Medicare provides same benefits to all Social Security contributors


Medicare is a universal program providing the same benefits to all the aged who contributed to the Social Security system (the eligibility requirements have been relaxed since it was enacted in 1965). At the time of its enactment there were two basic parts to Medicare: Part A is predominantly for hospital care, and Part B covers physician and outpatient services. Part A is financed by the establishment of a Medicare portion of the Social Security tax; Part B is a voluntary program in which the participants pay 25 percent of the premium and federal tax revenues subsidize the remainder. Both Parts A and B have deductibles and cost-sharing requirements. Medicaid is a means-tested program for the medically indigent of all ages that is administered by the states. The federal government contributes to the cost of Medicaid, and this amount varies from 50 to 80 percent of the cost of the program, depending on the state's per capita income. The federal government also sets minimum eligibility criteria and benefits, but each state may increase the eligibility of different population groups and increase the benefits received. Medicaid is financed from general taxes at both the federal and state levels.

Alternative hypotheses have been put forth about the passage and design of Medicare. One explanation involves the altruistic desire to help the elderly. There were (and still are) many poor elderly whose needs for medical care exceed those of the rest of the population.

Viewing Medicare as a charitable redistribution program does not satisfactorily answer certain questions, however. First, why was it necessary to enact two separate programs, Medicare and Medicaid, each with different and distinct financing mechanisms, to provide for the medical needs of all the aged on the one hand and the poor on the other (Medicaid is means tested while Medicare is not)? Second, how could the poor elderly be expected to pay the deductible and coinsurance requirements of Medicare, or to purchase the subsidized physician coverage (Part B)? Third, why were Medicare benefits established by Congress and the program administered by a federal agency, when Medicaid is a state-administered program with benefits that can vary by state? Further, why should Medicare Part A, which is in theory a redistributive program to aid a disadvantaged population, be financed by a regressive tax?

The case for Medicare as a charitable redistribution program might be made along the following lines. First, legislators may have lacked information on the effect of various provisions of the legislation. Second, the legislation may have been unduly influenced by certain powerful legislators to reflect their own preferences. And third, there may have been certain "political realities" that had to be accommodated. However, an explanation based on altruism and charity but relying on a number of explanations specific to that legislation is not as useful (nor generalizable to other redistributive programs) as an alternative, simpler, self-interest hypothesis. Further, how well can an assumption of altruism, modified by knowledge of the particular participants involved, predict likely legislative changes in Medicare?

The self-interest paradigm of legislation provides an alternative explanation for the development of Medicare. It also provides alternative predictions about the likely outcome of legislative changes to ensure the viability of Medicare. The assumption of charity serves as a good explanation for Medicaid, over which there was little controversy. Medicaid is an in-kind subsidy, that is, medical services rather than cash, to the recipients who are defined as low-income persons of all ages who meet a strict means (income and asset) test. Medicaid was a continuation of previous welfare programs to provide medical services to the poor. Before Medicaid there was the Kerr-Mills legislation (1960), and before that a system of federally subsidized payments to providers. These medical assistance programs for the poor engendered little debate in Congress (although the generosity of benefit levels did). Thus, the motivations for the Medicaid and Medicare programs are different. Any income-related program, for which a means test is required, can be reasonably explained by the assumption of charity on the part of the middle class and producers lobbying for legislation to increase the demand for their services.

The purpose of income-related programs is to help those who are less fortunate. These welfare programs are financed more equitably, namely through general taxes rather than through excise taxes (i.e., a specific tax on either goods and services or on labor). The poor are the principal beneficiaries of income-related programs. The generosity of the benefits and the method used to implement the means test reflect the society that bestows these programs. Medicaid benefits and eligibility were permitted to vary by state because the amount of charity the population is willing to subsidize varies by state income, the cost of providing charity (the costliness of medical care), attitudes toward charity, and so on.

Programs such as Medicare and Social Security, however, do not have as their primary purpose an altruistic motivation. These programs are "universal"; all persons within a particular group are eligible regardless of income. Universal redistributive programs are based on motivations similar to those of special-interest groups. The political process is used to transfer wealth from one group to another. It is within this framework that the legislative struggle over Medicare is examined.

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This article was sent to us by: Lance Marick at 03302010

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