Medicare Changed Health Care in America for the Better

Kimberly Leonard

Health care in America is markedly different now than when President Lyndon B. Johnson signed Medicare and Medicaid into law on July 30, 1965. Since that time, the government has poured billions into health care each year. That has led to better care, but also resulted in the need for constant re-evaluation so the government can ensure people continue to get coverage.

Medicare and Medicaid aimed to reduce barriers to medical care for America's most vulnerable citizens -- aging adults and people living in poverty. At the time Medicare was enacted, 19 million Americans enrolled. Today, that number has reached 56 million, or 17 percent of the population.

Medicaid, a joint state-federal program, was small when it was first signed into law, covering only people who received government assistance. Today, it is the largest health insurance program in the country, providing coverage for more than 71 million low-income people. Changes in the programs over the years have resulted in a significant shift for public insurance: One in three Americans is covered by Medicare or Medicaid.

"These two programs have become such a fabric of the health care system that it's hard to imagine a world without either of them," says Diane Rowland, executive vice president at the Kaiser Family Foundation.

[READ: Obamacare and the 50th Anniversary of Medicaid and Medicare]

But the programs did more than cover millions of Americans. They removed the racial segregation practiced by hospitals and other health care facilities, and in many ways they helped deliver better health care. By ensuring access to care, Medicare has contributed to a life expectancy that is five years higher than it was when the law went into effect. And children who are on Medicaid develop into healthier teenagers and adults, according to a report published Tuesday by the Center for Children and Families at Georgetown University's Health Policy Institute.

Developments in care and adjustments to the programs resulted in a health care landscape in which pharmaceuticals are common in care, seniors age in nursing homes, patients can discover how well providers give care, and payment models are continually evolving.

In 2010 President Barack Obama's health care law, the Affordable Care Act, made changes to government-assisted health insurance so it would cover more people. The law aims to expand Medicaid to more low-income people, and worked to cover the middle-range of citizens who made too much money to qualify for Medicaid but also could not afford to buy private insurance on their own.

By covering millions more, the Affordable Care Act contributed to changes seen in five decades of Medicare and Medicaid.

A Prescription Boom

Innovation has been critical to the advancement of health care in the nation, and government-sponsored health insurance largely paved the way for advancements. Because the government covered more people, and eventually extended that coverage to include drugs and medical devices, industries knew they could invest in research because they would eventually recoup the costs of their work through sales of new products.

"A market began for drug companies and medical device manufacturers; when you have a market willing to pay for [products], it's worth making the investment," says John Holohan, fellow at the Health Policy Center at the Urban Institute.

The investment has become significant, as various levels of testing need to be conducted and then approved by the Food and Drug Administration. New drugs can take more than a decade to reach the market, and require the industry to spend about $1.3 billion. Medical devices, which include X-rays, knee replacements and heart monitors, vary in their cost and in the length of time it takes for approval.

The use of prescription drugs gradually increased during the past 50 years. Today, nearly 7 in 10 Americans take a prescription drug, and half take at least two. As people age, they tend to take more medications.

When Medicare first was signed into law it included only coverage for hospital and doctor services. States gradually enacted Medicaid, and today all plans include prescription drug coverage. People initially paid for prescription drugs out-of-pocket, but they soon became more expensive.

"Prescription drugs weren't the big deal they are today," Holohan says of the period when Medicare and Medicaid were signed into law.

Congress gradually passed laws to allow the programs to assist beneficiaries in paying for them.

In 1988 the Medicare Catastrophic Coverage Act included an outpatient prescription drug benefit, and in 1990 the Medicaid prescription drug rebate program was established, requiring drugmakers to give "best price" rebates to states and to the federal government.

Beginning in 2006 the Medicare Modernization Act established a prescription drug benefit (called "Part D") available to all Medicare beneficiaries. By 2013, the benefit covered more than 39 million older Americans.

[RELATED: Medicare Sends Payments to Doctors Who Don't Exist]

A few additional changes in drug payments are occurring under the Affordable Care Act, including the shift in usage from high-priced prescription drugs to less costly generic alternatives. Budget analysts have noted, however, that pharmaceuticals also are moving toward developing more expensive biologic drugs, which could be a challenge for Medicare and Medicaid to afford.

Taking Over Long-Term Care

Long-term care for older adults did not take place in nursing homes in 1965, but the shift to Medicare and Medicaid has changed that.

Karen Davis, director of the Roger C. Lipitz Center for Integrated Health Care at the Johns Hopkins Bloomberg School of Public Health, points out that in 1965 people had larger families and were more likely to be cared for at home. Now, 1 in 4 adults will need a period of care in a nursing home. But that more sophisticated care is also more costly.

