Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

Looking Back on 50 Years of Medicare and Medicaid

By Stephanie Reardon

The Medicare and Medicaid system has evolved along with the healthcare industry.

- It was a warm day on July 30, 1965 in Washington, D.C. when President Lyndon B. Johnson signed the Social Security Amendments bill into law. This would establish the Medicare and Medicaid programs.

Even then, the significance of establishing a system to provide healthcare services to the elderly and underprivileged in America was recognized. The system has evolved along with the healthcare industry, even if it sometimes took a fight for change to happen accordingly.

This year marks the 50th anniversary of the establishment of the Medicare and Medicaid program.

The Past

The idea to create the Medicare program came much earlier than it’s establishment. Originally, President Harry Truman had proposed its creation in 1945 as outlined on the Centers for Medicare & Medicaid Services (CMS) website and a bulletin from 1950 by the Office of Social Security.

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On November 19, 1945, Truman proposed a plan to cover the cost of health services to those who could not afford it, becoming the first president to support a national health insurance plan. In his proposal to congress, Truman expressed a critical need for services.

“About 1,200 counties, 40 percent of the total in the country, with some 15,000,000 people, have either no local hospital, or none that meets even the minimum standards of national professional associations,” Truman wrote.

Truman’s proposal also outlined five issues that he believed, if appropriately addressed, would improve healthcare:

  1. Lack of physicians and healthcare professionals in rural areas
  2. Lack of good-quality healthcare facilities in rural areas
  3. Creation of a board of medical providers who aim to create healthcare standards
  4. High cost of individual medical care
  5. Address the loss of earning when illness occurs

This proposal eventually led to the creation of the W-M-D bill, a Social Security expansion proposal bill. The American Medical Association (AMA) fiercely opposed the bill, indicating concerns over what this program would do to healthcare affordability and, according to the Chicago Tribune, denounced it as “the first step in a plan for the socialization not only of the medical profession, but all professions, business and labor.”

The AMA’s argument and lack of support for the bill ultimately led to Truman abandoning his pursuit. Though his efforts were unsuccessful, Truman still managed to bring the seriousness of healthcare problems to the public eye.

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When President Johnson signed the Social Security Amendments into law creating the Medicare and Medicaid programs in 1965, he cited Truman as the man who started it all.

“I am so proud that this has come to pass in the Johnson administration,” Johnson said in an address following the signing. “But it was really Harry Truman of Missouri who planted the seeds of compassion and duty which have today flowered into care for the sick, and serenity for the fearful.”

At the time, Johnston indicated that there were 18 million Americans aged 65 and older in need of programs to help them afford medical services.

The following year, July 1, 1966, the amendment signed by Johnson came into force, providing health insurance coverage to nearly all Americans aged 65 and older. More than 19 million individuals enrolled in these programs, one of the first being Former President Truman and his wife.

At the time, Medicare covered hospital insurance (Part A), supplemental medical insurance (Part B) and benefits that mirrored the free Blue Cross Blue Shield plans.

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To fund Part A, employers,employees and the self-employed paid a payroll tax and helped to cover Americans that were 65 years old or older at no cost to them. Part A cost approximately $40 annually.  Part B covered all Americans of any age that chose to enroll, and paid a monthly $3 premium that covered approximately 50 percent of Part B.

Medicaid funding was available for each state in January 1966, and was slowly implemented over the next several years. In 1966, Medicaid spend approximately $4 for each enrolled beneficiary and spend less than $1 billion a year.

Initially, very little oversight went into charges to Medicare from providers. However, Medicare payment restrictions were soon added, and eventually changed the way the doctors and hospitals were paid.

Since implementation, several additional amendments have been made throughout the years. Including (but not limited to) the extension of benefits to children under age 21 in 1967, Medicare being extended to people of any age with long-term disabilities in 1972, Medicaid extension to expectant mothers in 1986, the Medicare Catastrophic Coverage Act in 1988, and the Medicare Prescription Drug Improvement and Modernization act in 2003.

The Present

Today, Medicare and Medicaid cover approximately 68 million beneficiaries. According to the CMS website, Part A Medicare premiums can cost a patient $407 per month, and Part B Medicare plans costs beneficiaries $147 annually.

Part A continues to be financed through a payroll tax on employers and employees. The tax rate is 2.9 percent of their income, which pays for 80 percent of the $251.1 billion of annual revenue contributed to Part A, according to a Kaiser Family Foundation article. Part B is financed through mainly general revenues and beneficiary premiums.

