The Evolution of Medicare: Challenges, Responses, and Prospects

The Medicare program has provided a near-universal source of health care coverage for America's elderly since 1965. Over its 60-year history, the program has evolved to cover a greater share of the population and pay for an increasing share of the nation's health care bills. As Medicare has grown, so too have its challenges. The traditional Medicare program has failed to keep pace with a rapidly changing health care sector and demographic shifts. Constrained by its own benefit design, Medicare has allowed privately-contracted health plans (Medigap, Medicare Advantage) to provide much needed yet inadequate remedies to the program's shortcomings. After briefly recounting Medicare's origins, we discuss how the program's founding statutes have hindered its ability to respond to new and growing challenges along the dimensions of cost-sharing, cost containment, and benefit design. We then propose a three-pronged approach to reforming Medicare's benefit structure. We argue that a simplified enrollment process, a single benefit that brings together the program's constituent parts (Part A, Part B, and Part D), and a new organizational structure for care delivery based on the program's experience with Accountable Care Organizations (ACOs), will together create a robust foundation that can sustain the Medicare program into the future.