Paying for Medicare: Benefits, Budgets, and Wilbur Mills's Policy Legacy

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Abstract
Medicare features an unusually complex financing design. The Hospital Insurance Trust Fund pays for Part A of Medicare (hospital stays), while the Supplementary Medical Insurance Trust Fund finances Part B (doctor visits,outpatient care, and certain home health services). At a time when Medicare policy is generating debate, this article takes a new analytical look at the origins and consequences of the program's peculiar bifurcated structure. Addressing historians of the U.S. welfare state as well as contemporary health policy reformers, the article focuses on the crucial role of legendary Ways and Means Committee chair Wilbur Mills in Medicare's enactment in 1965. The central theme of the article is that fiscal conservatism and a commitment to budgetary restraint constitute important elements of Medicare's original political understanding. Contrary to analysts who argue that Medicare's financing design has produced “perverse” effects, we argue that it has served a valuable social function by encouraging policy makers to confront periodically the costs of one of the largest and fastest-growing federal programs. An argument can be made that Medicare's original division requires modification in order to integrate health care delivery changes of the past few decades. It is crucial, however, for reformers not to lose sight of the policy goals, including fiscal rectitude, that motivated the adoption of Medicare's bifurcated structure in the first place.