History of SSA During the Johnson Administration 1963-1968


Foremost among the improvements made in the social security program during the Johnson Administration are the comprehensive health insurance programs for elderly Americans.

Lack of adequate protection for the aged against the cost of health care was the major gap in the protection of the social insurance system in 1963. Meeting this need of the aged was given top priority by President Lyndon B. Johnson's Administration, and a year and a half after he took office this objective was achieved when a new program, "Medicare," was established by the 1965 amendments to the social security program.

The special economic problem which stimulated the development of Medicare is that health costs increase greatly in old age when, at the same time, income almost always declines. The cost of adequate private health insurance, if paid for in old age, is more than most older persons can afford. Prior to Medicare, only a little over one-half of those aged 65 and over had some type of hospital insurance; few among the insured group had insurance covering any part of their surgical and out-of-hospital physicians' costs. Also, there were numerous instances where private insurance companies were terminating health policies for aged persons in the high risk category.

There were Federal-State programs of medical assistance to the aged before Medicare, but they were not meeting the need of the aged for medical care; relatively few people were helped because the programs were so restrictive, both in terms of who was eligible for help and the scope of covered care that could be furnished. Because of the limited availability of State funds, only the very needy could be helped. The problem of high health care costs, on the other hand, was not limited to the poor. Those among the aged who had substantial incomes and who had been able to accumulate some savings faced the threat of being wiped out financially by a severe illness. Medical assistance, based on individual need, could not attack on a broad front the problem of insecurity arising out of high health costs in old age. The decision of the Administration and of the Congress was that in meeting this problem, as in meeting the problem of maintaining income in old age, the main thrust should use the mechanism of social insurance.

Legislation--The Product of Many

It has sometimes been said of President Johnson that he is the former of consensuses and that his success in this direction accounts for his legislative accomplishments. The Medicare legislation promises to be an outstanding example of the development of such a consensus. One of the reasons it seems to be an outstanding example is the very duration of the period during which it was debated and considered. {1}

Over the approximately eight years between the conception of the Forand bill of 1957--the first bill proposing the social security approach to health care for the elderly to receive active congressional consideration--and the enactment of the Medicare program in 1965, a continuous process occurred of presentation and analysis of ideas; consultation with experts by legislative leaders and by people in the executive branch; legislative hearings; deliberations of advisory groups; consideration of recommendations by legislative sponsors; and modifications of this plan worked out and embodied in legislative language.

The idea behind the plan was always to incorporate within it the best concepts of health economics, health insurance and health care. The attempt to reach this high goal required the application of the best efforts of many inside and outside the Government to deal with many difficult issues--issues of financing, of utilization controls, of the effect on private plans, of quality protections, of methods of administration, of fair reimbursement, of acceptability to the people providing health care and to the people receiving and paying for health care, and of the nature of the need to be satisfied. Many thousands of carefully arrived at decisions were made and incorporated in the more than 50 pages of enacted legislation crammed full with detailed provisions for putting the ideas behind health insurance into effect.

The decisions had to be made in the face of somewhat conflicting objectives: to support continuing improvement in the quality of health care but not to direct changes in care; to cover health services without barriers to their proper use but at the same time to avoid possibilities of paying for unnecessary use of the services; to cover only basic and most expensive needs but not to create an incentive to use one form of service when another, possibly less expensive one, might equally suffice; to cover institutional health services for a period of time enough to meet medical needs but not so long as to encourage hospital use to meet custodial needs; to provide for the safeguards of patient-sharing in costs through deductibles and coinsurance but not to impose undue financial burdens on the aged; to safeguard the expenditure of funds but not to involve the Government in the establishment of physicians' fees; to provide for utilization review procedures but not to involve the Government in medical judgments.

Enactment of the 1965 Amendments

With the signing of H.R. 6675 on July 30, 1965, the President put into law the Medicare program comprised of two related health insurance plans for persons aged 65 and over:

(1) a hospital insurance plan providing protection against the costs of hospital and related care, and

(2) a supplementary medical insurance plan covering payments for physicians' services and other medical and health services to cover certain areas not covered by the hospital insurance plan.

Hospital Insurance Plan

Hospital insurance protection, financed through moneys derived from a separate earnings tax, was provided for beneficiaries under the social security and railroad retirement systems when they attain age 65. The same protection, financed from Federal general revenues, was provided under a special transitional provision for essentially all persons not eligible for social security or railroad retirement benefits who attained age 65 before 1968. Together, these two constituted virtually the entire aged population. Among those elderly persons not protected by virtue of the special transitional provision are federal employees to whom similar health insurance coverage is available under the Federal Employees Health Benefits Act of 1959. Others to whom the transitional provision does not apply are aliens other than those who have been lawfully admitted for permanent residence and have resided in the United States continuously for at least 5 years and certain subversives.

