In 1964, President Lyndon Johnson set up a panel of health care experts that revealed that many Americans could not afford basic medical care. A number of different health insurance bills were proposed to offer health care for the elderly. The American Medical Association, which historically ha opposed any government funding of health care or health insurance, proposed their own plan, which was a voluntary program available to individuals only if their states signed up for it. The plan that passed in July 1965 was a combination of two of the original bills, and included Part A, a program in which every state had to participate that provided hospital coverage for the elderly, and Part B, a voluntary insurance program for the elderly that paid for medical bills. This was called Medicare, and was added as Title XVIII of the Social Security Act. Working people pay for Part A through payroll taxes. Those who wish to participate in Part B pay a monthly premium (Andrew 1998, 97-100; CMS, “Key Milestones in CMS Programs”; CMS, “Your Medicare Benefits”).

At first, no cost controls were built into Medicare. Doctors and hospitals could charge as much as they wanted, and the government would pay. The Johnson administration believed that including cost controls would have killed the bill. According to Wilbur Cohen, who was undersecretary of health, education, and welfare at that time, “It wasn't possible in 1965 to put cost controls in. It would have never passed Congress. That would have been federal control, which was the whole political issue at that time” (quoted in Andrew 1998, 105).

However, the costs of Medicare grew so rapidly that even conservative politicians came to agree that cost controls were needed. In the 1980s, President Ronald Reagan's administration and the Congress limited the amount Medicare would pay for physician services and hospital fees (Cohn 2007, 93-94).

Over the years, Medicare has been expanded to include more people and more benefits. In 1972, those under sixty-five years of age with long-term disabilities were also able to participate in Medicare. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act “made the most significant changes to Medicare since the program began,” according to the Centers for Medicare and Medicaid Services Web site. This new program provides coverage for prescription drugs. In addition, elderly people with an income of less than 150 percent of the poverty line are eligible for prescription drug subsidies, and those with high incomes pay more premiums under Part B. This law also initiated a program called Medicare Health Support, which helps people with chronic illnesses, such as heart disease and diabetes, follow a plan to reduce their health risks (CMS, “Key Milestones in CMS Programs”).

Medicare does not pay for every medical cost. While most people are automatically enrolled for free in Part A (hospital insurance), some people—those who did not have jobs that required them to pay Medicare taxes—are not automatically enrolled. Those people must pay a monthly premium of up to $423 (as of 2008) to enroll themselves in Medicare Part A. The monthly premium in 2008 for those who wished to enroll in Part B was about $96.40, or more depending on income level. Individuals also have to pay a “deductible” (which was $135 as of 2008) before Medicare began covering services under Part B (which covers doctor's visits and other non-hospital care). If a Medicare beneficiary is hospitalized, as of 2008, they paid a $1,024 deductible, plus $256 per day for days sixty-one to ninety, and $512 per day for days 91 to 150. Beneficiaries must pay all costs after 150 days. Medicare does not pay for private nurses, private rooms, or televisions and telephones in the hospital room. Poor elderly people who cannot afford the costs of Medicare can get help from Medicaid, the government health insurance for the poor (CMS, “Your Medicare Benefits”).

Before Medicare coverage went into effect, only half of those over age sixty-five had insurance coverage. As of 2005, 95 percent of those over age sixty-five are covered by Medicare, according to the Center for Medicare Advocacy's Web site.

See also: Great Society; Johnson, Lyndon; Medicaid; National Health Insurance; Social Security Act