Medicare Was Born 50 Years Ago, And It's Still Under Attack

Conservatives are still trying to undermine the program's core guarantee.
LBJ Presidential Library

It was 50 years ago Thursday that President Lyndon Johnson signed the legislation that created Medicare, dramatically altering life for America's seniors.

But as debate over the program rages on, its conservative critics have learned to be more crafty about what alternatives they propose -- and how to justify them.
When Johnson signed the bill, he did so alongside an aging Harry Truman -- who, two decades before that, had become the first sitting president to pursue universal health care seriously. Medicare, Johnson promised, would help realize Truman’s dream for the nation’s elderly: “No longer will older Americans be denied the healing miracle of modern medicine,” Johnson said. “No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years.”

Medicare wouldn’t quite live up to that promise -- not even with the addition of Medicaid, the program for the poor that the same 1965 law created. Look around today and you’ll find plenty of seniors desperately watching their pennies because they fear that new drugs or, more likely, nursing home care will ruin them financially.

But if some seniors still struggle with medical bills, the situation is far better than it was five decades ago, when half of the elderly population had no insurance at all. Studies have shown that Medicare has meant substantially smaller out-of-pocket spending for seniors and maybe (though not certainly) longer lives. The financial protection that the program provides to beneficiaries helps explain why just one in 10 seniors now lives in poverty. That’s roughly a third of what it was in the mid-1960s.

In the years leading up to Medicare’s creation, conservatives fought it bitterly, with Ronald Reagan famously warning it would create some kind of socialist apocalypse: “We are going to spend our sunset years telling our children and our children's children what it once was like in America when men were free.”

These days, perhaps mindful of the program’s popularity, conservatives use more delicate language when they talk about Medicare. Rather than focus on the supposed havoc the program wreaks on America's medical system or psyche, they dwell on the toll it takes on the American taxpayer -- and call for changes that supposedly would not affect workers at or near retirement age. Just last week, Jeb Bush, the former Florida governor seeking the Republican presidential nomination, told a conservative audience that we "need to figure out a way to phase out this program for [younger people] and move to a new system that allows them to have something -- because they’re not going to have anything.”

A Bush spokesman later tried to clarify the comments, saying Bush had in mind only modest reforms of Medicare. And maybe he does. But plenty of other Republicans have used Medicare's future liabilities to justify proposals for more wholesale transformations -- and they can cite in their defense some very real budget projections, including the ones Medicare’s official actuaries made just a week ago. These predictions suggest that, without changes, the trust fund for hospital funds will run short of dedicated money sometime in the next two decades, while the programs that finance outpatient and prescription benefits will require ever larger diversions of money from general revenue.

But the debate in American politics is not over whether operating Medicare in its current form would likely require even more money in the future. The debate is over how to address that funding shortfall. And it’s on that point that liberals and conservatives -- the modern-day heirs to Johnson and to Reagan -- have such profoundly different views that reveal starkly different values. “Medicare is a hugely popular program, and virtually all politicians say they want to save it for future generations,” says Tricia Neuman, senior vice president at the Henry J. Kaiser Family Foundation. “The real question is, what would their plans to save it mean for the retirement security of boomers and others once they are covered by Medicare?”

Most people think that the essence of conservative thinking on Medicare is to steer people into private insurance. And it’s true that conservatives covet such a switch, simply because they’d rather not have the Department of Health and Human Services providing a good that companies like Anthem, Humana or United Healthcare could provide instead.

But Medicare already offers a private insurance alternative, and it happens to be thriving. Today, 31 percent of seniors voluntarily opt into so-called Medicare Advantage plans, which typically combine outpatient, hospital and drug coverage into one package -- while also covering many of the out-of-pocket costs that traditional Medicare has not. Enrollment in these plans has been growing steadily, even though the Affordable Care Act reduced some of the excessive subsidies the government had been giving insurers that operate the plans. It’s proof that conservatives have won more of the Medicare fight than even they may realize.

Still, many conservatives aren't content simply changing the way the government provides seniors with guaranteed health care. They also want to change the guarantee itself.

Medicare, as it exists today, is what the policy wonks call a “defined benefit” program. It entitles seniors to a specific set of protections and level of financial security. (The federal government regulates Medicare Advantage plans, to make sure those plans live up to these standards.) The alternative that many conservatives would prefer is what's called a “defined contribution” scheme. The government would provide seniors with a sum of money, usually according to some pre-determined formula, and then let seniors shop around for coverage. The best-known proponent of such schemes is probably Paul Ryan, the House Ways and Means Chairman who has made such proposals cornerstones of his controversial Republican budgets for the last few years.

Sometimes conservatives defending these proposals insist that they will leave seniors no worse off -- that a combination of regulation and aggressive shopping by seniors will discipline insurers into providing adequate coverage at prices that seniors can afford. These arguments, though plausible in theory, are difficult to take seriously in the current political environment. For one thing, conservatives have been furious over similar insurance regulations in the Affordable Care Act. In addition, proponents of Medicare voucher schemes frequently envision huge savings from their proposals -- the kind that seem unrealistic in a world where Medicare is providing the kind of protection it does now.

A truer reflection of conservative thinking is probably the argument Bush made last week, at least before his spokesman walked it back -- the idea that ending Medicare’s traditional guarantee is necessary because there’s no money to maintain it. Such arguments resonate widely in Washington, where fiscal conservatives, even some who identify more closely with the Democratic Party, take an instinctively skeptical view of the government’s largest entitlement programs.

But there are other ways to bring Medicare’s books closer into balance. The most obvious would be to reduce what Medicare spends -- not by pulling back on the promise to seniors, but by constraining what the program pays to the professionals and businesses that provide medical care. Government could do this crudely but effectively, simply by using its blunt negotiating power to drive down the prices drugmakers charge for prescriptions. It also could change the way it reimburses doctors and hospitals -- basing payment on total caseload rather than paying for one service at a time, thereby rewarding efficiency and driving down prices.

Some of these changes are already getting underway, thanks to the Affordable Care Act. Many experts believe the preliminary steps are one reason -- and maybe a big reason -- that health care spending in general and Medicare spending in particular have been rising at historically low rates for the past few years. As Paul Krugman noted this week, that progress makes this "a very odd time to be going on about the impossibility of preserving Medicare, a program whose finances will be strained by an aging population but no longer look disastrous." And to the extent cuts or Medicare payment reforms don’t do the trick, there’s always the more traditional means of making up the difference: Some combination of higher taxes or deficit spending.

None of these steps would be easy politically. Just ask any Democrat who had to defend the Affordable Care Act’s cuts to Medicare, which Republicans cited repeatedly in the 2010 and 2012 campaigns. Such reforms can also entail real sacrifices and trade-offs -- like higher taxes, even for non-wealthy households -- that Medicare’s defenders, like its critics, are not always quick to acknowledge.

But when conservatives take these options off the table entirely, they are making a choice. They are saying they’d rather hew to conservative economic principles, minimize taxpayer exposure, and avoid interfering with the health care industry than maintain Medicare’s historic commitment to seniors -- a commitment that has done a great deal of good over the last 50 years.

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