Happy Birthday Medicare--Part 1 (or "What a Deal for Harry Truman!")

AARP is among many groups running Medicare birthday stories this week. AARP leads its story with the following

• "On July 30, 1965, at a ceremony in Independence, Mo., President Johnson signed Medicare into law. Moments later, the 36th president of the United States presented America's 33rd president, Harry S. Truman — then 81 years old and praised by LBJ as "the real daddy of Medicare" — the nation's first Medicare card."

The fact that “Give ‘em hell” Harry was covered by Medicare even though he had not contributed to the Part A Medicare trust fund before retirement illustrates many of today’s big misunderstandings concerning Medicare financing (see Note below). Today, politicians from both sides of the aisle claim: 

• Medicare is a “government handout" from the taxpayer
• Seniors should thank God for LBJ every day
• Seniors should be willing to pay higher co-insurance than we currently pay (both political parties propose that)
• Etc., etc.
• All of the above

Medicare WAS a good deal -- a sort of government handout -- for people like Harry roughly 40 years of age and older in 1965. They received Medicare's hospital coverage while putting little or nothing into the insurance pool. The separate hospital vs. doctor approach to Medicare funding was discussed at length back in the 1960s and those involved understood that it was a temporary but necessary condition to get Medicare passsed in Congress. 

No problem though. Politicians assumed that everyone in the United States would keep having 3-4 kids per family the way they had between 1945 and 1965 (which would keep the Part A trust fund bulging with payroll taxes as those kids went to work). And -- as for paying the doctor part of Medicare via income taxes -- the politicians assumed Norman-Rockwell-like doctor's offices (you remember the painting of the kid with his pants down happily getting a vaccination) would keep charging $2 -- or a dressed chicken -- for an office visit.

In addition, the estimated temporary out of balance nature of Medicare funding was of less impact to all taxpayers at the time than you might think today. Before 1965 many cities and states were already providing Medicare-like coverage for lower income seniors. So some of the cost of covering those who did not contribute was really a right-pocket/left-pocket situation for the taxpayer (see this description of how Part D is paid for currently for a similar example).

In a future post, I'll fast forward to today. You probably can figure out where I'm going.  Harry got a good deal. His grand kids and great grand kids... our grand kids and great grand kids... not so much.

NOTE: Harry did reportedly pay his $3 a month Part B premium. And he might have paid -- like the rest of us pay through our whole lives -- into the Part B trust fund via income taxes, assuming he was still generating some income in his '80s (book royalties, etc.). I am also assuming -- but cannot confirm -- that the first Medicare claims were paid in 1966, the year after passage.