How Medicaid Fails the Poor. Avik Roy

       The states with the worst Medicaid reimbursement rates also had the lowest rates of physician acceptance of new Medicaid patients.

      The first bill of the 1965 congressional session – H.R. 1 in the House and S. 1 in the Senate – was titled “Hospital Insurance for the Aged Through Social Security.” The focus on hospital insurance reflected the fact that hospitalization costs represented the greatest financial burden on the elderly at the time.

      As the “Medi-care” Bill zipped through Congress, Republican leaders, still reeling and disoriented from their painful defeat, criticized the proposal from the left, arguing that the legislation was inadequate because it covered neither physician services nor prescription drugs and because it offered equal subsidies to seniors regardless of income. Mills called their hand and raised them, creating a new program for physician services called Medicare Part B – and a separate health care entitlement for the poor, regardless of age, called Medicaid.

      President Johnson signed the Medicare and Medicaid provisions into law, amending the Social Security Act on July 30, 1965. Johnson gave former President Harry Truman the first Medicare card. The AMA and its physician members eventually reconciled themselves to Medicare. The program, in its early decades, let doctors charge whatever they wanted, creating a kind of unlimited slush fund for physicians that was funded by taxpayers. Costs skyrocketed.

      Medicaid, on the other hand, was to be jointly funded by state governments along with Washington. State governments, with their balanced-budget amendments, borrowing restrictions, and limited funds, did not have the latitude to absorb runaway costs.