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The Evolution of Medicare: From NHI Failures to Managed Care Transformation

Chapter 14 delves into the journey of Medicare, tracing its origins to the early 20th-century struggle for national health insurance (NHI). As proponents faced repeated failures, they aimed to initially cover only the elderly. Political compromises with conservatives and medical providers shaped the program but limited its scope. The resulting financial pressures led to the implementation of managed care systems and significant expansions, notably the Medicare Modernization Act in 2003. This chapter highlights how these early decisions and compromises have had lasting impacts on Medicare's trajectory and burgeoning costs.

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The Evolution of Medicare: From NHI Failures to Managed Care Transformation

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  1. Chapter 14 Medicare: The Great Transformation John Oberlander

  2. Medicare: Offspring of NHI Failure • Medicare has its roots in 1910s struggle for national health insurance (NHI) • After repeated policy failures: • Proponents limited ambitions • Sought to expand coverage to “deserving” group • The elderly

  3. Medicare: Offspring of NHI Failure • Champions of NHI then hoped Medicare would be incrementally expanded to cover all Americans

  4. Legacies of Founding Compromise • To achieve passage: • Medicare proponents were forced to compromise with conservatives on a host of fronts • These compromises made it nearly impossible to expand Medicare later

  5. Provider Accommodation Under Medicare • Compromises were also made with medical providers • Payments under Medicare were to be determined by hospitals, doctors • Led to long-term increases in cost of program

  6. Effects of Accommodation • “Blank check” to physicians, hospitals led to dramatic increase in cost of program • Financial “crises” common in first years of program

  7. Effects of Accommodation • Pressure to reform: • Led to institution of Diagnostic-Related Groups (and successors) in 1980s

  8. Managed Care and Beyond • Prospective payment systems lowered cost of Medicare program • But providers made up the difference by shifting higher costs to private customers • Businesses responded to higher costs by moving into managed care

  9. Managed Care and Beyond • Pressure then built with Republican Revolution of 1994-95 for Medicare to post savings • Incorporate principles of managed care

  10. The Medicare Modernization Act (2003) • Passed under President Bush • Complicated program represented vast expansion of Medicare into prescription drugs • Prominent role retained for private insurers

  11. The Medicare Modernization Act (2003) • Savings partly attained through unique “doughnut-hole” structure • In which benefits curtailed for those facing middling costs

  12. Chapter 14 Summary • Medicare was the orphan of the national health insurance debate • Circumstances at enactment have had profound effects on the way the program has unfolded • Providers accommodated by program framers, particularly in terms of payment structures, amounts

  13. Chapter 14 Summary • Political accommodation led to spiraling costs • Which were then controlled through prospective payment systems • Resultant cost shifting led business to move to managed care plans • Which were later introduced within Medicare

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