Opening Remarks

These opening remarks were made by lives. Medicare was something worthwhile Max Sherman, Dean of the Lyndon B. for our parents, something that one day, in Johnson School of Public Affairs, Austin, what seemed like a very distant future, Texas, on May 6, 1996, as an introduction to would also benefit us. What many failed to the proceedings of the Symposium `Medicare: realize then, and what is so often missing Advancing Towards the 21st Century." from the public dialogue, especially the inter-generational dialogue, is the fact that It is a rare occurrence for the venue of a young and middle-aged Americans draw meeting to be as closely associated with an immediate and substantial benefit from the purpose and topic of that meeting as Medicare. Medicare assured us that we when the Lyndon Baines Johnson Presi- would never have to face the heart-wrench- dential Library and the Lyndon B. Johnson ing dilemma of paying for our kids' educa- School of Public Affairs host the sympo- tion or our parents' health and nursing sium celebrating the 30th anniversary of care; of having to support our parents, Medicare. We were deeply honored to be impoverished by illness, at the expense of invited by the Health Care Financing Ad- our young families. ministration to be the site for the day-long Our country seems to be struggling at symposium on May 6. We are grateful for the moment with defining the role of gov- the generous grants from the Common- ernment: How much government should wealth Fund, the Kaiser Foundation, and there be in our lives? Should government the Robert Wood Johnson Foundation, be the guarantor of a democratic, law- which made the event possible. We appre- based society and provider of last resort, or ciate the dedication and support of the should government seek to be a partner in HCFA staff and the impressive roster of a civil society and use its influence in shap- symposium speakers and panelists. In the ing everybody's future? President Johnson following pages, you will find summaries of adhered to a simple mission for govern- the contributions made by the speakers. ment: Good government is what provides Lyndon Johnson's vision for America the greatest good to the greatest number of was that of the Great Society, a society with people. While a program like Medicare ob- equitable access to the Nation's resources viously fits this postulate, Johnson saw for all. This vision was an expansion of the clearly that for this program, and all others, New Deal of the 1930s; but where the New to continue to play their role in the lives of Deal had been reactive to the national all Americans, they could not be allowed to disaster of the Depression, the Great Soci- be static; instead, after the initial launch ety aimed at being proactive in providing a and fine-tuning, it was necessary to re- government guaranteed safety net for all. evaluate and determine relevancy, effec- In the mid-1960s, many of us were planning tiveness, and purpose. Maybe the notion of or embarking on our professional careers; "re-inventing government" is not as new as we were thinking about the families we many now seem to think. were going to have, we were mapping our The initial formulation of public policy and the on-going monitoring of that policy The author is with the Lyndon B. Johnson School of Public Affairs. The opinions expressed are those of the author and do require people capable of seeing the big not necessarily reflect those of the Health Care Financing picture while focusing on every detail. Administration (HCFA).

HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 1

These processes require people who are State of Texas, to prepare promising young trained and educated in a multidisciplinary graduate students for careers in the public institution, people to whom the complexi- sector. The Lyndon B. Johnson School of ties of society in general, and government Public Affairs is the realization of that plan. in particular, are a source of stimulation, So while we celebrate the 30th anniver- not frustration. The government that sary of Medicare, recognizing that the pro- Lyndon Johnson knew, both in Washington gram will continue to evolve in the light of and back here in Texas, was run, by and changes in social and fiscal realities, we are large, by professionals with law degrees, proud to be the institution that trains the many of those earned from law schools in next generation of policy and decision- the Northeast. While still in the White makers who will ultimately guarantee the House, the late President developed a plan survival of the program into the 21st century. for a multidisciplinary school, in his home

