Government Health Insurance and Direct Care

Despite a political culture that emphasizes individualism and the free market, about three-fifths of all U.S. spending on personal healthcare is financed, directly or indirectly, by governments (Woolhandler and Himmelstein). About 25 percent of this amount is used to support the employer-sponsored system of private health insurance through tax subsidies and public employee benefits. About 20 percent of it is spent on direct government provision of healthcare to veterans and members of the armed forces (and their dependents), and to Native Americans (under treaty obligations). Almost all of the remaining 55 percent is spent on Medicare and Medicaid, two government health insurance programs for selected groups of Americans that have been politically legitimized as especially deserving of collective help. A central rationale for the establishment of these two programs has been "market failure"—the fact that employer-sponsored private insurance does not tend to reach these particular groups.

Medicare, enacted by Congress in 1965, provides national health insurance for about forty million persons. One group covered by the program is all persons aged sixty-five and older who are eligible for Social Security benefits (or Railroad Retirement Benefits)—over 99 percent of Americans in this age range—about thirty-five million people at the turn of the twenty-first century. The political threshold for legitimating older people as a special deserving group worthy of collective assistance had already been crossed during the Great Depression when the Social Security Act of 1935 created government-funded old-age retirement benefits at the age of sixty-five. The rationale for establishing Medicare was that older persons, retired from employment, had no way to obtain group health insurance. Comparatively few had employer-sponsored retiree health insurance. Moreover, most older people could not afford the comparatively steep premiums charged for individual insurance policies, and many could not obtain them because of preexisting medical conditions.

Medicare coverage was extended in 1973 to another select group, younger individuals who become eligible after they have received Disability Insurance (DI) benefits from the federal government for at least two years; about five million such persons were covered at the turn of the century. These are persons who, due to a medically certified physical or mental impairment (but not other circumstances), are unable to engage in any kind of substantial employment (earning $500 monthly or more) for at least a year. They have been politically legitimized as deserving of Medicare coverage because without employment they cannot obtain group health insurance or afford it on their own. Until the year 2000, DI recipients who were able to return to substantial employment lost their Medicare coverage after two years. However, in recognition of the fact that many employers of former DI recipients do not provide health insurance, this disincentive to work was attenuated by the Ticket to Work and Work Incentives Improvement Act of 1999. It enables DI recipients who become substantially employed to participate in the Medicare Program for an additional four and one-half years.

The Medicaid program, established by the federal government along with Medicare in 1965, is a jointly-funded cooperative venture between the national and state governments that provides healthcare insurance coverage for some poor Americans. But Medicaid policy does not fully equate poverty with deservingness. Federal law only requires states to provide coverage for specific categories of deserving groups among the poor that, in their nature, are unlikely to be able to obtain employer-sponsored insurance through the market. Although the list of these requirement categories is long and detailed, the principal eligible groups are children, adults with dependent children, disabled persons (who are not eligible for federal DI benefits), blind persons, and older people (to cover their long-term care costs and certain other expenses not covered by Medicare). Persons within these categories are eligible for Medicaid if their income and financial assets fall below thresholds determined by each state (within minimum federal guidelines). Poor working age men generally do not qualify for Medicaid; the vast majority of those who are eligible in the "adults with dependent children" category are single women. Altogether, the program covers over forty million persons.

Because state governments have considerable latitude in setting income and asset thresholds for Medicaid eligibility, there are substantial interstate inequalities in program participation by persons within the categorical groups designated in federal legislation. An example is the range of low-income thresholds used by states to determine whether infants are eligible for Medicaid. At the most generous end of the range of low-income thresholds used by states in 1999 was Tennessee's 400 percent of the federally-established poverty line; at the other extreme were eight other states with a threshold of 133 percent (Ku, Ullman, and Almeida).

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