The American System in Healthcare: The Path to Medicare


By Nancy Spannaus

July 20, 2017—The current stalemate on healthcare in the Congress provides a perfect opportunity to “get it right,” beginning with the approach represented in the legislation of “Medicare for all.” The United States is faced with a health care emergency, and action to deal with the crisis by applying American System principles is needed immediately.

In his 1944 State of the Union address, President Franklin Roosevelt declared that the nation had basically accepted “a second Bill of Rights under which a new basis of security and prosperity can be established for all–regardless of station, race, or creed.” Among them were “the right to adequate medical care and the opportunity to achieve and enjoy good health,” and the “right to adequate protection from the economic fears of … sickness….” As I outlined in the first article  in this series. FDR was proceeding from his Constitutional commitment to provision for the General Welfare, which he had pursued throughout the New Deal. Having won the battle for Social Security and unemployment insurance, he was determined to build on his successes to provide prosperity for the entire population.Thanks to the effective counterattack against FDR’s American System approach to the general welfare, ongoing now since FDR’s death, this basic right has not yet been put into practice more than 70 years later.

LBJ signs Medicare into law on July 30, 1965. (lbjlibrary)

But landmark progress has been made, especially with the establishment of Medicare and Medicaid. That historic accomplishment was signed into law by FDR Democrat Lyndon Baines Johnson on July 30, 1965. When the program actually went into effect July 1, 1966, approximately 19 million individuals were enrolled. As of 2015 (the latest official figures available), there were over 55 million individuals enrolled in Medicare, and over 74 million in Medicaid, or the associated Children’s Health Program called CHIP.  Altogether, that’s more than one-third of the U.S. population—a giant step toward universal coverage, although with obvious inequities and problems.

Additionally important is the fact that Medicare serves as a kind of “proof of principle” (albeit flawed) of the kind of universal health care which FDR envisioned, and which John Conyers’ H.R. 676 “Medicare for All” bill proposes. Like the general population, the Medicare population—the entire population over 65 years of age—varies widely in state of health, encompassing many healthy seniors as well as those beset by traditional diseases of old age. According to the Center for Economic and Policy Research, and several other sources, Medicare’s overhead costs are about 2%, as compared to 12-15% spent by private insurers. And the Medicare total population (which also includes 9 million individuals with disability and overall amounts to about 18% of the U.S. total population) receives its care at the cost of 19% of national health care expenditures.

But when the battle was waged to establish Medicare, the U.S. population was not as obsessed with saving money on health care as today: the issue was providing desperately needed health services to those who could not afford it. That focus, in the midst of the current health care emergency, should be readopted today.

JFK’s Fight

FDR Democrats took the lead in fighting for health care for senior citizens over the entire 20 years in which the battle was underway. President Harry Truman was the first to take up the issue, sending two special messages to Congress on the issue.His first, on November 19, 1945, called for universal medical insurance in order to fulfill FDR’s goal in the Economic Bill of Rights. Truman outlined a five-point plan: 1) federal money for construction of additional facilities; 2) expanded public health services; 3) federal money for medical education and research; 4) “prepayment of medical costs” through expanding the wage-base insurance system (i.e. Social Security); and 5) benefits to protect against loss of wages from sickness and disability.

Truman was unable to pass his plan, despite considerable effort. What did pass was the Hill-Burton Act (1946), which mandated an inventory of existing hospitals, a survey of the need for more, and the development of programs for construction for “such public and other nonprofit hospitals as will, in conjunction with existing facilities, afford the necessary physical facilities for furnishing adequate hospital, clinic, and similar services” to all. It also set standards for the ratio of hospital bed per population and provided for hospital construction.

New hospital construction thrived under the Hill-Burton Act of 1946. (dreamstime)

During the Eisenhower years, a number of Democrats kept up the fight, including Senator John F. Kennedy. As President, Kennedy took up the fight in earnest. One of his first acts as President-elect, on Nov. 8, 1960 was to set up a taskforce on health and social security for the American people. Its recommendations came in January 10, 1961, and were followed by the convening of a National Conference on the Aging, and a Presidential Health Message to Congress in February.

Over the course of his short presidency, Kennedy sent three special messages to Congress on health care. He acted from the standpoint, as he said in his Feb. 27, 1962 message, that: “The basic resource of a nation is its people. Its strength can be no greater than the health and vitality of its population. Preventable sickness, disability and physical or mental incapacity are matters of both individual and national concern.” His proposals in that speech ranged from health insurance for the aged, to expanded support for training medical personnel, to mass immunization, and attacks on environmental pollution which affected health.

