The Medicare program was signed into law in 1965 to provide health coverage and increased financial security for older Americans who were not well served in an insurance market characterized by employment-linked group coverage. Many of its architects thought Medicare for the elderly was the first step toward eventually achieving health care coverage for all. Although it wasn’t, the program has remained quite stable over time, with modest expansions in coverage and eligibility.

At the time of Medicare’s enactment, insurance for hospital stays was typically the primary insurance benefit provided by employers, since physician services and prescription drugs represented a less costly and more predictable component of spending. Therefore, hospital coverage (Medicare Part A) constituted Medicare’s principal benefit, automatically enrolling eligible beneficiaries, with coverage for physician services (Part B) offered as optional, supplementary insurance. Part B coverage of physician and other outpatient services, however, is a critical part of the program with almost universal enrollment among traditional Medicare enrollees.

As private health insurance evolved to a more managed-care approach with an integrated benefit design, including both hospital and physician services, the Medicare Plus Choice program was enacted in 1997 with the addition of Medicare Part C that allowed Medicare HMOs to participate. Under the 2003 Medicare prescription Drug, Improvement, and Modernization Act (MMA), the Medicare Plus Choice program was relabeled as Medicare Advantage (MA), and MA plans now enroll more than one-third of Medicare beneficiaries. Also in the MMA of 2003, reflecting the increased importance and costs of prescription drugs in treating both acute and chronic health care conditions, Congress enacted the Part D prescription drug benefit. Drug coverage is available through MA plans or through stand-alone prescription drug plans. Other incremental changes to Medicare’s plan design have been made, including adding benefits for wellness, prevention, and hospice care. To date, further attempts to update Medicare’s benefit design and cap OOP expenditures for Parts A and B have not been successful.


For more on the history of Medicare, see:

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