2 HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2

Overview

Margaret H. Davis

This overview discusses articles published Stevens outlines some defining themes for in this special 30th Anniversary of Medicare the years before the Medicare program issue of the Health Care Financing Review. was enacted. One is the nature and concept The authors whose work appears in this spe- of social entitlement: "The contrast be- cial commemorative issue all participated tween wish and reality (the wish for a truly in a policy symposium held on May 6, 1996, Great Society and the reality of conflict and at the Lyndon B. Johnson Library in Austin, division) forms an essential first theme for Texas. The symposium, Medicare: Advanc- understanding the years before Medicare. ing Towards the 21st Century, was held in In effect, Medicare was to be a means of honor of the 30th anniversary of the imple- transforming the elderly into paying con- mentation of the Medicare program. Co- sumers of hospital services." The elderly sponsors of the symposium included the were singled out as a "deserving" and Health Care Financing Administration, the privileged population, and Medicare was Lyndon B. Johnson Library, the Lyndon B. designed as "socially unifying legislation in Johnson School of Public Affairs at the Uni- that it embraced all social classes on equal versity of Texas at Austin, the Common- terms within one age group...." Stevens ar- wealth Fund, the Robert Wood Johnson gues that a second defining theme is the Foundation, and the Henry J. Kaiser Family emphasis placed on a curative approach to Foundation. acute illnesses, over preventive and pallia- tive care, and that "Medicare was designed This 30th Anniversary issue of the to be responsive to the technological and Health Care Financing Review begins with high-cost side of medicine rather than to a sociological and historical analysis of the chronic illness." Steven concludes her his- U.S. health care system in the 1950s and torical and sociological review by describ- 1960s, and how the Medicare and Medic- ing the Medicare program as a paradox: aid programs fit into that system. In "On the one hand, it has provided untold "Health Care in the Early 1960s," Rose- benefits for millions of elderly and disabled mary Stevens argues that "to study health Americans... .a lasting national commitment care, with all its contradictions and com- to equal opportunity. On the other hand, plexities, in the 1960s as in the present, is Medicare has camouflaged the wider is- to explore the character and ambiguities of sues for which the Great Society was sup- the United States itself...." At the time, na- posed to find solutions: providing for the tional leaders were stressing idealistic, uni- health coverage of all Americans, from fying social principles. Yet there were great acute sickness to chronic illness." rifts and gaps in the health care system, Today, older Americans generally enjoy particularly for the poor, the chronically ill, better health, longer lives, and improved minorities, and populations in inner cities. quality of life, in part, because of Medicare. The second paper in this issue, by Dorothy The author is with the Special Analysis Staff, Office of the Asso- ciate Administrator for Policy, Health Care Financing Adminis- P Rice, "Beneficiary Profile: Yesterday, To- tration (HCFA). The opinions expressed are those of the author day, and Tomorrow," begins by presenting and do not necessarily reflect those of HCFA.

HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 3 some basic demographic trends of the eld- Medicare has brought relief to the elderly erly population. The demographic shifts and disabled from the financial costs of Rice describes highlight that the U.S. popu- health care. By creating a large risk pool lation is aging, and the aged are predomi- over which to spread costs, and efforts nantly female. The elderly, especially those such as setting limits on payments to hospi- 85 years of age or over, have been the fast- tals and physicians and limits on balance est growing segment of the population; billing, Medicare has helped shield benefi- mortality rates for the elderly have de- ciaries from the substantial growth in clined; and life expectancy has increased health care costs that has occurred over for both males and females. Rice also the past 30 years. points out that, although the economic sta- Of course, significant challenges lie tus of the elderly has improved signifi- ahead for the program. One of which is to cantly over the past 30 years, about 12.2 make sure the program is there in the fu- percent of the elderly lived in poverty in ture by assuring its financial health. An- 1993, and many elderly rely significantly on other challenge is to assure access to care. programs like Medicare and Social Secu- As Moon describes, Medicare has made rity: "If Social Security and other govern- great progress in improving access to care ment programs were not counted, the pov- for the elderly-but much more needs to erty rate for the elderly would be four be done. For example, regardless of race, times higher than the current rate, and low income beneficiaries face greater bar- one-half of the persons age 65 and over riers to care than their better off counter- would live in poverty." parts. Furthermore, beneficiaries who are The next group of articles examine how eligible for both Medicare and Medicaid, health care has changed in the past 30 who are members of a minority group, or years and the role Medicare has played. those who are disabled have higher rates Authors focused their analyses on what of avoidable hospital admissions than other Medicare has meant for beneficiaries, in- groups of beneficiaries. The next article in cluding the elderly, poor, minorities, and this issue, "Medicare, Medicaid, and the the disabled. Marilyn Moon's article, Elderly Poor," by Diane Rowland, profiles "What Medicare Has Meant to Older the economic and health status of the low- Americans," highlights the overwhelming income elderly population served by Medi- success and popularity of the Medicare care, assesses the impact of Medicare, and program, the crucial role Medicare has examines the role Medicaid plays as a played in the lives of many elderly and dis- supplement to Medicare. Rowland notes abled Americans, and emphasizes that fu- that there are 5.9 million poor and near- ture reforms should build on the program's poor elderly living in the community, and strengths and learn from its weaknesses. an additional 1.4 million residing in nurs- Medicare has achieved nearly universal ing homes. The likelihood of living on a coverage for persons 65 years of age or low income is greatest for women, minori- over-it has delivered on its original prom- ties, and the oldest-old. Low-income elderly ise to change the nature of health care ac- are particularly vulnerable because they cess for older Americans. Access to health tend to be in poorer health than higher in- care services has expanded significantly- come elderly, and have few financial assets for example, the proportion of the elderly to draw on if they incur high medical costs. using physician services jumped from 68 For these individuals, Medicare coverage to 76 percent between 1963 and 1970. is particularly critical. However, Medicare

