Here is what you’ll find in this week’s newsletter!

1. Three links 🔗 - the best articles we found this week about the Medicare Market.

2. Deep Dive 📚 - This week we look at the history of Medicare.

3. Chart of the week 📊 - The history of Medicare timeline. Also includes deductibles and average cost over time!

It’s only a 5 minute read, but it will make you 10x smarter.

Deep Dive 📚

From 0 to 19 million in year 1 - How Medicare Began!

Last week we took a deep dive into the current Medicare market. This week we are going to look back to see how the program was originally created and some of the major changes that have taken place.

Original Medicare, also known as Fee-for-Service Medicare, is a federal health insurance program for people aged 65 and older and certain people that are eligible due to disabilities or end-stage renal disease (ESRD).

This program is an important part of how our nation accomplishes its healthcare goals so understanding its history is critical to understanding where it is going. 

But before we dive into the origins and history of the Medicare program, let’s look at our first permanent federal social insurance program.

First - Social Security

Following the first World War, the U.S. was in a state of flux. The country had transitioned from an agrarian based economy into one more dependent on industrialization. When the Great Depression hit, a disproportionate share of older Americans lost their jobs. Since there were no functioning pension systems or employer-sponsored retirement plans this left many struggling in poverty.

This growing crisis led to the formation of the Committee on Economic Security to study the problem. Their recommendations were crafted into a report and eventually a bill that was renamed as the “Social Security Act of 1935.”

The bill was signed into law by President Roosevelt and contained different programs that were designed to help protect against a variety of risks that can cause economic insecurity. Title II of this program covers Old-Age, Survivors and Disability Insurance Benefits (you have likely seen this abbreviated as OASDI deductions on your paychecks). This section implemented a program to pay workers an income following retirement based upon their contributions to the program during their working years. 

Once those basic needs were being met, many people began to see that this older population also had higher healthcare costs. Health insurance was available, but it was expensive and not everyone was able to obtain coverage. 

Medicare Begins!

The idea of adding a federal program that helped cover the healthcare costs of American seniors gained momentum following the inaugural “White House Conference on Aging” held in 1961. Four years later the Medicare program was created with the enactment of Title XVIII of the Social Security Act. More than 19 million people enrolled during the first year of the program!

When Medicare was first introduced it consisted of two parts:

• Part A covered inpatient hospital care and was funded by payroll taxes

• Part B covered doctors services and was funded by monthly premiums

Over time the program has been updated to add benefits and expand the availability of coverage. Here are some of the highlights by decade:

 1970s:

• Social Security Amendments of 1972 extended Medicare eligibility to individuals under age 65 with long-term disabilities and to individuals with ESRD. This added 1.7 million beneficiaries to the program in the first year.

• The Health Maintenance Organization Act of 1973 allowed newly formed HMOs the ability to provide Medicare benefits to beneficiaries who chose to enroll. This was the first step toward creating Part C (“Medicare Advantage”).

1980s:

• The Baucus Amendment of 1980 expanded home health services and established federal standards for Medigap plan design and loss ratios. These new standards laid the groundwork for the future Medicare Supplement Minimum Standards regulations.

• Tax Equity and Fiscal Responsibility Act (“TEFRA”) of 1982 increased incentives for HMOs to enter the Medicare market through higher capitation payments. Plans began enrolling beneficiaries in April 1985. Nearly 1 million beneficiaries were enrolled in TEFRA Medicare HMO plans by the end of 1986.

• The Omnibus Budget Reconciliation Act of 1989 introduced the Medicare Physician Fee Schedule that would be used to pay doctors and placed limits on amounts above the fee schedule that could be charged. This was the most significant physician payment reform that has been introduced since the inception of Medicare in 1965.

1990s:

• The Omnibus Budget Reconciliation Act of 1990 required the use of a standardized set of 10 Medigap plans and introduced Medicare SELECT plans. These requirements were effective as of July 1992 and were intended to make it easier for seniors to compare offerings from different insurance companies.

• The Balanced Budget Act of 1997 introduced new Medicare managed care options (called “Medicare+Choice” plans) and created a ‘Coordinated Open Enrollment Process’, which is now known as the Annual Election Period. This was the next major step towards creating the Medicare Advantage market that we know today.

2000s:

• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included three of the most important changes since the introduction of Medicare: (1) the creation of Medicare Advantage plans; (2) the creation of the Part D Prescription Drug program; and (3) the modernization of Medicare benefits, which redefined the benefits covered by Medicare Supplement insurance policies.

2010s:

• The Medicare Access and CHIP Reauthorization Act of 2015 instituted several changes to the Medicare program. It repealed the Sustainable Growth Rate formula that had been used to set reimbursement rates for physicians, modified some of the Medicare Advantage reimbursement structure and restricted the availability of Medigap plans that provide first dollar coverage.

Additional changes over the last 10 years have targeted improvements in the care-delivery system and the long-term financial strength of the Medicare program. 

It will be interesting to see which recent changes have a lasting impact on the program and what the Medicare of tomorrow looks like for the next decade of newly eligible beneficiaries.

It goes without saying that the Medicare market of today is significantly different than what was envisioned 60 years ago. There have been extensive changes in the benefit structure and the definition of eligible beneficiaries. 

Armed with the knowledge of the past we can all help create a future where the Medicare Program continues to help seniors receive healthcare benefits that help them enjoy that stage of life!

What recent Medicare changes do you think will have the most impact?

What future changes do you most want to see?

Sources: 2023 Trustees Report and “Medicare & Medicaid Milestones: 1937-2015”

Chart of the Week 📊

This week’s chart of the week summarizes the deep dive into one chart.

That’s it for this week. Let us know what you think.

• Too much detail?

• Not enough detail?

• Just the right amount of detail?