What are Medicare & Medicaid?

BACKGROUND

Medicare & Medicaid are the two largest government-sponsored healthcare programs and have held that status since their enactment by President Lyndon B. Johnson in 1965 as part of his “Great Society” initiative. Each serves tens of millions in their respective target demographics, but concerns about their cost has led to elevated debate in recent years regarding reforms to make them more sustainable.

OVERVIEW

Before Medicare & Medicaid became America’s first social insurance programs for the general public, there were several efforts to enact similar programs as a healthcare safety net. Theodore Roosevelt’s failed bid to return to the presidency as a member of the Progressive Party in 1912 featured a social insurance program for Americans dealing “sickness” as a key plank of his platform. His cousin, President Franklin D. Roosevelt, unsuccessfully tried to add a similar program to Social Security during the debate over that program’s creation. FDR’s successor, President Harry Truman, became the first president to endorse universal healthcare but was unable to turn his proposal into policy ― although Truman was enrolled as the first Medicare beneficiary and had LBJ sign his card as a witness at the bill’s signing ceremony.

Through Medicare, the federal government provides subsidized health insurance coverage to citizens over the age of 65 along with limited co-pays when they visit the doctor. Some individuals who have disabilities may be eligible for Medicare coverage prior to that age. The program is administered by the Centers for Medicare & Medicaid Services (CMS), which as its name implies, also helps with Medicaid administration. Medicare is made up of several components:

• Part A is insurance that covers hospital services and Part B provides supplementary medical coverage, which are funded through payroll taxes paid by all businesses and workers. According to data from CMS, in the 2019 calendar year Part A & Part B had an average monthly total of 61.2 million beneficiaries, of whom 52.6 million qualified by virtue of their age and 8.6 million qualified through a disability.
• Part D is a voluntary insurance plan for Medicare beneficiaries which has benefits that cover prescription drugs, with premiums that are subsidized for low-income enrollees. It was enacted in 2003 by President George W. Bush, and offers cost-sharing for generic drugs and, depending on the plan, may have an annual deductible. CMS data shows that Part D had an average monthly enrollment of 45.7 million beneficiaries in 2019.
• Medicare Advantage is another voluntary program that was enacted in tandem with Part D in 2003. Medicare Advantage (MA) allows enrollees to sign up for insurance plans which cover Medicare benefits through private health insurers. In 2019, 22.2 million people enrolled in Medicare Advantage (they were also enrolled in Part D).

Medicaid is designed to provide health insurance coverage to low-income individuals and families, in addition to people with disabilities, and the elderly in nursing homes (who may also be enrolled in Medicare because it has more generous benefits than Medicaid). While it’s an optional program, each state has chosen to create its own Medicaid program and benefits vary from state-to-state. A state’s funds put toward its Medicaid program are matched by federal funds. The average monthly overall enrollment in Medicaid during 2019 was 75.8 million, according to CMS data.

The Affordable Care Act, commonly known as Obamacare, gave states the option of expanding Medicaid eligibility to individuals earning up to 138% of the federal poverty level. To date, 26 states have implemented the Medicaid expansion, eight are in the process of implementing it, three states’ voters approved expansion (although the process hasn’t begun), and the remaining 13 states aren’t pursuing expansion. According to CMS data, the average monthly in the Medicaid expansion during 2019 was 12.4 million adults.

WHAT IS MEDICARE’S FINANCIAL CONDITION?

Medicare spending has increased dramatically in recent decades as the Baby Boomer generation ages into the program. In 2000, Medicare spending totaled $224.8 billion; by 2018, it more than tripled to $750.2 billion. The Congressional Budget Office (CBO) has identified increasing Medicare spending as a primary driver of the federal deficit, which outpaces the growth in federal tax revenue.

According to the 2019 Medicare Trustees’ Report, the Medicare Hospital Insurance Trust Fund will begin running an annual deficit in 2020 and will only be able to pay full benefits until 2026.

The Government Accountability Office (GAO) notes that while there aren’t reliable estimates of fraud, waste, and abuse in Medicare, it was estimated that in fiscal year 2017 there were about $52 billion in improper payments for Medicare. Additionally, about $1.4 billion was returned to Medicare following recoveries, fines, and asset forfeitures.

WHAT ARE SOME PROPOSALS TO REFORM MEDICARE?

Perhaps the most discussed Medicare reform proposal in the past decade was advocated by former House Speaker Paul Ryan (R-WI) during his time in Congress. Ryan’s plan would’ve allowed current beneficiaries and those who would become eligible over the ensuing decade to remain in Medicare, before starting a new Medicare program 10 years after enactment. The new program would’ve featured Medicare exchanges, in which beneficiaries would receive a defined federal contribution toward purchasing a private health insurance plan with benefits equivalent to those currently offered by Medicare.

President Donald Trump’s FY2021 budget proposal mirrored those from earlier in his administration by calling for Medicare reforms to limit the program’s spending growth and reduce budget deficits. Critics of the proposal argue that, much like all presidential budget proposals, it stands no chance of passage by a divided Congress.

In recent years, liberals such as Sen. Bernie Sanders (I-VT) have advocated for a “Medicare for All” system that would abolish private health insurance and enroll all Americans in Medicare. Specifics on how the program would be financed, or what it would ultimately cost, are unclear. Critics contend it would require significant tax increases, dramatically increase federal spending, and could lead to healthcare rationing due to a shortage of doctors once they’re forced to be compensated at the lower Medicare reimbursement rates.

Others have proposed using the Medicare model to establish a public health insurance option on the individual and small business health insurance exchanges, which has been criticized as a backdoor way to Medicare for All. Another proposal is often referred to as a “Medicare buy-in”, which would allow people to buy-in to Medicare early between the ages of 55 and 64 for a premium.

WHAT ARE SOME PROPOSALS TO REFORM MEDICAID?

Some have argued that to further the Medicaid expansion advanced under Obamacare, the federal government should increase its reimbursements so that there is parity between states that already expanded Medicaid and those which choose to do so in the future.

Another Medicaid reform proposal that is often advocated by conservatives is transforming Medicaid into a block grant based on state & federal spending on a given Medicaid program. In general, states would be given more freedom to determine who qualifies for Medicaid, but would have to cover certain people, such as low-income households with children or pregnant women. 

Conservatives have also proposed making Medicaid funding a per capita grant based on enrollment. While this would allow the programs’ funding to increase to account for an influx of enrollees, such as during an economic downturn, liberals have criticized this proposal because it would be inflexible in cases where a costly new drug enters the market or a disease that’s expensive to treat emerges.

WHAT DO SUPPORTERS OF PRESERVING OR EXPANDING MEDICARE & MEDICAID SAY?

Medicare and Medicaid are two of the most important programs in America’s social safety net because of the health insurance coverage they provide to the elderly and to low-income households. They should, at minimum, be protected from efforts to substantially reform them, if not expanded well beyond their current scope.

WHAT DO SUPPORTERS OF MEDICARE & MEDICAID REFORM SAY?

For Medicare to remain the key part of America’s social safety net for future generations it has been for the past half century, it will need to undergo reforms to make it more financially stable because its current spending growth is unsustainable. Medicaid should be reformed to give states more flexibility in how they administer their programs.

RESOURCES

• Centers for Medicare & Medicaid Services - Fast Facts
• National Conference of State Legislatures - ACA Medicaid Expansion
• Countable - Medicare & Medicaid History
• Countable - Medicare Part D & Medicare Advantage History

— Eric Revell

(Photo Credit: iStock.com / Bill Oxford)