The history of Medicare and Medicaid begins on July 30, 1965, when President Lyndon B. Johnson signed the Social Security Amendments of 1965 at the Truman Library in Independence, Missouri. That single law created both programs: Medicare, a federal insurance program for Americans aged 65 and older, and Medicaid, a joint federal-state program covering low-income people. Together they now insure well over 140 million Americans and account for roughly 39 cents of every health care dollar spent in the country.1CMS. NHE Fact Sheet Six decades of amendments, court decisions, and rising costs have reshaped both programs in ways their architects never anticipated.
Half a Century of Failed Proposals Before 1965
Federal health insurance was debated in the United States for more than fifty years before it became law. In the decade after 1908, several European countries adopted compulsory national health insurance, but similar proposals here were blocked by physicians and commercial insurers who feared government control over medical fees.2AMA Journal of Ethics. The US Health Care Non-System, 1908–2008
Franklin Roosevelt deliberately left health insurance out of the 1935 Social Security Act to protect the larger bill. He revived the idea in 1944 as part of an “Economic Bill of Rights,” but the proposal went nowhere.2AMA Journal of Ethics. The US Health Care Non-System, 1908–2008 In 1945, Harry Truman proposed a comprehensive national health plan financed by monthly fees and taxes. The American Medical Association called the plan a “Communist” scheme, Senator Robert Taft offered a state-level private alternative, and once Republicans took the House in 1946 Truman’s bill was finished.3Harry S. Truman Presidential Library & Museum. The Challenge of National Healthcare
While Washington argued, the private market filled the space. World War II wage controls pushed employers to offer health benefits to compete for workers, and favorable tax treatment cemented job-based coverage as the American default.2AMA Journal of Ethics. The US Health Care Non-System, 1908–2008 That arrangement worked for the employed but left the elderly, the poor, and the disabled largely uncovered, setting up the population-specific approach that would eventually succeed.
Kerr-Mills: The 1960 Warm-Up
By the late 1950s, advocates narrowed their aim to older Americans. Representative Aime Forand introduced hospital insurance bills in 1959 and 1960. Congress did not pass them, but it did enact the Kerr-Mills Act in 1960, which created Medical Assistance to the Aged. Kerr-Mills offered federal matching grants to states willing to pay medical costs for elderly people too poor to afford care but not poor enough for existing welfare programs.4CMS. Origins of the Medicaid Program
The design carried the DNA of the future Medicaid program: states set eligibility and benefit levels, and federal money flowed through an open-ended match based on state per capita income. Results were thin. By 1963, only 30 states had programs, and by 1965 just five states accounted for 62 percent of all recipients, with barely 265,000 people nationally enrolled.4CMS. Origins of the Medicaid Program5National Center for Biotechnology Information. Creating Medicaid
How the 1965 Law Passed
Lyndon Johnson’s landslide 1964 election produced Democratic majorities large enough to move health legislation. The administration revived the King-Anderson bill, which proposed hospital insurance for the elderly financed through Social Security payroll taxes.6Social Security Administration. Social Security Amendments of 1965: Summary and Legislative History
House Ways and Means Committee Chairman Wilbur Mills, who had previously blocked similar efforts, engineered the compromise. He folded three separate ideas into a single bill, H.R. 6675: hospital insurance financed by payroll tax (Medicare Part A), voluntary physician coverage financed by premiums and general revenue (Part B), and a broader federal-state program for the poor built on the Kerr-Mills template (Medicaid).5National Center for Biotechnology Information. Creating Medicaid The bill cleared both chambers with bipartisan majorities during the summer of 1965.7Social Security Administration. Tally of Votes on Social Security Amendments of 1965 Johnson signed it on July 30 with the 81-year-old Truman at his side, calling the former president “the real daddy of healthcare.”3Harry S. Truman Presidential Library & Museum. The Challenge of National Healthcare
What Each Program Looked Like at the Start
