The Government Steps In

Although the Blues, HMOs, and other insurance plans enabled most Americans to pay for health care, by the 1960s, many poor Americans, as well as many mid- dle-class retirees, were finding it difficult to do so. Reflecting in part the rise of the civil rights movement and the growing belief that government should use its power to improve Americans’ lives, Congress in 1965 authorized two new health insurance programs: Medicaid to insure the poorest Americans and Medicare to insure Americans who were permanently disabled or age 65 and older.

It is important to note that Medicaid is funded jointly by state and federal governments and is typically framed by politicians and citizens as a form of char- ity. Eligibility, coverage, and payments to providers vary considerably across the states, depending in part on how willing state residents are to offer such “charity.” In contrast, Medicare is funded and organized by the federal government. Because most recipients are age 65 and older, the program is typically framed as an “entitlement” earned through a lifetime of working and paying taxes.

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Both Medicaid and Medicare were established as fee-for-service insurance. Almost from the start, however, Medicaid offered relatively low reimbursement to health care providers, leading many doctors to reject Medicaid patients. Medicare, however, broadened access to health care while allowing providers to set their own fees, at least initially. As a result, the incomes of doctors, hospitals, and others working in the health care field skyrocketed.

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