Early Deals Set the Stage for Today's Problems

In many ways, Medicare is one of the federal government's enduring successes. Without it, many of the 42 million elderly and disabled Americans it insures would have no health coverage.

"Medicare changed the whole idea of being old," said Rosemary A. Stevens, a retired University of Pennsylvania historian. "People lived longer. They had major surgeries. They could access care without going broke."

But when Medicare became law on July 30, 1965, as part of President Lyndon B. Johnson's Great Society program, it also reflected a series of political compromises that were decades in the making and continue to define and shape the giant government insurer.

For half a century, social reformers had pushed for national health insurance. They faced heated opposition from the American Medical Association and other groups, which feared government-run insurance as an attack on doctors' autonomy and incomes. Robert M. Ball, Social Security commissioner under Presidents Kennedy, Johnson and Nixon, has called Medicare a "fallback position."

Ball and other proponents designed Medicare so it would face the least possible opposition. In contrast to the Medicaid program, which was passed at the same time as a way to provide health coverage to the poor, Medicare was available to all people 65 and older, regardless of income. It resembled private health plans such as Blue Cross and Blue Shield, which allowed patients unlimited choice and paid what doctors and hospitals charged, so long as they weren't dramatically out of line with their peers.

"It was all about greasing the wheels to make the program successful," said Judith M. Feder, a Georgetown University professor who wrote a history of Medicare.

Congress required Medicare to set minimum standards of care in hospitals, referred to as "conditions of participation." Early on, those standards were widely credited with improving the quality of care. Over time, however, Medicare's standards have lagged behind changes in medicine. Efforts to update them have often become bogged down in politics and bureaucracy.

Standards for kidney dialysis care, for example, remained in place for a quarter-century until Medicare proposed revising them this year; standards for hospice care languished for 22 years.

But Medicare was changing American medicine in other ways, Stevens said. The torrent of federal tax dollars stimulated growth and led to an unprecedented expansion of the health care system.

There were few brakes on that system. By law, Medicare was prohibited from explicitly considering cost when deciding whether to pay for a new treatment or machine, an edict that remains in place today.

"Essentially, they were paying claims," Feder said. "They were simply turning over the keys to the Treasury to the providers."

Since its inception, Medicare spending has grown more than 14 times the rate of inflation to about $300 billion. It spends more than $800 million a day. In a decade, analysts estimate, spending will top half a trillion dollars and account for nearly a fourth of the federal budget.

John E. Wennberg of Dartmouth Medical School recently wrote that Medicare is speeding toward "a trillion-dollar train wreck." An advisory panel of trustees overseeing Medicare's long-term finances wrote in a report last year that the combination of rising costs and a sharp upturn in the number of beneficiaries -- from 42 million today to 71 million two decades from now -- threatens to bankrupt the hospital program.

To prevent that, Congress would have to increase the current payroll tax used to finance the hospital portion of Medicare by about fourfold. Or dramatically slash benefits, the trustees said.