The hospital insurance benefits provided for as part of the social security Amendments of 1965 were first available on July l, 1966, the only exception being benefits to post-hospital extended are which became effective on January 1,1967. As Provided for under the 1965 legislation, the services for which hospital insurance benefits were payable included:

A. Inpatient hospital services for a maxilmn of 90 days in each benefit period.

B. Post-hospital extended care for a maximum of 100 days each benefit period if the beneficiary is admitted to a qualified facility vithin 14 days after he has been hospitalized for at least three days.

C. Outpatient hospital diagnostic services furnished by the same hospital during a 20-day period.

D. Posthospital home health services for as many as 100 visits in each benefit period, within one year following discharge from a hospital or an extended care facility

Payment of bills under the hospital insurance plan is made to the providers of service on the basis of the "reasonable cost" incurred in providing care for beneficiaries. Basic responsibility for administration rests with the Secretary of Health, Education and Welfare. The Secretary uses appropriate State agencies and private organizations (nominated by providers of services) to assist in administering the program. Provision was made for the establishment of an advisory council to advise the Secretary on policy matters in connection with administration.

All contributions to finance the hospital insurance plan are placed in a separate trust fund--the Federal Hospital Insurance Trust Fund--and all benefits and administrative expenses of the plan are paid from this fund. Employers, employees, and self-employed persons pay social security contributions, at equal rates, on annual earnings up to a specified limit, generally called the contribution and benefit base.

Supplementary Medical Insurance (SMI) Plan

A package of benefits supplementing those provided under the hospital insurance plan is available to all persons aged 65 and over.

For persons age 65 before January 1, 1966 an enrollment period began September 1, 1965, and ended May 31, 1966. Future general enrollment periods were to be from October 1 to December 31, in each odd year beginning in 1967. Coverage could be terminated by the individual, by filing notice during a general enrollment period, or by the Government for nonpayment of premiums.

Beginning July 1, 1966, medical insurance benefits were payable for physicians' services, home health services, and numerous other medical and health services rendered in and out of medical institutions. The legislation required that, to the extent possible, the Secretary of Health, Education, and Welfare must contract with private heath insurance carriers to carry out certain major administrative functions in connection with the medical insurance plan.

Aged persons who enrolled in the medical insurance plan paid a monthly premiums which was initially set at $3. Provision was made for these premiums to be deducted from the monthly benefits of persons who receive social security, railroad retirement, or civil service retirement cash payments. Uninsured persons enrolled in the medical insurance plan make the periodic premium payments directly to the Government. Also, the legislation enabled State welfare programs to purchase medical insurance coverage for uninsured public assistance recipients. For each enrolled individual the Federal Government is required to match the amount of his monthly premium payment with an equal amount paid from general funds. These contributions are placed in a separate trust fund, the Federal. Supplementary Medical Insurance Trust Fund, established under the amendments for the medical insurance plan, and all benefit and administrative expenses are paid from this trust fund. {2}

Preparation for Administration

The assumption of the basic administrative responsibility for these vast new programs presented an unprecedented challenge to the organization and staff of the Social Security Administration on a local, regional, and national level.

During the 11-month period between enactment of the Social Security Amendments of 1965 and the start of operations, the administrative design for operation of the new program was established. The Social Security Administration and other components of the Department reorganized, recruited and retrained personnel, and re-programed systems and operations to accommodate their broadened responsibilities; regulations, policies, procedures and systems were developed for the Medicare program; contracts were negotiated with State agencies, intermediaries, and carriers, covering the role each would play in the administration of the program; eligible people were enrolled in the program; thousands of hospitals and other health care institutions were surveyed and certified to participate as providers of services under the program; and public information programs were launched to inform affected individuals of their rights and responsibilities under the new program.

It is also important to note that the Social Security Administration was assisted in implementing the Medicare program by the Public Health Service and other components of the Federal Government, State agencies, Blue Cross, Blue Shield, private insurance organizations, virtually every major organization and association in the health care field and innumerable individual experts,

Footnotes (Footnote numbers not same as in the printed version)

{1} The Social Security Administration contracted with the Oral History Research Office at Columbia University to carry out a major program of interviewing the key persons involved in the background to and passage of the Medicare legislation. Transcripts of these interviews are held at Columbia University and at the Social Security Administration headquarters in Woodlawn, Maryland. A list of the persons interviewed is to be found in the attachments.

{2} For more detail and the sources behind this monumental legislation, see the five volumes, Social Security Amendments of 1965, which are included with this narrative.