Medicare at 40: Past Accomplishments and Future Challenges

Aug 2 2005

As Americans commemorate Medicare's 40th Anniversary, AARP's Public Policy Institute (PPI) has released the report, "Medicare at 40," which examines the program's successes as well as the challenges that lie ahead. It found that Medicare has largely accomplished its original goals of ensuring access to care and establishing financial protections for medical costs.

Medicare was enacted this week in 1965 with the passage of Title XVIII of the Social Security Act. The AARP report states that the value of the Medicare program was evident from the start. "Before Medicare, older persons had either inadequate or no health insurance at all." explained AARP Director of Policy and Research John Rother. "Older Americans trying to buy health insurance were often denied coverage based on age or pre-existing conditions. Others simply could not afford the cost of coverage," he said.

"The choices they had before Medicare were bleak. They could deplete their savings, seek assistance from their children, look for charity care, do without other life essentials or forgo care altogether," Rother added.

In 1963, 44 percent of Americans age 65 and older were uninsured. Within 11 months of Medicare's implementation, 19.1 million people were enrolled in the hospital and other inpatient services component (Medicare Part A). Nearly 18 million, or 92 percent of persons age 65 and above, signed up the first year for physician and other outpatient services (Medicare Part B).

In 2003, less than one percent of those age 65 and older lacked health insurance. Medicare virtually eliminated uninsurance among older persons.

One important milestone in the program was reached in 1972. Persons with disabilities who did not qualify for Medicare or Medicaid also faced daunting problems getting health care. Amendments were made to Title XVIII of the Social Security Act to extend Medicare eligibility to individuals with disabilities and to those with End Stage Renal Disease. In 1973, two million people enrolled on the basis of their disability and by 2004, 6.4 million people with disabilities were enrolled.

Rother said, "The link between coverage and improved access to health care thanks to Medicare is well known. Medicare's coverage for hospital and medical services offers beneficiaries access to medical and scientific advances that have transformed health care. The program has contributed to greater life expectancy and financial protection against potentially large acute care expenses."

Today's threat to financial security is the high cost of prescription drugs, which until 2006, were not covered by Medicare. "The program has added a voluntary drug benefit that can really help people save on out-of-pocket drug costs," Rother said. "AARP will be providing information to our members and helping those who will benefit from the new drug plans."

Medicare has also contributed greatly to improving the quality of health care in the US. It has played a leading role in publishing and disseminating information about the performance of health plans, hospitals, nursing homes home health agencies and dialysis centers.

Looking ahead, there are many future challenges for Medicare. Similar to the health care sector in general, Medicare's health expenditures are estimated to grow by 7.3 percent annually between 2006 and 2014. With spending increases, the program's premium amounts will increase as well. Unlike most private health insurance plans, Medicare does not have cost sharing limits. Out-of pocket costs can be expected to grow and will continue to consume more of retirees' Social Security benefit.

Rother said, "As the nation looks for ways to keep Social Security solvent, it must protect its guaranteed benefit which will be vital not only to the economic security of older Americans, but to their health security as well."

Chronic health conditions, which are prevalent among Medicare beneficiaries, are also very costly to Medicare as well as the individual. The report found that 82 percent of those in Medicare have one chronic condition and visit an average of four physicians per year. Those with five chronic conditions visit 13.8 physicians annually.

As the number of chronic conditions increases, so do the number of prescriptions written for beneficiaries. Those with two chronic conditions fill an average of 18 prescriptions a year. Those with five or more conditions fill an average of 40 prescriptions a year.

Rother noted, "The challenges Medicare faces today are largely the challenges faced by the entire health system, and Medicare has the opportunity to be a leader in addressing them. Fragmented payment systems encourage fragmented care. Medicare's 'fee for service' payment methods emphasize individual providers and discrete services even though the coordination of care among a team of doctors is key to treating chronic conditions."

Savings to Medicare and ensuring its financial strength are critical. Rother concluded, "Increased longevity and forthcoming entry of the boomers into the program will mean that the program will need to be fortified if it is to continue protecting beneficiaries from the high cost of health care."

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