4 HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number2 has substantial cost-sharing requirements Robert J. Master and Carol Taniguchi, in and financial obligations that can be barri- their article titled "Medicare, Medicaid, ers to care for many low-income elderly. and People With Disability," address some For some, Medicaid has served as a of the critical issues facing beneficiaries supplemental insurance policy to fill in the with disability. The article describes the gaps. Medicaid plays a role in providing historic imperative for publicly financed in- protection for Medicare premiums and surance programs for people with disabili- cost-sharing requirements, and is a major ties, the characteristics of Medicare and payer of long-term care services. Rowland Medicaid eligible recipients with disability, also focuses on the impact of insurance on the array of services now available through access to services, noting statistics that the programs, and obstacles to and oppor- show elderly with low incomes and cov- tunities for continued reform. Their article ered only by Medicare have a number of recalls some of the history of our society's access problems, including lower utiliza- treatment of persons with disability. Thirty tion rates, no usual source of care, difficulties years ago, persons with disability were "for in obtaining care, and lower satisfaction the most part, nameless, faceless, and de- levels for particular aspects of care. pendent on segregated institutions or a Dorothy Height, president of the Na- myriad of distinct State government or tional Council of Negro Women, and a charity programs. Care was not an entitle- soon-to-be member of Medicare's "oldest ment but a by-product of whatever public old," emphasized the impact that Medicare generosity or charitable instincts that ex- has had on black Americans and other ra- isted." They note that Medicare and Med- cial minorities. She notes that Medicare icaid entitlement for persons with disability was one of three critical events that im- resulted in the rapid development of a new proved access to medical care for all people and unique set of services designed to pro- of color: the Civil Rights Act of 1964, Med- mote independence and autonomy, and icaid, and Medicare. These laws were criti- contributed to the substantial de-institu- cal to reducing some of the significant ra- tionalization that occurred over the past 20 cial disparities that existed in use of health years. The authors stress the importance care services. However, Height notes that of further development and reform, and as- there continue to be a number of barriers sert that the continuation of Medicaid en- facing elderly minority beneficiaries, par- titlement and the rapid growth in managed ticularly the combined effect of poverty care are central issues in the current policy and race on health status and access to debate. health care. Black beneficiaries, who are The last article in the series examining disproportionately distributed in lower in- the impact of Medicare on beneficiaries fo- come categories, continue to have higher cuses on long-term care. "Why Medicare mortality rates than white beneficiaries, Matters to People Who Need Long-Term and have fewer physician visits but higher Care," by Judith Feder and Jeanne rates of hospitalization than white benefi- Lambrew, outlines how Medicare's func- ciaries. Black beneficiaries also are less tionally impaired beneficiaries, who have likely than white beneficiaries to have disproportionately high medical costs, de- supplemental health insurance, leaving pend on Medicare to finance their medical them vulnerable to the often high cost care, and how they are affected by Medi- sharing requirements of Medicare. care policies regarding its post acute

HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 5 benefits, home health, and skilled nursing a new and important societal statement, facility care. Feder and Lambrew outline with its commitment to equal treatment for the history and importance of Medicare's elderly and disabled and its thrust to im- home health and SNF benefits. Medicare's prove their care." In particular, his article home health benefit was established to fa- notes the important role Medicare has cilitate hospital discharge. Over the 30 played for teaching hospitals, by financing years of Medicare, Congress and Adminis- graduate medical education (GME) pay- trations have expanded and restricted the ments and "indirect" medical education home health benefit, driving costs up or (IME) payments. Rabkin states that this down depending on how narrow or broad significant resource has enabled teaching the benefit was implemented. Most re- hospitals to train and educate interns and cently, in 1989, HCFA both broadened and residents, empowered technological so- clarified its interpretation of skilled care, phistication, increased the range of techni- resulting in a rapid growth in the number cal expertise, and bolstered medical re- of persons utilizing the home health benefit search. He comments on the concept of and increases in expenditures: Feder and payment by diagnosis-related groups Lambrew report that between 1989 and (DRGs), noting what he believes to be a 1994, Medicare spending on home health number of weakness in the payment meth- grew at an average annual rate of more odology, and expresses concerns about the than 35 percent per year. In addition, be- "disservice" of including GME, IME, and tween 1988 and 1991, the proportion of disproportionate share hospital payments home health users with more than 100 vis- in the capitated payments to Medicare its more than doubled, from 26 percent to health maintenance organizations. 53 percent. In 1994, about 10 percent of us- "Medicare and Physician Autonomy," by ers received more than 200 visits, account- Richard Culbertson and Philip R. Lee, ex- ing for 42 percent of total home health amines some of the issues surrounding the spending. Although Medicare's home changes over time in the economic and health benefit remains, for the most part, a clinical autonomy of physicians, and the short-term, post-acute benefit, a small pro- role that Medicare policies have played in portion of Medicare users in need of long- the evolution of those changes. Culbertson term care get a significant amount of and Lee pose the question of whether or personal care from the program. not, over time, physicians have traded a re- The next series of articles looks at the duction of clinical autonomy for the preser- impact of the Medicare program from the vation of economic autonomy. Their article perspective of providers and insurers. reviews a number of authors' perspectives "Medicare and Hospitals," by Mitchell T on the concept and defining characteristics Rabkin, outlines some of the dramatic of physician autonomy, concluding with a changes that occurred for hospitals as a re- summary of Uwe Reinhardt's "Irony" or sult of the Medicare program. Rabkin ar- "Law": "In modern health care systems, the gues that the Medicare hospital payment preservation of the healers' economic free- methodology, which included the concept dom appears to come at the price of their of funding reasonable hospital costs, was clinical freedom." The article then reviews instrumental in providing the funds that al- the history of the establishment of the Medi- lowed hospitals to modernize their facilities care program, and notes that, in order to and improve their ability to acquire new pacify physician opposition to the legislation, and advanced technology. "Medicare made the program was designed specifically to

