OVERVIEW OF THE HEALTH CARE FINANCING ADMINISTRATION

Background

Since early in this century, health insurance coverage has been an important issue for our Nation. The first coordinated efforts to establish government health insurance were initiated at the state level between 1915 and 1920. However, these efforts came to naught. Renewed interest in government health insurance surfaced during the 1930s at the Federal level, but nothing concrete resulted beyond the limited provisions in the Social Security Act that supported state activities relating to public health and health care services for mothers and children.

From the late 1930s on, most people desired some form of health insurance to alleviate the unpredictable and uneven incidence of medical costs. The main issue was whether health insurance should be privately or publicly financed. Private health insurance, mostly group insurance financed through the employment relationship, ultimately prevailed. Private health insurance coverage expanded rapidly during World War II, as employee fringe benefits were expanded because the government limited direct wage increases. This trend continued after the war. Concurrently, numerous bills incorporating proposals for national health insurance, financed by payroll taxes, were introduced in Congress during the 1940s; however, none was ever brought to a vote. Instead, Congress acted in 1950 to improve access to medical care for needy persons who were receiving public assistance. This permitted, for the first time, Federal participation in the financing of state payments made directly to the providers of medical care for costs incurred by public assistance recipients. The aged population was also perceived as requiring special attention in order to improve their access to medical care, but views differed regarding the best method for accomplishing the desired objective. Pertinent legislative proposals in the 1950s and early 1960s reflected widely different approaches. When consensus proved elusive, Congress passed limited legislation in 1960, including legislation entitled "Medical Assistance to the Aged" which provided medical assistance for aged persons who were less poor, yet still needed assistance with medical expenses.

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NOTES: This article provides brief summaries of complex subjects. It should be used only as an overview and general guide to the Medicare and Medicaid programs. This is not a legal document, nor is it intended to fully explain all of the provisions or exclusions of the relevant laws, regulations, and rulings of the Medicare and Medicaid programs, nor of the relationship between these programs. This article does not render any legal, accounting, or other professional advice, and should not be relied on in making specific decisions. Only original sources should be utilized. Therefore, the views expressed in this article do not necessarily reflect the policies or legal positions of the Department of Health and Human Services (DHHS) or CMS(previously HCFA).

After consideration of various approaches and lengthy national debate, Congress passed legislation in 1965 establishing the Medicare and Medicaid programs as Title XVIII and Title XIX of the Social Security Act. Medicare was established in response to the specific medical care needs of the elderly (with coverage for certain disabled persons and certain persons with kidney disease added in 1973). Medicaid was established in response to the widely perceived inadequacy of welfare medical care under public assistance. The forerunner of the current DHHS was given overall responsibility for administering the Medicare and Medicaid programs. The programs were managed by the Social Security Administration (SSA) until 1977, when the responsibility was transferred from SSA to the newly formed CMS (previously HCFA).

National Health Care Overview

As a share of the gross domestic product (GDP), health care spending stabilized in 1993-1997 at 13.5 percent. The GDP is the total value of goods and services produced in the United States. National health expenditures (NHE) reached $1.1 trillion in 1997. The 4.8-percent increase in 1997 marks the slowest growth in NHE history and continues a trend of deceleration that began in 1991. For the 278 million persons residing in the United states, the average expenditure for health care in 1997 was $3,925 per person.

Health care is funded through a variety of private payers and public programs. Private funds include individuals’ out-of-pocket expenditures, private health insurance, philanthropy and non-patient revenues (e.g., gift shops, parking lots, etc.), as well as health services that are provided in industrial settings. For the years 1974-1991, these private funds paid for 58 to 60 percent of all health care expenditures. But by 1997, the private share of health expenditures had dropped to 53.6 percent of our Nation’s total health care expenditures, while the share of health care provided by public spending increased correspondingly over this period.

Public spending represents expenditures by Federal, State, and local governments. Of the publicly funded health care expenditures for our Nation, each of the following account for a small percentage of the total: the Department of Defense health care programs for military personnel; the Department of Veterans Affairs health programs; non-commercial medical research; payments for health care under Workers Compensation programs; health programs under state-only general assistance programs; and the construction of public medical facilities. Other activities which are also publicly funded include: maternal and child health services; school health programs; public health clinics; Indian health care services; migrant health care services; substance abuse and mental health activities; and medically-related vocational rehabilitation services. The largest shares of public health expenditures, however, are for the Medicare and Medicaid programs.

Together, Medicare and Medicaid financed $374 billion in health care services in 1997 — more than one-third of the nation’s total health care bill and almost three-fourths of all public spending on health care. Since their enactment, both Medicare and Medicaid have been subject to numerous legislative and administrative changes designed to make improvements, with financial considerations, in the provision of health care services to our Nation’s aged, disabled, and disadvantaged persons.