And Just Like That Medicare and Medicaid Were Born
As Congressman Wilbur Mills commented to President Lyndon Johnson, in a taped private conversation in 1965, he was encapsulating the primary benefit that the democrats of the day felt they would gain from the Medicaid and Medicare extension to the Social Security Act of 1935 and the primary reason that President Johnson and his team pushed so hard for the reform to include new entitlement programs for the elderly, the disaffected, and disillusioned.
The Historical Deception
Wilbur Daigh Mills, a Democratic member of the U.S. House of Representatives and the chairman of the powerful Ways and Means Committee, was considered, by many, to be the only person in Congress who truly understood the actuarial basis of Social Security and was recognized as the Congress’s primary tax expert. At the start of the war on poverty in 1964, Mills had serious concerns as to the affordability of the existing Social Security Act of 1935 for the nation, let alone any extension of the current benefits to include what was then viewed as a health care “safety-net” for the underserved and the elderly.
Mills did not believe that the nation’s tax system could fund the liability of Medicare. In his paper, “The Origins of Medicare,” published in 1999, Robert B. Helms writes,
Even in the face of strong political pressure from other Democrats, Mills had been so consistent in his opposition to adding a medical benefit to Social Security that many suspected him of being sympathetic to the AMA’s socialized medicine arguments. He used his detailed knowledge of Social Security to question both the Kennedy and Johnson administrations’ cost estimates and to point out that estimating future medical costs was a much more difficult task than estimating the future costs of a cash benefit.
In a 1964 speech, Mills said: “In practical terms, this meant that if the hospital insurance system which would be created by the bill was to remain sound, the taxable wage base would have to be increased by $150 each year. Clearly, this would be a case of the tail wagging the dog.” (The taxable wage base increased an average of $46 per year from 1959 to 1964)
In that same speech, he pointed out that hospital costs were increasing at a rate of 6.7 percent, while average earnings were increasing at only 4 percent (1955 – 1963), and that he saw no reason to assume that the situation would change. His support for the final version of Medicare in 1965 was apparently due to the effects of Democratic gains in the House in the elections of 1964, President Johnson’s personal appeals for support, and the many technical changes that he was personally able to insert into the bill during its various stages of development.
We now know that Chairman Mills’ skepticism was justified: In 1964, the administration projected that Medicare, in 1990, would cost about $12 billion in 26 years (which included an allowance for inflation); the actual cost was $110 billion. We may not know until the year 2025 if today’s actuaries are any more accurate than those in 1964 in making twenty-six-year projections, but at least the current crew is leaving no stone unturned to tell everyone who will listen that the Medicare Part A trust fund does not meet their standards for short-term or long-term actuarial soundness.
Despite Mills’ dire warnings and his correct calculation that the wage base would have to increase by 300% each year over the existing rate to afford this new entitlement, Johnson felt he was swept in with a clear mandate from the people due to his landslide victory in the 1964 election. So, to help drive increases in the Democratic Party majority in Congress, he made the push for Medicare one of his primary platform goals. Johnson was so focused on getting Medicare pushed through congress. He was willing to leverage anyone, and everyone, with every tool he had at his disposal to get this divisive legislation approved. The following transcript of a taped meeting with his Vice President, Hubert Humphrey, in the first days after the election is quite telling.
Johnson: “They are bogged down. The House had nothing this week-all god-damn week. You and Moyers and Larry O’Brien have got to get something for them. And the Senate had nothing . . . So we just wasted three weeks . . . Now we are here in the first week in March, and we have just got to get these things passed . . . The ones that I’m really interested in . . . one of them is education, one of them is Medicare, and one of them is Appalachia . . . I think the medical care will go through like a dose of salt through a widow-woman . . . You’ve got to look each week and say, what is the Senate doing in Committee this week and when will they be through, what is the House doing . . . You’ve got to be running into these guys in the halls, and going over and having a drink with them in the evenings . . . I want that program carried. I’ll put every Cabinet officer behind you, I’ll put every banker behind you, I’ll put every organization that I can deliver behind you . . . I’ll put the labor unions behind you.