Medicaid started covering nursing home care for low-income seniors in 1971 and today pays for half of the country's long-term care. Joan Alker, executive director at the Center for Children and Families at Georgetown University's Health Policy Institute, says the program's involvement in nursing home care is an example of how Medicaid has evolved to fill critical gaps in the health care system. "It is an entitlement program with guaranteed funding, so it can adapt," she says.

The program only kicks in for people after they have depleted nearly all of their assets, however. Medicare -- the program that would typically cover older adults -- only pays for the medical portion of care as well as for a short-term stay, such as after surgery or a fall. "Medicare is a good program for medical care but falls short on social services because it does not cover the support," Rowland says.

In recent years, the trend toward nursing home care appears to be slowing as Medicare creates incentives for home health and as technology improves for people to age in place. "More and more home health agencies are becoming common," Holohan says. "More people are staying at home, so we are seeing nursing home enrollment flattening out."

Reforming Health Care Payments and Quality

Medicare and Medicaid have also increased quality across the board.

The Omnibus Budget Reconciliation Act of 1987 established quality standards for Medicare- and Medicaid-certi?ed nursing homes, in response to well-documented quality problems that seniors faced in nursing homes. An analysis by research firm RTI International revealed that by 2006 this led to more staff, better training, higher vaccination rates and fewer restraints of residents.

When Medicare and Medicaid went into law, Congress passed a set of conditions for hospital participation and gradually took a greater role in overseeing standards for care. By 2003 it required public reporting on measures such as hospital infection rates, volume and readmissions.

"When hospitals find out they aren't as good as other hospitals, they get serious about improving," says Davis. "When they find out it's possible to have lower rates of infections, for instance, they try to find out what good practices are and follow them to get good results."

Alker says these programs try to ensure accountability for taxpayer dollars.

While Medicare and Medicaid have undoubtedly improved health care, they have also contributed to greater health care spending, and costs for the programs will continue to grow as more Americans join the rolls. Policymakers have been increasingly focused on how quality can be improved, but also how that can be accomplished at a lower price since health care costs grow at a faster rate than the rest of the economy and threaten the financial sustainability of government-sponsored health plans.

[READ: The Politics of Medicaid and Medicare, 50 Years Later]

What remains is what payers, including the government, will do to slow or reverse the trend. The government can have wide impact, as its payment structure often sets the stage for private insurers.

"With even more people covered under the Affordable Care Act, the government is in a position to do lots of experimentation with ways to pay providers and to deliver care," says Katherine Hempstead, director of health insurance coverage at the Robert Wood Johnson Foundation. "They will need to determine the most efficient way to use public money so providers are delivering the most value to people that need it."

Several experiments have been conducted during the history of Medicare, while other legislation has directly targeted the issue. "Medicare has been at the forefront of developing new approaches, and the private sector tends to emulate it," Holohan says. "They don't always work, but they continue to modify."

The Tax Equity and Fiscal Responsibility Act of 1982 imposed a ceiling on the amount Medicare would pay for hospital discharge and the Social Security Amendments of 1983 paid hospitals a fixed fee for types of cases.

"Once they got a fixed amount they figured out how to take care of them in less time," Davis says. "We have seen a decline in hospital readmission rates and a decline in the number of days people were in the hospital."

A series of budget reconciliation laws continued to make adjustments. The Omnibus Budget Reconciliation Act of 1989 reimbursed doctors through Medicare by estimating the resources required to provide the services. The Omnibus Budget Reconciliation Act of 1993 modified payments to Medicare providers.

The Balanced Budget Act of 1997 significantly reduced provider payments to slow the growth in Medicare spending. It also established the Sustainable Growth Rate, which adjusted payment rates for doctors, and which Congress proceeded to patch 17 times. This past March, however, a more permanent solution was put in place that stabilizes funding through 2025.

The Affordable Care Act aims to discover ways to pay for care that would improve quality while lowering spending, through its creation of the Center for Medicare and Medicaid Innovation.

"We're in the 'third era' of payment reform," Rowland says. "We are looking at managed care and capitation and building incentives for performance and quality measures."

More on Medicare and Medicaid:

-- 50 Years of Medicare & Medicaid

-- The Hidden Legacy of Medicare

-- 5 Challenges Facing Medicaid at 50

-- Challenges Remain for Medicare

-- Medicare's Impact on Health Care

-- Europe's Input on Medicare

-- Experts Warned of a Medicare Crisis

-- 10 Things You Should Know About Medicare

-- Quiz: Do You Really Understand Medicare?

Kimberly Leonard is a health care reporter for the News division at U.S. News. Previously she worked in Health Rankings as a multimedia producer and reporter. You can follow her on Twitter, connect with her on LinkedIn, circle her on Google+ or email her at