The Relationship Between Social Security, Medicaid, and Medicare

The History of Social Security

The origin of Medicaid and Medicare can be traced from the peculiar sequence of advancement of the social policy in the US. In Europe, nations ratified health insurance programs for workers in industrial sectors in the late 18th and 20th centuries. During the same period, other programs were established, including unemployment compensation, old age pensions, and industrial accident insurance. However, a series of efforts to implement health insurance did not occur in the US. Between 1915 and 1919, there were successful campaigns to establish industrial accident insurance, but the Progressive reformers were unsuccessful in securing the passage of mandatory health insurance at the state level (Starr, 1983).

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In 1935, Congress enacted the Social Security Act, which protects cases of old age and unemployment. However, the Act did not protect against the cost of illnesses. The insurance plan choice only reflected the urgent political pressures and priorities during that time. In fact, during the depression, the focus was on unemployment, but later the Townsend movement pushed for seniors’ income relief. American Medical Association (AMA) did not support the proposed health insurance; instead, it threatened to eliminate the entire package of the Social Security bill if it would cover healthcare (Béland, & Hacker, 2004).

In 1938, some of Roosevelt’s administration members tried to revive health insurance, but Roosevelt retreated in opposition to the conservatives in Congress and the American Medical Association. Again, the enactment of the health insurance programs failed in the early twentieth century, thus opening the way to establishing employment-based private health coverage. The private health program gained ground until the late 1940s when then-president Harry Truman called for national health insurance. The president was decisively defeated by the AMA-organized coalition that included businesses by terming the proposal as socialized medicine that would exploit the rising ideological tensions arising from the Cold War (Starr, 1983).

As the struggle for insurance plans continued, the United States of America introduced old-age insurance. It established a group of federal program executives and policy experts whose vision for the health care plan reflected their expertise in initiating and building Social Security. Wilbur Cohen, a member of the bureaucratic elite group and an expert in health care during the twentieth century, served continuously in the government right from the period of the New Deal until1960s (Béland, & Hacker, 2004). Despite the defeat of the establishment of national health insurance, the elite group in 1951 proposed a hospital insurance benefit for the elderly generation. By the time politics shifted in a more liberal course in the 1960s, the concept of a limited healthcare insurance program for seniors was taking shape. In fact, no other nation had established a health insurance system for senior citizens. It is a plan that was a peculiarly American invention that was created without fully appreciating its implication, more so in the political sector.

The separate insurance program for seniors had a definite rationale despite the employer-based insurance, which had taken root in the country. In addition, the elderly did not fit in the employer-based model since it was expensive because of the competitive pressures from other commercial insurers in the WW2 decades. During the war, the seniors continued to be relatively dependent as the working-age population continued to experience high poverty rates. The advocates of the hospital insurance program for the elderly maintained that integrating the concept into Social Security would offer it immediate legitimacy. In that connection, the seniors had the right to Social Security benefits, considering they had contributed to it during their working years. Indeed, all those considerations supported the concept of integrating national health insurance for seniors alone (Starr, 2011).

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In 1950, Congress sought to improve medical care access for the needy receiving public assistance. For the first time, the action allowed Federal participation in financing the costs incurred by public assistance recipients. Congress also identified that aged persons, like the needy, required improved access to medical care services. However, views differed on the best method that would achieve this goal. In fact, pertinent legislative suggestions between 1950 and 1960 reflected the diverse approaches. Eventually, the consensus became elusive, and Congress had to pass limited legislation in 1960 called “Medical Assistance to the Aged.” The plan offered assistance for the elderly who could not meet their medical expenses (Oliver, Lee, & Helene, 2004).

After prolonged national debate, Congress passed the legislation in 1965, which instituted Medicaid and Medicare programs as Title XIX and XVIII, respectively, in the Social Security Act. Medicare was established to cater to specific medical care needs of the elderly, disabled persons, and certain individuals with kidney disease. Medicaid was instituted in response to the apparent inadequacy found in the provision of public medical care. The responsibility for administering Medicaid and Medicare programs was delegated to the Education, Health, and Welfare Department, a forerunner of the present-day Department of Health and Human Services (DHHS).

Until 1977, Social and Rehabilitation Services (SRS) supervised the Medicaid program while Social Security Administration (SSA) managed the Medicare program. The duties were transferred from SRS and SSA to the newly incorporated Health Care Financing Administration (HCFA). Later, in 2001, the organization has renamed the Centers for Medicare and Medicaid Services (CMS) (Klees, Wolfe, & Curtis, 2010).

