the early 1960s, it wasn’t until 1965 that President Lyndon B. Johnson signed H.R. 6675 into law, bringing health care coverage to Americans aged 65 and older via both Medicare (a health insurance program for the elderly) and Medicaid (a health insurance program for the poor). In a stroke of fate, Truman and his wife were the first two Medicare beneficiaries.

Medicare’s First Coverages

In its infancy, Medicare provided basic hospital insurance, and supplementary medical insurance, to help pay doctors and other health care bills. According to the Social Security Administration website:

“Prior to Medicare, only a little over one-half of those aged 65 and over had some type of hospital insurance; few among the insured group had insurance covering any part of their surgical and out-of-hospital physicians’ costs. Also, there were numerous instances where private insurance companies were terminating health policies for aged persons in the high-risk category.”

When it was brought into existence, Medicare’s budget was around $10 billion, and more than 19 million individuals signed up for coverage during the program’s first year.

Medicare During the 1970s, 1980s, and 1990s

While the Medicare program was initially designed to assist Americans ages 65 and older, President Richard M. Nixon signed legislation in 1972 that expanded coverage to include younger individuals with long-term disabilities and end-stage renal disease (ESRD). 

Later, Congress passed the Omnibus Reconciliation Act of 1980, which expanded Medicare to include coverage for home health services, and hospice services for the terminally ill were added two years later.

1988 saw the passage of the Medicare Catastrophic Coverage Act, which boosted hospital and skilled nursing facility benefits, included an outpatient prescription drug benefit, and provided for Medicaid coverage for pregnant women and infants who fell under the federal poverty level.

In 1997, the Children’s Health Insurance Program (CHIP) was created in all 50 states, the District of Columbia, and the territories, which “provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid.” Today, the program gives health insurance and preventive care to nearly 11 million, or 1 in 7, uninsured American children. 

Medicare Changes Since 2000

In 2003, the Medicare Prescription Drug Improvement and Modernization Act (MMA) created Part C plans, which are private, Medicare-approved health plans issued by independent insurance carriers that combine—and often expand upon—many of the coverages provided under Original Medicare (Parts A, B, and D).

Two years later, in 2005, enrollment started for Medicare’s Prescription Drug coverage, which went into effect in 2006 and immediately covered 39 million beneficiaries.

Then, the Affordable Care Act went into effect on March 23, 2010, which, among other things, expanded Medicare drug and preventive services benefits. As of 2013, according to the Centers for Medicare and Medicaid Services (CMS):

“An estimated 37.2 million Medicare beneficiaries received at least one free preventive service including an estimated 26.5 million people with Original Medicare. 4.3 million seniors and people with disabilities saved $3.9 billion on prescription drugs, or an average of $911 per beneficiary.”

As of 2017, more than 58 million people were covered by Medicare (50 million based on age and the remainder based on disability), which works out to about 17.2 percent of United States citizens. To cover these Medicare beneficiaries, the federal government spends $707 billion annually, or about 3.5 percent of the country’s GDP.

How Can You Learn More About Your Medicare Needs?

If you just turned 65 or are thinking about switching your Medicare coverage, you can count on the professionals at IHS Insurance Group to help walk you through the process. We have more than a decade of experience assisting clients like you find the coverage you need at prices that won’t break your budget.

Need a FREE Quote or have questions regarding Medicare Coverage? We have three convenient ways to reach us:

1. If you prefer to talk to a licensed agent directly, please call (866) 480-5063
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Also, check out our Medicare FAQs here.