A History of Failed Reforms

Medicare (Title 18 of Social Security) and Medicaid (Title 19) were passed in 1965 at the height of President Johnson's Great Society and War on Poverty initiatives. They signified the high-water mark of postwar liberalism. The appearance of former President Truman at the signing ceremony signaled that they were intended to be first steps, culminating in a universal national health insurance program similar to the state-run systems in Europe.

"What is needed is a pro-patient solution."

The year 1965 was also the high-water mark of faith in the federal government and strong mistrust of the states. Only two years after Martin Luther King's "I Have a Dream" speech, one year after the Civil Rights Act and in the same year as the Voting Rights Act, "state's rights" was almost synonymous with racism and segregation. This explains Medicare and Medicaid's strong federal orientation.

By 1966, we were in an unpopular war that eroded confidence and consensus. The administration's "guns and butter" approach attempted to fight a war and proceed on Johnson's ambitious domestic agenda. It was not successful and costs and inflation got out of control. By 1970, Medicare and Medicaid were spending what Congress had estimated they would cost two decades later, in 1990. This was only the first of many underestimates of future spending.

In efforts to control costs in the 1970s, states centralized health planning, issued certificates of need, and imposed wage and price controls and moratoriums or restrictions on hospital and nursing home beds. All of these initiatives sought to control the supply of health care while the demand for it increased. Many politicians were surprised when costs skyrocketed.

In the 1980s, President Reagan's "New Federalism" proposed a swap: the federal government would take all of Medicaid and return other programs to the states. The idea was discarded when the Office of Management and Budget Director Stockman looked at Medicaid's astronomical out-year costs. Other regulatory reform proposals were defeated by a combination of seniors' lobbies and liberal legislators. In the 1982 elections, Sen. Claude Pepper sent out a nationwide letter stamped "Important Social Security Information Inside" and looking exactly like an official Social Security Administration document. It claimed that Republicans were trying to dismantle Social Security (and by implication Medicare and Medicaid). Most election analysts believed this was a primary reason why the Republicans lost 26 congressional seats and why the Reagan administration abandoned further Medicaid and Medicare reform efforts.

The 1980s also was a decade in which states tried numerous bookkeeping schemes to "enhance" the federal match, using methods that are now illegal or discouraged. [See the sidebar on "The Texas Experience."] Enhancing or maximizing the federal match has become a cottage industry for some Washington, D.C., think tanks, but the real culprit is the match itself.

In the 1990s, concern about Medicaid funding was superseded by concern for the uninsured. Health care became a major national issue when, in 1991, Pennsylvania's little-known Harris Wofford defeated the sitting U.S. attorney general for a U.S. Senate seat. Wofford's campaign manager, James Carville, took the issue to the governor of Arkansas for use in his campaign for U.S. president in 1992.

The result of these three decades is an astonishingly bare record of successful reform. Although America has changed greatly in 37 years, Medicare and Medicaid remain essentially the same programs that were enacted in the 1960s, that distant and different social and economic time.