61 years ago today, President Lyndon B. Johnson reshaped the foundation of American healthcare by signing the Medicare and Medicaid Act. This landmark legislation created Medicare, a federal health insurance program primarily for people 65 years or older, and Medicaid, a federal and state program that provides healthcare coverage for people with low incomes.
The origins of Medicare and Medicaid.
The Medicare and Medicaid Act was the result of a decades-long debate surrounding a national health insurance program. In his first year in the Oval Office, President Harry Truman started the conversation by calling on Congress to establish a “comprehensive health program” for all Americans. However, Truman’s vision met staunch opposition and was never realized.
Amidst this debate, the way Americans got their health insurance was fundamentally changing. Between 1940 and 1950, the number of Americans with employer-based healthcare coverage skyrocketed from 21 million to 142 million. This shift left older, sicker Americans, who no longer participated in the workforce, to rely on private insurers who viewed them as too risky to cover. By 1962, roughly half of elderly Americans lacked health insurance.
In response to this growing crisis, advocates and lawmakers who had long fought for a universal federal health insurance program narrowed their focus toward elderly Americans. As a result, the decades-long push finally gained steam.
Advocates and lawmakers capitalized on this momentum to pass legislation establishing Medicare for seniors and Medicaid for low-income Americans.
The legacy of Medicare and Medicaid.
Since their creation in 1965, both Medicare and Medicaid have undergone major changes in size, scope, and funding.
When it was implemented on July 1, 1996, Medicare covered around 19 million elderly Americans and consisted of two parts: Part A, which provided hospital insurance and was funded through a payroll tax, and Part B, which covered physician services. Over time, the program was made available to people under 65 with long-term disabilities, was changed to include private plan alternatives (Part C), and was expanded to include prescription drug coverage (Part D).
Medicaid funding, meanwhile, became available on January 1, 1966 and state programs were phased in over the following few years. The structure hasn’t fundamentally changed since then, with federal and state governments both funding the program. However, federal involvement has grown as eligibility expanded, most notably through the Affordable Care Act (ACA) in 2010. Although it was later limited by the Supreme Court, the federal government absorbed most of the added cost.
Today, more than 70 million Americans are enrolled in Medicare, and 67 million Americans are enrolled in Medicaid (including 12 million enrolled in both programs). Collectively, the programs make up almost a fourth of the federal budget and provide health coverage for 2 in 5 Americans.
What this means for you and me.
Medicare and Medicaid have helped Americans get the medical care they need for more than six decades, but fiscal stress now threatens their future.
Medicare hospital insurance (Part A) is funded by a tax that all working Americans pay on each paycheck. As healthcare costs soar and baby boomers continue to retire faster than new workers enter the workforce, the program faces serious uncertainty in its long-term financial stability. Without significant reforms or a cash infusion from general revenues, it will reach insolvency as soon as 2033. If that happens, Medicare wouldn’t be able to cover the full cost of hospital care, potentially leading to hospital closures and patients across the country losing access to care.
Medicaid also faces an uncertain fiscal future. Medicaid has always been a partnership between the federal government and states, but that relationship has changed over time. When the federal government takes on more of the program's financial burden, states often expand their programs to provide more benefits to more people. However, when the opposite occurs, states often eliminate optional benefits and reduce payments to providers. However that relationship evolves, it will directly impact low-income Americans’ access to health insurance.
Congress will ultimately decide what the future of these programs looks like. Whatever they decide, the answer to that question will be explored against the backdrop of a $39 trillion national debt.
That national debt raises the stakes for Congress and these programs. If you want to learn how, check out our national debt primer and sign up for our newsletter to get our latest policy explainers.
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