The direct beneficiaries of Medicare were the aged, both the poor and the nonpoor (including their families whose financial responsibilities were thereby lessened). Benefiting indirectly were the health providers, physicians, and hospitals, as well as union members, whose wages increased when union retiree's health costs were no longer paid out of current labor costs. The benefits to the aged were very obvious. The redistribution of wealth to the providers and union members were not. The costs of providing benefits to these groups were borne (and still are) by the younger, working generations.
The aged clearly benefited, although some more so than others. They received increased access to medical services. Physician visits and hospital use by the aged rose. It has also been suggested that life expectancy has increased as a direct result of Medicare.
A universal program that treats persons of different incomes alike will not result in equal use of services. Medicare uses deductibles and copayments. The aged also have to pay a premium to participate in Part B of Medicare. Thus, to low-income aged, the required out-of-pocket expenditures represent a greater barrier to the use of those services than to higherincome aged. Medicare data show that after the enactment of Medicare high-income aged used more physician services than did low-income aged. The data also show that blacks used more services from hospital outpatient departments than whites, whereas whites used more services from private physicians. Even after controlling for health status, higher-income aged used more physician services than those aged with lower incomes. In 1969, of those aged whose health was considered "poor," the highest-income aged had 60 percent more physician visits than the lowest-income aged.
Those aged who could not afford the Medicare deductibles and copayments or who could not pay for services not covered by Medicare, generally chronic and long-term-care services, had to fall back on Medicaid, a means-tested program. States used varying levels of benefits and eligibility rules when they established their Medicaid programs. The federal government pays matching funds, but it is a state-administered and statedesigned program. Initially, some states were very generous in their benefits and eligibility requirements. However, as the cost of the program began to increase, states became more restrictive. To qualify for Medicaid, an aged person cannot have more than several thousand dollars in assets, excluding a home. The effect of this requirement is that many aged have had to "spend down" to this limit, in effect bankrupting themselves, to qualify for Medicaid.
Many middle-class elderly people, and their children, are shocked to learn that if they or their spouses require long-term health care, they must rid themselves of all their hard-earned assets to meet the Medicaid means test. The long and emotional fight over the use of a means-tested versus a universal program has not prevented many low- and middle-income elderly from having to rely on a means-tested program.
Was it possible to anticipate the financial consequences of a universal redistributive system designed according to provider preferences? Medicare (without Part B) was estimated to cost less than $2 billion a year. In a statement that could probably match the accuracy of "Peace in our time," Robert Myers, the chief actuary for the Social Security Administration, testified that "according to our estimates . . . the financing provided in the bill . . . will be sufficient to finance the proposal for all time to come." Federal expenditures for both Medicare Parts A and B and Medicaid, which was also designed according to provider preferences, exceed $400 billion a year. According to Wilbur Cohen, one of the major architects of Medicare, the rapid rise in federal expenditures for these programs, the unnecessary services, and the inefficiency and waste of the system were unforeseen. The development of new technology could not have been anticipated. However, it is difficult to believe that providing universal coverage for a large population group, reducing their out-of-pocket prices for medical services, and placing limited constraints on the providers would not have a major effect on the rise in prices and expenditures.
If hospitals were paid their costs plus 2 percent, physicians were to be paid their usual and customary fees, and there were limited, if any, controls on utilization, costs, or fees, what would constrain utilization and expenditures from rising? Although physicians had the medical responsibility for the patient's health care, physicians were not fiscally accountable for that health care. In addition to providing needed hospital health care, hospitals also served as substitutes for the home and for nursing homes. Because hospitals were well reimbursed for their services, who objected if a patient preferred to stay a few extra days? If it was difficult to care for a patient at home, the physician would approve a longer stay in the hospital. If the hospital was not fully occupied, longer hospital stays would also be beneficial to the hospital.
During this period, the late 1960s and 1970s, private health insurance coverage among the working population was also increasing. As the cost of hospital care increased, so did the demand for health insurance to protect against these high costs. (Less than 10 percent of hospital expenses are paid for by patients directly.) And as more of the hospital bill was reimbursed in full, the constraints limiting hospital cost increases became fewer and fewer. Physicians and hospitals, and those employed by the hospitals, fared well as a result of Medicare and Medicaid.
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