In 2013, Medicare benefit payments cost approximately $512 billion. However, after the Affordable Care Act (ACA) passed in 2010, Medicare payments per person was about $1,000 lower than anticipated. Based on their data, the Kaiser Foundation predicted that Medicare outlays will increase from $512 billion in 2014 to $858 billion by 2024, a 5.3 percent growth rate.

On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (ACA) into law. It would not be implemented until years later, on January 1, 2014.

Much like the original plans that established Medicare and Medicaid, the ACA faced backlash from the AMA as well as providers. Primarily, the AMA cited concerns in an FAQ from the Medicare Newsgroup about the establishment of the Independent Payment Advisory Board (IPAB), Value Based Payment Modifiers and Medicare provider enrollment fees under the ACA. In each case, the AMA identified concerns about regulations that may reduce payments to providers.

The ACA has expanded Medicaid to over 30 thousand uninsured patients, as well as providing federal funding to help allow lower and middle-income patients to afford private health insurance. Eligibility was given to nearly all non-elderly adults with incomes at or below 138 percent of the federal poverty level (FPL) which is about $16,105 annually.

However, a Supreme Court ruling in June 2012, made the expansion of the Medicaid program an optional decision for each state. As each state may decide to opt out of the program, the impact on revenue varies.

Thus far, 28 States (including DC) have decided to expand their Medicaid programs. Primarily, Medicaid expansion has proved to be beneficial. As reported previously on this blog, with the incentive of “fee bumps” Medicaid appointment availability has improved and providers were more likely to take on Medicaid patients with the increase in reimbursement. To encourage providers to expand their Medicaid programs under the ACA, it provided multiple incentive programs to drive reform.

One such program is the EHR incentive program, which aims to help update CMS, making the use of EHR technology and meaningful use programs more appealing.

However, Medicare reimbursement to providers is still a challenge for the program. Medicare pays approximately 80 percent of what private insurance will pay for rendered services, while Medicaid pays only 56 percent. As the “fee bump” did not get extended, some providers are even refusing to accept Medicaid patients as they struggle to make ends meet.

Additionally, the CMS struggles with medical billing fraud, preventable readmission penalties,security breaches and non-compliance problems.

The Future

There is a shift in Medicare and Medicaid payments from a volume-based system of care to a more value-based payment platform. The use of alternative payment methods are increasing in practices and it appears this trend is not slowing anytime soon.

On January 26, 2015, the Department of Health and Human Services (HHS) announced its timeline for the reformation of the Medicare program.

This announcement comes as the healthcare industry is transitioning from fee-for-service payments to value-based reimbursement. HHS Secretary, Sylvia. Burwell, indicated that the Medicaid program will also be moving toward improved quality of care, rather than quantity.

“Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a health care system that delivers better care, spends health care dollars more wisely and results in healthier people.” Burwell said.  “Today’s announcement is about improving the quality of care we receive when we are sick, while at the same time spending our health care dollars more wisely.We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement.”

HHS’s goals for the future include:

  • Meshing 30 percent of fee-for-service Medicare payments with quality or value via alternate payment models (e.g., Accountable Care Organizations) by 2016
  • Linking 50 percent of Medicare payments to alternate payment models by 2018
  • Bonding 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018

Under the ACA, multiple new payment models were created aiming to improve the quality of care provided. Through these alternative payment models, the HHS indicated that it already saw cost savings of approximately $417 million in Medicare payments. Moving forward, these alternate payment models are anticipated to continue to reduce the amount of Medicare spending.

According to data from HHS, these value and quality-based methods are also predicted to reduce preventable patient death rates, hospital acquired condition rates and healthcare costs. Currently, approximately 50,000 fewer patients passed away in hospitals and the reduced rate in hospital acquired conditions saved approximately $12 billion in healthcare costs.

During his State of the Union address on January 20, 2015, President Obama expressed optimism on the continued reform of the healthcare system.

“At every step, we were told our goals were misguided or too ambitious; that we would crush jobs and explode deficits. Instead, we’ve seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled, and health care inflation at its lowest rate in 50 years,” Obama said.

He continued to express that these policies are doing what he had hoped, and he would continue to fight to improve and reform the system.

When Medicare and Medicaid were first signed into law, no one was certain it would work. Now, although the program has its challenges, it is considered by many to be one of the most successful Federally-funded programs ever established.



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