Debunking Medicare Myths:
How a New Prescription Drug Program
Could Affect American Taxpayers and Seniors
December 8, 2000
In deciding whether to adopt a new Medicare prescription
drug program, Americans should consider carefully how
it would affect them in the long run, both as taxpayers
and seniors. If history is any indication, the program
would most likely end up costing much more than politicians
That, in turn, could lead to rationing--a system whereby
politicians and government officials determine which
drugs are covered under Medicare and which are not.
Even if a senior's doctor thinks a particular drug is
the best, the federal government--not the senior--would
decide if his or her health care program (Medicare)
will pay for it.
At a time when Americans are demanding more choice
in health care, a new government program for prescription
drugs could have many unintended consequences that would
actually reduce choice.
An examination of Medicare's 35-year-old track record
for financing and administering medical care will help
guide taxpayers, seniors, and policymakers to make informed
decisions regarding Medicare reform.
When Medicare was debated in 1965 (the year it was
signed into law), taxpayer groups were concerned that
program expenditures might grow out of control. They
argued that taxpayers shouldn't have to foot the bill
for wealthy seniors who could afford to pay for their
own health insurance. However, politicians assured taxpayers
that all seniors could easily be covered under Medicare
with only a small increase in workers' payroll taxes.
Government officials also made unsound assurances.
In fact, the federal government's lead actuary in 1965
projected that the hospital program (Medicare Part A)
would grow to only $9 billion by 1990. The program ended
up costing more than $66 billion that year. Even after
adjusting for inflation and other factors, the cost
of Medicare Part A (in constant dollars) was 165 percent
higher than the official government estimate, according
to the actuary who produced them.1
(In unadjusted dollars actual costs were 639
percent above estimates.)
Just three years after Medicare was passed, a 1968
Tax Foundation study found that public spending on medical
care had nearly doubled in the first few years of Medicare.
The report concluded, "To date, the major demonstrable
effect of the 1965 federal legislation creating Medicare
and Medicaid has been a shift in financing medical care
from the private to the public sector."2
Consequently, Medicare payroll taxes and general taxes
have been raised over the years to pay for skyrocketing
health care costs. Without an outpatient prescription
drug benefit, Medicare now represents 12 percent of
federal spending, and it is the largest payer of health
care in the world, spending $212 billion in 1999.
Without proper knowledge of how Medicare has affected
seniors' out-of-pocket costs over the years, many seniors
might support a new prescription drug benefit believing
it would actually reduce their overall costs. However,
history provides some strong indications that the opposite
is likely to occur. Before opting for a new drug program,
the elderly in particular would benefit from investigating
several important myths and facts regarding Medicare.
Myth #1: Medicare
has reduced seniors' out-of-pocket costs.
Fact: In 1965, the Medicare program was sold
to the American people as the best way to help reduce
seniors' out-of-pocket health care costs. Yet after
it was created, costs skyrocketed and by 1985, Rep.
Claude Pepper (Dem.-FL) reported that Medicare beneficiaries
were paying 20 percent of their income for health care,
the same as in 1964--the year before Medicare was passed.3
Seniors end up paying more for health care when costs
skyrocket under a government-financed monopoly for medical
care. All told, seniors' out-of-pocket health care costs
have gown from $4.5 billion in 1977 to over $26 billion
Myth #2: Seniors'
life expectancy has increased because of Medicare.
Fact: Supporters of Medicare often overlook
the very important fact that average life expectancy
had been increasing in the United States long before
Medicare and Medicaid were enacted in 1965. In fact,
average life expectancy in the United States increased
from 47.3 years to 69.7 years between 1900 and 1960.4
It is important to note that life expectancy was low
in the early 1900s primarily because of high infant
mortality rates, making the overall life expectancy
rate appear low. However, in the early 1900s, those
who reached age 60 typically lived another ten years
or more. The bottom line is that life expectancy for
seniors had been increasing nearly every decade for
65 years (1900 to 1965) prior to the enactment of Medicare.
Thus, we can't attribute the increases in seniors' life
expectancy to Medicare.
Myth #3: Medicare
was the main factor in reducing poverty among seniors.
Fact: Considering that Congress gave no Social
Security cost-of-living increases to seniors between
1959 and 1965, it is no wonder seniors' income fell
below the national average prior to Medicare's passage.
After Medicare was passed, median total incomes of the
elderly grew about 50 percent between 1969 and 1983.
However, most of the income gains were due to increases
in Social Security benefits, according to the National
Academy of Social Insurance.
It is also worth noting that in 1965, Congress tied
a seven-percent Social Security increase to the proposed
Medicare bill. Thus, seniors couldn't oppose the proposed
Medicare program unless they also opposed a Social Security
If Congress had not withheld a Social Security increase
for seniors between 1959 and 1965, the senior poverty
statistics would show a very different picture, possibly
one that reveals a large number of seniors were lifted
out of poverty before Medicare was enacted.
Myth #4: Many seniors
did not have access to health care before Medicare
Fact: This is probably the biggest myth surrounding
Medicare. Prior to the enactment of Medicare, there
was already a government program to cover low- income
Nearly five years before Medicare was created, on September
13, 1960, President Eisenhower signed into law the "Medical
Assistance for the Aged" program, commonly known as
the Kerr-Mills law.6
The program extended coverage to 70 percent of the approximately
17 million American seniors,7
even though 54 percent already had health insurance
What can we learn
from Medicare's history?
The most important lesson is that actual Medicare
costs will most likely exceed projected costs. There
is no reason to believe that prescription drug costs
would not escalate as other health care costs have over
the past 35 years. Thus, Americans would be wise to
consider already existing state-run programs, such as
Medicaid, to help poor seniors pay for prescription
drugs, rather than creating a federal one-size-fits-all
In the end, the current Medicare prescription drug
debate comes down to one simple question: Do Americans
want to create a safety net for the poor, or a federal
program that rations prescription drugs for all American
Robert J. Myers, "How Bad Were the Original Actuarial
Estimates for Medicare's Hospital Insurance Program?"
The Actuary, February 1994.
Tax Foundation study cited in "Medical Care Cost Doubles
in 3 Years," New York Times, September 9, 1968,
Barbara Dreyfuss, "Twenty Years Later: Key Players Reminisce,"
The Internist, March 1985, p. 11.
U.S. Department of Commerce, Bureau of the Census, Historical
Statistics of the United States: Colonial Times to 1970,
Bicentennial Edition, Part 1 (Washington: Government
Printing Office, 1975), p. 55.
U.S. House of Representatives (1965) Comm. on Ways and
Means, Summary of Major Provisions of the Medical
Assistance for the Aged Program (Kerr-Mills Law): Public
Law 86-778, 89-1, pp. 1-4.
U.S. Code Congressional and Administrative News,
 86-1, p. 1299.
U.S. Code Congressional and Administrative News,
 86-2, p. 3609.
Copyright 2000. Institute for Health Freedom. A
version of this article by Sue A. Blevins was previously
published by the Pacific Research Institute for Public
Policy, Action Alert No. 59, October 2, 2000.