 Medicare Services

Medicare is a health insurance service for the aged and disabled in the US. It was under the Title XVIII of the Social Security Act, a part of Amendments of the 1965 Medicare legislation. The enactment established a health insurance program to complement retirement for the aged persons and the disability insurance benefits under Title II of the Social Security Act. The plan was implemented in 1966 and covered persons aged 65 and above. In 1973, other groups became eligible for benefits, including individuals entitled to Railroad Retirement disability cash benefits or social security for at least twenty-four months (Bhattacharya, & Lakdawalla, 2006). In addition, aged individuals with end-stage renal disease who were not covered in other plans benefited from Medicare coverage if they were able to raise the required premium. By 2001, individuals with Amyotrophic Lateral Sclerosis were covered and benefited from a waiver of the 24-month waiting period. In March 2010, the plan was extended to persons diagnosed with asbestos-related illnesses and exposed to public health hazards.

Initially, the Medicare plan consisted of two parts, Hospital Insurance (part A) and Supplemental Medical Insurance (part B). Part A pays for hospice care, skilled nursing facilities, inpatient hospital, and home health. It provides insurance coverage without premiums for eligible individuals. However, eligible persons can benefit from the plan by paying a monthly premium to cover the services. In part B, the insurance plan covers medical services in outpatient hospitals, home health, physician, and other services. To receive Part B cover plan, all eligible individuals must contribute monthly to the required premium. In addition, part C in the Medicare insurance plan was created by the Balanced Budget Act of 1997 as a Medicare Choice program, which expands its benefits to individuals in the private sector (Hakkio, & Wiseman, 2006). The fourth part of Medicare, known as Part D, was established to pay for prescription drugs not covered in other plans.

Plan D provided access to discount cards for prescribed drugs at a limited cost and voluntarily for low-income earners. In 2006, the plan was extended to provide subsidized access to drug insurance coverage upon payment of premium. Activities in part B are operated within the SMI trust fund but in a different account from part B. It is worth noting that the earlier treatment of Part B and SMI as synonymous is no longer considered accurate since the current SMI consists of Parts B and D. In fact, the intention of separating those plans within SMI is to ensure that the funds are utilized as intended. (Rust, & Phelan, 1997). According to the Centers for Medicare (2013), the Medicare plan is currently popular, with over 47 million registered people in 2010 compared to 19 million enrollments in 1966. In Addition, the plan spent 14% of the Federal spending in 2013 and 20% in 2012.

Medicaid Services

The Medicaid insurance plan was enacted in 1965 as a cooperative undertaking funded by State and Federal governments (Columbian Districts and the Territories) to assist States in providing medical assistance to needy persons. It is under the Title XIX in the Social Security Act (Reidy, 2000). The plan is the largest source of financial funding for medical-related services for the poorest people in the US. Federal statutes, policies, and regulations established national guidelines for each State for the Medicaid program.

The States initiate their eligibility standards that determine the type, duration, scope of service, rate of payment, and how to administer the insurance plan. However, Medicaid policies for services, eligibility, and payment vary considerably even among states of similar size because of their complexity. In fact, an individual eligible for Medicaid in a particular State might not be eligible in another State. Still, the services offered by one State may vary in amount, scope, and duration from a neighboring State (Grabowski, Feng, Intrator, & Mor, 2010).

For low-income children, the Social Security Act under Title XXI established a Health Insurance Program that provided health insurance coverage for children below 200 % of the Federal poverty level that would not qualify for Medicaid. Under Children’s Protection and Affordable Care Act, the State offered health insurance coverage to eligible children by extending the Medicaid programs that were separate from the actual Medicaid. In addition, some States were granted waivers to enable them to offer coverage to parents whose children were enrolled in Children’s Health Insurance Program (Reidy, 2000).

By 2013, the Affordable Care Act had expanded Medicaid eligibility to provide insurance coverage to all poor people. However, under the provisions of the Federal Statute, Medicaid does not provide health care services to all poor people unless they are in the eligibility groups. In addition, there is broad discretion when selecting the group that the Medicaid program will cover and the criteria for financial eligibility. When Federal funds are released, the States must provide Medicaid coverage for individuals who do not receive cash and income maintenance payments. Apart from the Medicaid programs, the States have “States-only” programs that assist particular poor persons who are not eligible for the Medicaid healthcare program. Federalfundsalsoprovidesupport to “categorically needy” groups in the United States (Hennessy, Leonard, Palumbo, Newcomb, & Bilker, 2007). Those special case groups are stated in the following list.