Johnson’s election didn’t just change the Democratic Congress’s advantage over Republicans; it also changed Mills’ political view. Seeing the writing on the wall, Mills made another speech where he announced, “I can support a payroll tax for financing health benefits just as I have supported a payroll tax for cash benefits (meaning social security).”
Check out our History of Healthcare in America podcast on this subject: Episode 1.9: JFK-LBJ Increased Cost, Expectation and Politics – HR-20-001.9
Thus, began what has been termed by many as the greatest Ponzi scheme ever to be foisted on the American people. With Mills’ support, the measure passed. There were still several hurdles to overcome, but in the end, Johnson got the legislation he wanted, regardless of the consequences. On March 23, 1965, Johnson’s Oval Office taping system recorded the call he has been waiting for from Wilbur Cohen (architect of much of Social Security and Medicare), Wilbur Mills (Chairman of the Ways and Means Committee), Carl Albert (Democratic Majority Leader) and John McCormack (Speaker of the House) telling him the bill has just passed out of the Ways and Means Committee. It is the first time Johnson finds out what Cohen has just actually agreed to in Johnson’s name: (Listen to the Johnson Tapes on-Line)
Mills: We wound up, and I got instructions, we’ll introduce the bill at noon tomorrow, and will report it at 12:15 . . . I think, we’ve got you something that we won’t only run on in ‘66 but we’ll run on from here after.
Johnson: Wonderful. Thank you, Wilbur.
Mills: Now here is Wilbur Cohen.
Johnson: When you going to take it up?
Mills: We could have it on late next week, if not, early the following week.
Johnson: For God sakes, let’s get it before Easter.
Mills: Oh, there’s no doubt about that.
Johnson: . . . I sure do congratulate you on getting this one out . . . I congratulate you and thank you.
Cohen: I think it’s a great bill Mr. President.
Johnson: Is that right?
Cohen: Yes sir. I think you got not only everything that you wanted, but we got a lot more . . . It’s a real comprehensive bill.
Johnson: How much does it cost our budget over what we estimated?
Cohen: Well, it would be, I would say, around $450 million more than what you estimated for the net cost of this supplementary program.
Johnson: What do they do under that? How is that handled? Explain that to me again, over and above the King-Anderson, this supplementary that you stole from Byrnes.
Cohen: Well, generally speaking, it’s physician’s services.
Johnson: Physicians. All right, now my doctor that I go out and he pumps my stomach out to see if I’ve got any ulcers, is that physicians?
Cohen: That’s right.
Johnson: Any medical services that are M.D. services?
Cohen: Any M.D. services.
Johnson: Does he charge what he wants to?
Cohen: No, he can’t quite charge what he wants to because this has been put in a separate fund and what the Secretary of HEW would have to do is make some kind of agreement with somebody like Blue Shield, let’s say, and it would be their responsibility . . . that they would regulate the fees paid to the doctor. What he tried to do was make sure the government wasn’t regulating the fees directly . . . the bill provides that the doctor can only charge the reasonable charges, but this intermediary, the Blue Shield, would have to do all the policing so that the government wouldn’t have its long hand . . .
Johnson: That’s good. Now what does it do for you the patient, on doctors. It says you can have doctor’s bills paid up to what extent or how much? Is there any limit?
Cohen: The individual patient has to pay the first $50 deductible, then he’s got to pay 20 percent . . . of everything after that . . .
Johnson: That keeps your hypochondriacs out?
Cohen: That will keep the hypochondriacs out. At the same time, for most of the people it will provide the overwhelming portion of their physician’s costs.
Johnson: Yes sir, and that’s something nearly everyone could endure. They could borrow that much, or their folks could get them that much to pay their part . . . I think that’s wonderful. Now remember this, nine out of ten things I get in trouble on is because they lay around. Tell the Speaker, and Wilbur, to please, get a rule just the moment they can . . . That damn near killed my education bill, letting it lay around. It stinks. It’s just like a dead cat on the door. When a Committee reports it, you better either bury that cat or get it some life.
In the end, Medicare and Medicaid became the law of the land. And, as can now know, Mills was correct to have his doubts about the actuarial basis of Medicare, Medicaid, and Social Security when the bill was passed in 1965. As the Social Security Act of 1935, the 1965 Act was not an ending but a beginning of a perpetual series of expansions of the benefits provided by these programs.
