The first baby boomers came of age in a political whirlwind: African Americans marched for equal rights, and Southerners attacked them. Anti-war protesters squared off against tear gas, nightsticks and bullets. Feminists pounded on the nation’s boardroom doors, demanding opportunities for women. Environmentalists demanded cleaner air and water.
Federal government responded with historic reforms: Voting rights. Civil rights. Environmental protection laws. Withdrawal from Vietnam. The resignation of a president.
The fight for a more humane society led to one more reform, not as high on the priority list for the era’s young activists — though they have reason to feel differently about it today: On July 30, 1965, President Lyndon B. Johnson sat down at a table in Independence, Mo., and signed Medicare into law.
Looking on was former president Harry Truman. Johnson handed Truman a card, making him the first client of a federal program that raised payroll taxes and guaranteed medical coverage for Americans 65 and older.
For Truman it was a moment of political triumph. As president, in 1945, he had proposed a national health care system — for all ages. The American Medical Association, representing the nation’s doctors, called it “socialism” and fought him off. President John F. Kennedy revived the idea, but focused it on the elderly. The medical establishment fought that proposal too, with help from an up-and-coming conservative named Ronald Reagan. Southern whites opposed Medicare, as well, enraged that it would end the racial segregation of hospitals.
After a fierce battle, Johnson won.
And so did elderly Americans.
In those days, U.S. health insurance was linked to the workplace. When Americans retired, many lost their coverage — and could not purchase new coverage, because health insurance companies would point to the ailments that go along with age and would refuse to issue policies on the ground of pre-existing conditions. As a result, especially among low-income elderly, illness meant impoverishment and an early death.
When Johnson signed that law, a majority of elderly Americans had no health coverage. Within a few years, 97 percent had Medicare. By 1975, the number of elderly Americans living in poverty had fallen by half.
Meanwhile, the leading edge of the baby boom generation left youthful activism behind, trading tie-dyed shirts for three-piece suits. Many voted for Reagan, who portrayed “big guvmint” as their enemy.
But today, if boomers look in a mirror they will see, more clearly than they did in 1965, a reason to care about Medicare.
Once again, health care for the elderly is in the eye of a political whirlwind. In the nation’s capital, a pitched battle rages over federal spending — including Medicare, which signed up the first baby boom beneficiaries in 2011.
Medicare attracts attention, due to its growing share of federal outlays: 8 percent in 1990, 12 percent in 2000, 15 percent in 2010, and a forecasted 18 percent in 2020. There lies the problem: A bigger share for Medicare would mean smaller shares for the federal government’s other responsibilities.
Reasons for the rising cost?
• Rising longevity increases the population of elderly people, as well as the cost of their care.
• The large boomer generation is leaving the workforce. Smaller generations must shoulder some of the cost of keeping Medicare’s commitment to the aged. In 2010, 13 percent of the U.S. population received Medicare benefits and there were 3.4 tax-paying workers per Medicare beneficiary. By 2030, 20 percent of the population will be receiving Medicare benefits, with only 2.3 tax-paying workers per beneficiary.
• Spending forecasts also cite health care cost inflation as one of Medicare’s problems. But the rise in medical costs has slowed in recent years — particularly for the government-run Medicare system.
According to the U.S. Department of Health and Human Services, between 2010 and 2012, Medicare spending per capita grew an average of 1.9 percent per year, with only 0.4 percent growth in 2012.
In private health-insurance systems, on the other hand, costs between 2010 and 2012 grew more than 7 percent a year, according to PriceWaterhouseCoopers.
Unlike Medicare, private health insurance plans spend money on profit margins, and on deliberate battles with providers and patients over what bills are covered.
Under Medicare, coverage is not exactly an insurance policy. Rather, it’s a social guarantee. The program rests on a commitment from one generation to the next: payroll taxes on working people, plus federal income taxes, plus the premiums paid by most Medicare beneficiaries, provide Medicare with its funding. From this funding, retirees get the promised coverage.
Nonetheless, many of today’s congressional Republicans have demonstrated a philosophical opposition to government safety nets, such as Medicare. Instead, they would refer the needy to the private sector.
U.S. Rep. Paul Ryan, for example, has proposed replacing Medicare with a voucher, which the elderly then would apply toward the cost of buying private health insurance. According to the nonpartisan Kaiser Family Foundation, Ryan’s voucher plan would increase a typical 65-year-old’s annual out-of-pocket spending by $6,240. Given President Barack Obama’s opposition, the voucher concept might be dead for now.
But vouchers are only one among many Medicare reforms under consideration in the nation’s capital.
How Medicare works
To put reform proposals in context, it is necessary to understand how Medicare works.
The Medicare program has several components. Most Americans sign up when they turn 65.
• Part A covers hospitalization. This is funded largely by the Medicare payroll tax on working people, plus a small amount from Part A’s hospital insurance trust fund. Much has been made, in the political realm, of forecasts that Part A’s trust fund will be depleted in 2026. If that happened, payroll tax revenue still would provide enough to cover 87 percent of the hospitalization benefit’s cost.
• Part B covers physicians and other outpatient services. Its funding: 73 percent from general tax revenue and 25 percent from the monthly premiums Medicare recipients must pay.
• Part D covers drugs. It allows seniors to sign up for a federally subsidized, private insurance policy to cover prescription pharmaceuticals. Its funding: 80 percent from general tax revenue, 11 percent from the monthly premiums Medicare recipients must pay, and 9 percent from states that pay the Part D premiums for impoverished Medicaid clients.
• Supplemental “MediGap” insurance. Medicare covers roughly 80 percent of medical bills, leaving beneficiaries responsible for 20 percent. But health problems are unpredictable and a 20 percent share of a six-figure bill can bankrupt all but the super-rich.
For this reason, many Medicare recipients choose to buy supplemental insurance, which they pay out of pocket, in addition to their Medicare premiums. Due to a long history of fraudulent sales practices by supplemental insurance companies, the federal government tightly regulates what these policies cover and how they’re sold.
• Medicaid. For elderly people with incomes below the poverty line, Medicaid pays the Medicare premiums and the deductibles, filling the role that private MediGap insurance pays for higher-income people.
* Medicare Part C is a regulated, private-sector alternative to Parts A, B and sometimes D. It’s sold by private health insurance companies and paid for by a combination of federal funds and beneficiary premiums. Nationwide, only 27 percent of seniors choose a Part C plan, also known as Medicare Advantage. It’s illegal to sell MediGap insurance to someone who has a Part C policy.
In a successful push to reduce waste and extend Medicare’s financial viability, the Affordable Care Act of 2010 clamped down on Part C’s spending. In 2012, administrative costs in Medicare Parts A and B totaled 1.5 percent of benefits. Overhead in private insurance is higher — so much so that the 2010 law requires a rebate to consumers from health insurers whose overhead costs exceed 20 percent.
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