  • Children under six years whose family income is below 133 percent of FPL
  • Pregnant women (Their family income must be less than 133% of the FPL)
  • Limited-income families with children (as described in the Social Security Act in section 1931)
  • An infant born to Medicaid-eligible mothers
  • Recipients of Supplemental Security Income (disabled, aged, or the blind)
  • The specially protected groups (those individuals who lose their cash assistance under the SSI Title IV-A because of the increased earnings from work or increased Social Security benefits)
  • Children under the age of 19 (in families with income below the FPL requirements)

The Impacts of Medicare and Medicaid

Medicare and Medicaid programs have been instrumental in the lives of Americans since their enactment. The plans have improved the lives of the elderly, children, and the disabled, thus increasing their happiness levels. The Medicare program has undergone many changes since its inception. Recently, the Affordable Care Act 2010 integrated various provisions that affected Medicare, including Medicare Advantage plans, payroll tax on higher-income earners, delivery system reforms, benefit improvements, and premium increases for higher earners. Medicaid has assisted in paying Medicare premiums and cost-sharing for those beneficiaries with modest incomes and low incomes. The beneficiaries also qualify for full Medicaid assistance, including the long-term care program (Harrington, & Kitchener, 2010).

Medicare and Medicaid spending trends are influenced by healthcare prices, services used, the number of beneficiaries, and how care is delivered. In recent years, the spending growth of those plans has slowed down. The Medicare spending in 2014 will be approximately $ 1000 lower per person than it was expected in 2010, soon after the passage of ACA. However, Medicare income from the premiums is projected to increase from $512 billion in 2014 to $ 858 billion in 2024. The estimate does not consider the spending that might occur during physician’s fees deductions scheduled under the current Law. If considered on a person basis, the insurance plan is expected to grow at 4% annually between 2013 and 2022, taking into account physician payments (Sisko, 2010).

Affordable Care Act instructed the Centers for Medicaid and Medicare Services (CMS) to implement new approaches to pay hospitals, doctors, and other providers to enhance how providers deliver and organize services. The approaches include financial incentives to enhance coordination and collaboration among providers (such as doctors and hospitals) and reduce unnecessary services and spending.

In the future, Medicare and Medicaid services may face critical issues greater than just offering affordable and quality care to aging individuals while maintaining the program finances for future generations. Changes initiated by ACA to enhance Medicare benefits may slow the growth of plan spending and affect the quality and delivery of health care services (Grabowski, 2007). All the changes made by the policymakers should affect not only the expenditures but also the quality and accessibility of quality care services.



Béland, D., & Hacker, J. S. (2004). Ideas, Private Institutions, and American Welfare State “exceptionalism”: The Case of Health and Old-age Insurance, 1915-1965. International Journal of Social Welfare13(1), 42-54.

Bhattacharya, J., & Lakdawalla, D. (2006). Does Medicare benefit the poor? Journal of Public Economics90(1-2), 277-292.

Blumenthal, D., and Morone, J. (2009). The Heart of Power: Health and Politics in the Oval Office. Berkeley, CA: University of California Press.

Centers for Medicare. (2013). Medicare and Medicaid programs; electronic health record incentive program–stage 2. Final rule. Federal register77 (171), 53967-54162.

Grabowski, D. C. (2007). Medicare and medicaid: Conflicting incentives for long-term care. Milbank Quarterly85(4), 579-610.

Grabowski, D. C., Feng, Z., Intrator, O., & Mor, V. (2010). Medicaid Bed-Hold Policy and Medicare Skilled Nursing Facility Rehospitalizations. Health Services Research45 (6 PART 2), 1963-1980.

Hakkio, C. S., & Wiseman, E. J. (2006). Social Security and Medicare: The Impending Fiscal Challenge. Economic Review (01612387)91(1), 7-41. 

Harrington, C., & Kitchener, M. (2010). Medicare and Medicaid in long-term care. Health affairs (Project Hope)29(1), 22-8.

Hennessy, S., Leonard, C. E., Palumbo, C. M., Newcomb, C., & Bilker, W. B. (2007). Quality of Medicaid and Medicare data obtained through Centers for Medicare and Medicaid Services (CMS). Medical care45(12), 1216-1220.

Klees, B. S., Wolfe, C. J., & Curtis C. A. (2010). Brief Summaries of Medicare &Medicaid Title XVIII and Title XIX of The Social Security Act. Centers for Medicare & Medicaid Services: Department of Health and Human Services.

Oliver, T., Lee, P., & Helene, L. (2004). A Political History of Medicare and Prescription Drug Coverage, Milbank Quarterly 82: 283–54.

Reidy, M. F. (2000). Health Services for Immigrant Children: opportunities under Title XXI. Journal of health care for the poor and underserved.

Rust, J., & Phelan, C. (1997). How Social Security and Medicare Affect Retirement Behavior In a World of Incomplete Markets. Econometrica, 65 (4), 781.

Sisko, A., M. (2010) “National Health Spending Projections: The Estimated Impact of Reform through 2019,” Health Affairs, 1933-1941.

Starr, P. (1983). The Social Transformation of American Medicine. New York: Basic Books.

Starr, P. (2011). Remedy and Reaction: The Peculiar American Struggle over Healthcare Reform. New Haven: Yale University Press.

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