In May of that same year, the President took a more high-profile approach, when he went to a New York rally for his program of medical care for the aged in Madison Square Garden. That rally, as Kennedy stressed, was one of 33 which occurred around the country on May 20, 1962, and was geared to supporting the bill which had been introduced by Reps. Aime Forand of Rhode Island, and Cecil R. King of California.  That bill was now limited to providing care for the elderly, and called for employee contributions through their paychecks to a program which would pay a large portion of the cost of hospitalization should that occur; in other words, Medicare’s Part A, as we know it today.

While he concentrated on personalizing the consequences of the bill by talking about how it would affect individuals, and on refuting those who would accuse the bill of “socializing” medicine, Kennedy also directly took on the question of the government’s responsibility for the health of its citizens. “This bill serves the public interest,” he argued. “It involves the Government because it involves the public welfare. The Constitution of the United States did not make the President or the Congress powerless. It gave them definite responsibilities to advance the general welfare—and that is what we’re attempting to do.”

President John F. Kennedy (dreamstime)

And later on:

And then I read [from its opponents-ed.] that this bill will sap the individual self-reliance of Americans. I can’t imagine anything worse, or anything better, to sap someone’s self-reliance, than to be sick, alone, broke–or to have saved for a lifetime and put it out in a week, two weeks, a month, two months.”…

We are concerned with the progress of this country, and those who say that what we are now talking about spoils our great pioneer heritage should remember that the West was settled with two great actions by the National Government; one, in President Lincoln’s administration, when he gave a homestead to everyone who went West, and in 1862 he set aside Government property to build our land grant colleges.

This cooperation between an alert and progressive citizenry and a progressive Government is what has made this country great–and we shall continue as long as we have the opportunity to do so….

So I come here today as a citizen, asking you to exert the most basic power which is contained in the Constitution of the United States and the Declaration of Independence, the right of a citizen to petition his Government. And I ask your support in this effort. This effort will be successful, and it will be successful because it is soundly based to meet a great national crisis. And it is based on the effort of responsible citizens. So I want to commend you for being here. I think it is most appropriate that the President of the United States, whose business place is in Washington, should come to this city and participate in these rallies. Because the business of the Government is the business of the people–and the people are right here….

Taking Up the Mantle

As is well-known, President Kennedy did not succeed in his agenda, in healthcare and many other areas. It was left to his successor, Lyndon Baines Johnson, to take up the mantle, especially on healthcare and civil rights, and get the deeds done. President Johnson began advocating for health insurance for the elderly from the outset of 1964, and, aided by his overwhelming win in the 1964 elections, pushed through the Medicare/Medicaid legislation by the summer of 1965.

Millions of elderly poor lacked health care. (dreamstime)

Johnson laid out his plan for hospital insurance for the aged in a Special Message to the Congress on the Nation’s Health on Feb. 10, 1964. That section of his message deserves to be read in full:

Nearly thirty years ago, this Nation took the first long step to meet the needs of its older citizens by adopting the Social Security program. Today, most Americans look toward retirement with some confidence that they will be able to meet their basic needs for food and shelter.

But many of our older citizens are still defenseless against the heavy medical costs of severe illness or disability:

• One-third of the aged who are forced to ask for old age assistance do so because of ill health, and one-third of our public assistance funds going to older people is spent for medical care.

• For many others, serious illness wipes out savings and carries their families into poverty.

• For these people, old age can be a dark corridor of fear.The irony is that this problem stems in part from the surging progress in medical science and medical techniques–the same progress that has brought longer life to Americans as a whole.Modern medical care is marvelously effective-but increasingly expensive.

• Daily hospital costs are now four times as high as they were in 1946–now averaging about $37 a day.

• In contrast, the average Social Security benefit is just $77 a month for retired workers and $67 a month for widows.Existing “solutions” to these problems are (1) private health insurance plans and (2) welfare medical assistance. No one of them is adequate, nor are they in combination:

• Private insurance, when available, usually costs more than the average retired couple can afford.

• Welfare medical assistance for the aged is not available in many States–and where it is available, it includes a needs test to which older citizens, with a lifetime of honorable, productive work behind them, should not be subjected.

This situation is not new.

A nurse aids an elderly patient. (dreamstime)

For more than a decade we have failed to meet the problem.