6 HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 build on the existing health care and pri- and growth of an entire new market for vate insurance systems. Inherent in the Medicare supplemental policies. Jones original legislation was a distinct commit- sees a paradigm shift occurring where in- ment to respect and reinforce the clinical, creased enrollment in Medicare prepaid, and to a large extent the economic, au- at risk health plans is eroding both the ad- tonomy of physicians. For example, Con- ministrative services market and the Medi- gress initially adopted a payment method- gap market for private insurers. The sec- ology favorable to physicians-basing ond area Jones highlights is insurance payments on "customary, prevailing, and payment technology and credentialing in- reasonable" charges-and allowed balance frastructure. "Medicare's vast enrollment billing. However, rapidly rising costs in the and the high proportion of physician, hos- Medicare program quickly led to modifica- pital, and other revenues represented by tions in the economic realm. By outlining a its population, have made its payment sys- series of Medicare policy changes dating tems and licensure requirements into de back to the Wage and Price Controls imple- facto standards for private industry." The mented by the Nixon Administration in paradigm shifts he notes in this area in- 1971, Culbertson and Lee argue that, al- clude a shift from cost reimbursement to though Medicare has moved directly to the use of premiums and a shift from pro- limit physician discretion in economic mat- vider credentialing to the measurement of ters, the program has essentially stuck to outcomes and satisfaction. This shift is re- the original Congressional mandate of non- flected by efforts such as Medicare's work interference in the private practice of medi- to develop HEDIS-like reporting and mea- cine. The effects of Medicare policy on clini- surement systems. Jones goes on to dis- cal autonomy have been limited or indirect, cuss his predictions for changes in pro- especially in contrast to the methods used by vider and buyer cultures and expectations private insurers. of insurance. One of the changes he fo- Perhaps even more profoundly than hos- cuses on is what he believes is the shift pitals and physicians, Medicare has im- from the provider as advocate of the patient pacted the private health insurance indus- to the provider as a partner in the health try in a number of broad areas. Stanley B. plan. In his view, physicians operating un- Jones, in "Medicare's Influence on Private der the Medicare of yesterday had no fi- Insurance: Good or Ill?" presents a frame- nancial "stake" in the cost of the program, work for understanding Medicare's past and were more closely tied to the patients, and future influence in the private insur- determining services and treatments with ance market, from the perspective of pri- little or no connection to overall cost impli- vate insurers. His analysis uses the con- cations. Jones sees this alliance between cepts of shifting paradigms to highlight his patient and provider as first weakened predictions for the future of the health in- somewhat by the DRG system, and pre- surance industry. In the area of insurance dicts an even greater shift with the growth market opportunities, Jones notes how the in capitated plans or systems that often give enactment of the Medicare program was a providers a financial stake in the health windfall for private insurers, especially re- plan's costs. lated to the expansion of administrative "The House That Medicare Built: Re- technology (the Medicare legislation called modeling for the 21st Century," by for the use of private intermediaries and car- Merwyn R. Greenlick, metaphorically re- riers to handle administrative processing) flects on the "remodeling" that needs to be

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done to the American health care system desires, aspirations, risks, disease condi- as we move into the 21st century, and fo- tion, and health and functional status," and cuses particular attention on the future of its success will be measured by its cost ef- the relationship between Medicare and fectiveness and ability to prevent disease managed care. Greenlick outlines how the and maintain optimal mental, social, and "house" of Medicare was remodeled over physical functioning. He outlines the vari- the years regarding its involvement in ous elements of the structure of this hu- managed care. Like Culbertson and Lee, manistic health care system, including the he reminds us that the Medicare program nature of physician practices, where and how was designed within the constraints of the people receive care, payment methodolo- dominant American medical system, which gies, the role of government, and the role at the time had a very limited role for pre- of technology. Of course, we have a way to paid group practice plans. Although the go before our house is completely "remod- few plans that existed at the time the legis- eled," and despite the "cataclysmic forces" lation was enacted generally supported the that are occurring in our current health concept of the Medicare program, they ini- care system, Greenlick identifies a number tially were frustrated in their attempts to of barriers that must be overcome in order to negotiate capitated payment arrangements achieve that "bright new model" house. In for Medicare beneficiaries in their plans, particular, he urges the redefinition of clinical and ended up with a patchwork method care to include as a primary objective the called the group practice prepayment prevention of disease and the maintenance plan-a prospective cost-for-service meth- and improvement of function. odology, with retrospective reconciliation. The third series of articles looks at some Under this system, very few plans showed of the politics surrounding the develop- interest in enrolling Medicare beneficia- ment of health policy in the United States, ries. Based on research conducted by both from a historical perspective starting HCFA in the late 1970s and early 1980s, in the 1960s, as well as an analysis of cur- Congress passed legislation allowing man- rent issues in health policy development. aged care plans to be paid using risk- The two articles presented here give us based, prospective payment methodolo- both an "insider's" and an "outsider's" per- gies, and since then enrollment in plans spective on the political scene that pre- has increased at a steady rate. However, ceded the enactment of the Medicare pro- Greenlick believes that the evolution of gram. William D. Fullerton's article, these plans has only just begun: "Current "Politics of Federal Health Policy, 1960- managed care plans are primitive versions 1975: A Perspective," provides a unique of the ultimate models that will emerge. look into the workings and politics of the And I think it possible, perhaps even likely, committees of jurisdiction over health in- that we will be able to develop humanistic surance legislation, with particular empha- forms of health care for the 21st century." sis on the powerful Committee on Ways Greenlick gives us his predictions for the and Means in the House. Fullerton has health care system over the next 20 years, worn many hats during his career, includ- and outlines his vision of what he charac- ing time as a professional staff person for terizes as a "humanistic" health care sys- the Committee, and a stint as Deputy Ad- tem: "it links each individual to his or her ministrator of HCFA. Fullerton explains for health care system, one person at a time, us the intimate details of how Congress on the basis of that individual's needs, worked with the Administration to craft,