It is now painfully clear that Wilbur Mills was correct in his initial assumptions about the solvency of the original Social Security Act of 1935 and its unprecedented expansion in the 1965 amendment that President Johnson pushed through for significant political reasons. Mills’ estimates of what would be required in real taxable earnings gains to fund this “safety net” were eerily prescient. By 1974, the GDP’s failure to support the nation’s expenses for these entitlements, and the accumulating trade deficit, had placed the country in a significant cash shortage with few means of escape.
President Richard Nixon took us off the gold standard. By the late 1980s, the significant, arbitrary increases in the currency had elevated almost everyone’s wage base to where they began to feel prosperous once again. But, the costs were just being temporarily outpaced by the injection of this new currency, the day of reckoning was still coming and finally hit with a vengeance in 2009. It is now starting to become clear that the feeling of prosperity we all experienced was not the reality of our economy, just the benefit of more baseless cash.
The Modern Perspective
Now enters a few days ago, our current President, Barack Obama. In the past few days, it is clear to me that the president still believes what Wilbur Mills told President Johnson in 1965. He clearly believes that he should be able to run on the entitlements of Medicare and Medicaid to secure the votes for this free stuff, just like President Johnson. The concept of “a chicken in every pot,” i.e., votes for free stuff, was not as much the hallmark of the Democratic Party prior to President Johnson.
Although President Franklin D. Roosevelt leveraged these ideals to help the country rise out of the Great Depression and prepare for WWII, and Herbert Hoover is often credited with the phrase; “A Chicken in Every Pot” is a quotation that is perhaps one of the most mis-attributed in American political history. Variously assigned to each of four presidents serving in the years between 1920 and 1936, it is most often associated with Herbert Hoover. In fact, the phrase has its origins in seventeenth-century France; Henry IV reputedly wished that each of his peasants would enjoy “a chicken in his pot every Sunday.” Although Hoover never uttered the phrase, the Republican Party did use it in a 1928 campaign advertisement touting a period of “Republican prosperity” that had provided a “chicken in every pot—and a car in every backyard, to boot.” You see, we need to understand that political duplicity is not a democratic or republican affectation; it is a politician’s con.
But here we are once again, and even though President Obama is not uttering this phrase, it is clear that this is what he sees as his ticket to re-election. Perhaps I am too cynical, but reading transcripts of committee hearings on what became the Affordable Care Act, listening to our congressional leadership saying things about the legislation like, “this is the path to a federal single-payer system,” or “we need to pass it so we can see what’s in it,” and other equally ludicrous statements, and listening to the political agendas so blatantly expressed in the Johnson, or Nixon, tapes can do that to a person!
Based on my own experience and backed up by the historical record all the way back to Mr. Mills, it is clear that the current system cannot work. Frankly, and I don’t think I am saying anything out of school; none of our elected officials think it can work either. They are currently almost evenly split between the “we know it can’t work, and we need to fix it, crowd,” and the “We know it can’t work, but we can run on it again, and again, and again… crowd.” Regardless, to everyone, it should now be clear that it can’t work.
So, it is astounding to me that the President of the United States, Barack Obama, now stands before the American people and making a reverse Robin Hood argument declares that the other party, Republicans, in this case, those evil people, want to take everything you have away and give it to the rich! And what is more astounding is he says this is not class warfare! People seriously can’t believe that such a bald-faced lie can be true, can they? I have met many of our congressional leaders, Republicans, and Democrats. I have not met one that was not concerned about all Americans.
To make a statement that one political party is dedicated to the destruction of poor and helpless people is beyond unconscionable it is simply irresponsible. And it would be equally irresponsible for similar invectives to come from the other side as well. We are in a significant national, social and economic crisis. If our leaders do not get serious about solving the problems, then we need to get new leadership. If all we have left when someone talks of hard choices are to damn them as a pawn for the rich, I do not see how we will survive.
As we move beyond this primary election cycle toward the presidential election, we need to elect a leader that will realize that he can’t promise America that there will not be a chicken in every pot. You see, Mr. Obama, the chickens have finally come home to roost!
(for those of you who may be interested in more on this issue, it is discussed in more detail in my upcoming book, “The History and Evolution of Healthcare in America,” available at Amazon.com.)History of