There is a sound and workable solution. Hospital insurance based on Social Security payments is clearly the best method of meeting the need. It is a logical extension of the principle–established in 1935 and confirmed time after time by the Congress–that provision should be made for later years during the course of a lifetime of employment. Therefore:

I recommend a hospital insurance program for the aged aimed at two basic goals:

First, it should protect against the heaviest costs of a serious illness–the costs of hospital and skilled nursing home care, home health services, and outpatient hospital diagnostic services.

Second, it should provide a base that related private programs can supplement.To achieve these goals:

1. These benefits should be available to everyone who reaches 65.

2. Benefit payments should cover the cost of services customarily furnished in semiprivate accommodations in a hospital, but not the cost of the services of personal physicians.

3. The financing should be soundly funded through the Social Security system.

4. One-quarter of one percent should be added to the Social Security contribution paid by employers and by employees.

5. The annual earnings subject to Social Security taxes should be increased from $4,800 to $5,200.

6. For those not now covered by Social Security, the cost of similar protection would be provided from the administrative budget.

Under this proposal, the costs of hospital and related services can be met without any interference whatever with the method of treatment. The arrangement would in no way hinder the patient’s freedom to choose his doctor, hospital, or nurse.

The only change would be in the manner in which individuals would finance the hospital costs of their later years. The average worker under Social Security would contribute about a dollar a month during his working life to protect himself in old age in a dignified manner against the devastating costs of prolonged hospitalization.

Hospitalization, however, is not the end of older people’s medical needs. Many aged individuals will have medical expenses that will be covered neither by social security, hospital insurance nor by private insurance.

Therefore, I urge all States to adopt adequate programs of medical assistance under the Kerr-Mills Legislation. This assistance is needed now. And it will be needed later as a supplement to hospital insurance.

Medicare and Medicaid enacted

To accomplish his goal, President Johnson “made a deal.” His primary collaborator was Arkansas Democrat Wilbur Mills, a fiscal conservative who was nonetheless personally committed to providing affordable health care to all sections of the population. Mills had tried to avert a government-controlled healthcare program with his promotion of federal aid for state programs, which was legislated in the Kerr-Mills bill of 1960. Under Kerr-Mills, the states were empowered to set up medical assistance for the poor, the costs of which would be matched by the Federal government. However, only 28 states agreed to participate.

One of the accomplishments of Medicare has been to lower administrative costs. (Center for Economic and Policy Research)

President Johnson put his priority on using the Social Security system to set up a special fund to pay for hospitalization, but he was well aware that this would not go far enough to relieve the burden of health care on the elderly. Thus he incorporated Kerr-Mills into his bill, making it the third tier of what was designated at the time a “three-layer cake.” The first layer was coverage of hospital costs (Medicare Part A), for which money was taken out of wage-earners’ paychecks; the second was coverage of physician costs, which involved a voluntary contribution by the wage-earner to the government, which would make the payment (Part B); the third was Kerr-Mills, now designated as Medicaid.

In the signing ceremony for the Medicare/Medicaid act, which took place July 30, 1965 in Independence, Missouri (the site of the Truman Library), President Johnson spoke eloquently:

No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts.

And no longer will this Nation refuse the hand of justice to those who have given a lifetime of service and wisdom and labor to the progress of this progressive country.

And this bill, Mr. President [Truman-ed.], is even broader than that. It will increase social security benefits for all of our older Americans. It will improve a wide range of health and medical services for Americans of all ages.

Noting that he believed the medical profession’s “highest traditions” were in sync with the bill, Johnson amplified the point in addressing President Truman, who was receiving the first Medicare card in the ceremony:

…this is not just our tradition–or the tradition of the Democratic Party–or even the tradition of the Nation. It is as old as the day it was first commanded: “Thou shalt open thine hand wide unto thy brother, to thy poor, to thy needy, in thy land.”

And just think, Mr. President, because of this document–and the long years of struggle which so many have put into creating it–in this town, and a thousand other towns like it, there are men and women in pain who will now find ease. There are those, alone in suffering who will now hear the sound of some approaching footsteps coming to help. There are those fearing the terrible darkness of despairing poverty–despite their long years of labor and expectation–who will now look up to see the light of hope and realization.

There just can be no satisfaction, nor any act of leadership, that gives greater satisfaction than this.

The Way Forward

There is no question but that access to and administration of medical care for the elderly has vastly improved, in general, as a result of Medicare. But, like the rest of the American economy, medicine has become “financialized,” with increasingly disastrous results. A correction must be made. (To be continued)