8 HEALTH CARE FINANCING REVIEW/Winter 1996/volume IS, Number 2 pass, and implement the Medicare legisla- reform to our health care system. Essen- tion-highlighting the significant changes tially, Brown's analysis lends credence to in process that have occurred over the past both views. On the one hand, he argues 30 years. For example, at the time Medi- that the health system "obeys no laws of in- care was enacted, Congressional Commit- evitable progress": "If and when windows tees had no professional staff: "During this of opportunity happen to open, what (if period, anyone who wanted to influence anything) goes through them will depend Congress, or have someone in Congress on the convergence of political interests influence the Medicare administrators, had with intellectual currents, and the latter de- to deal directly with the members, or their rive partly from expertise and entrepre- staffs, because there was no Committee neurial skill." However, he also notes that staff to deal with...." Congressional com- in the recent health reform debate, many mittees often relied on members of the Ex- activists "dismissed incrementalism as a ecutive Branch for technical assistance, strategy for sissies," and cautioned that from writing up Committee reports to pro- many of the proposals put forth "were viding data and analyses on health insur- crafted by people with grand goals, big ance issues. With his on-the-scene perspec- ideas, and expansive systems-visions, but tive, Fullerton details many of the changes also with little (or no) political experience, that have occurred in Committee structure limited feel for what could fly legislatively, and power. and not much taste for listening to and Lawrence D. Brown presents a lively learning from Congress." Brown also ex- commentary on health policy issues in presses concern about the diminishing im- "The Politics of Medicare and Health Re- portance given to the concept of social in- form, Then and Now." His article builds on surance as a fundamental public philosophy the details of Fullerton's picture of health in U.S. social policy. politics in the 1960s, and explores two alter- Finally, the last article in this special is- native views of the factors that contributed sue, "Thirty Years of Medicare: Impact on to the passage of such a major piece of so- the Covered Populations," by Gornick et cial welfare legislation. The first portrays al., is an update to a series of classic ar- Medicare as a result of "relentless incre- ticles that focused on the impact of Medi- mentalism," an additional pillar to the wel- care on the beneficiaries after 10 and 20 fare protections that included social secu- years of operation. It provides a detailed rity, unemployment compensation, and overview of 30 years of Medicare program income support for the poor. The second data, and discusses Medicare's role in the view is that Medicare succeeded as a result evolving U.S. health care system. The ar- of unique and rare "political convergences ticle concludes with an overview of major and coalitions" that are unpredictable in issues and challenges for the future of U.S. politics. Brown lists 10 favorable politi- Medicare. cal and economic conditions that were in Reprint Requests: Margaret H. Davis, Special Analysis Staff, Of- place in 1965, and contrasts them to an fice of the Associate Administrator for Policy, Health Care Fi- equal number of difficult or unfavorable nancing Administration, 200 Independence Avenue, SW, Room 325H, Washington, DC 21201. E-Mail: [email protected] conditions that existed in 1993 when the Clinton Administration proposed a major

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