Title XVIII of the Social Security Act established Medicare with two parts. Part A covered inpatient hospital stays, skilled nursing facility care, and home health services, funded by a dedicated payroll tax. Part B was voluntary and covered physician visits and outpatient services; enrollees paid a monthly premium of three dollars, matched dollar-for-dollar by the federal government from general revenue.6Social Security Administration. Social Security Amendments of 1965: Summary and Legislative History When Medicare took effect on July 1, 1966, more than 19 million Americans were immediately eligible.8National Center for Biotechnology Information. Medicare Program in the 21st Century
Title XIX created Medicaid as a federal-state partnership. The federal government set broad guidelines, but each state designed and administered its own program and picked which optional populations and services to cover. Money flowed through an open-ended matching formula called the Federal Medical Assistance Percentage, with poorer states drawing a higher federal share. Initial eligibility was tied to participation in cash welfare programs, and the program served low-income seniors, families with children, people with disabilities, and the blind.9Medicaid.gov. Program History10MACPAC. Putting the Program in Context
Who Runs the Programs
The Social Security Administration originally ran Medicare through a Bureau of Health Insurance; Medicaid sat under the Social Rehabilitation Service. In 1977, the federal government consolidated oversight into the Health Care Financing Administration, housed in what is now the Department of Health and Human Services.11CMS. Medicare and Medicaid Milestones12Government Accountability Office. Health Care Financing Administration Was Established In 2001, the agency was renamed the Centers for Medicare & Medicaid Services. CMS now also administers the Children’s Health Insurance Program and oversees the Health Insurance Marketplace created by the Affordable Care Act.
Expanding Eligibility: The 1972 Amendments
Richard Nixon signed the Social Security Amendments of 1972 on October 30 of that year. The law extended Medicare to people under 65 who had received Social Security disability benefits for at least 24 months, and to individuals with end-stage renal disease requiring dialysis or transplantation.13National Academies. Kidney Failure and the Federal Government It was Medicare’s first major eligibility expansion, and it fundamentally changed the character of a program originally pitched as coverage for the elderly.
Controlling Costs: DRGs and Prospective Payment
Through its first two decades, Medicare paid hospitals whatever they spent treating patients. Between 1967 and 1983, annual Medicare hospital spending grew from $3 billion to $37 billion.14KFF. Medicare Hospital Prospective Payment System Congress responded with the Tax Equity and Fiscal Responsibility Act of 1982 and then the Social Security Amendments of 1983, which replaced retrospective reimbursement with a prospective payment system built around diagnosis-related groups. Medicare now paid hospitals a flat rate for each inpatient case based on the patient’s diagnosis, regardless of length of stay or actual costs incurred. The change was phased in over three years and rewired hospital economics around efficiency.15Princeton University Office of Technology Assessment. Diagnosis Related Groups and the Medicare Program
EMTALA and Emergency Care
In 1986, Congress enacted the Emergency Medical Treatment and Labor Act as part of a broader budget bill. EMTALA requires every hospital that participates in Medicare and operates an emergency department to screen and stabilize any patient who arrives seeking emergency care, regardless of ability to pay or insurance status.16CMS. Emergency Medical Treatment & Labor Act It remains a cornerstone of emergency access in the United States.
The Catastrophic Coverage Fiasco
In 1988, Ronald Reagan signed the Medicare Catastrophic Coverage Act, the first major benefit expansion since the program’s creation. The law was designed to protect older Americans from ruinous medical bills, but it financed the expansion by imposing a surtax on higher-income Medicare beneficiaries. The backlash from those beneficiaries was intense, and Congress repealed the law just 17 months later, in December 1989.17The New York Times. Lesson Is Seen in Failure of 1989 Law on Medicare18Congress.gov. Medicare Catastrophic Coverage Repeal Act of 1989 The episode became a lasting cautionary tale about asking existing beneficiaries to pay for their own expanded benefits.
The 1990s: Private Plans and Children’s Coverage
The Balanced Budget Act of 1997 reshaped both programs. It created Medicare Part C, originally called Medicare+Choice, which let beneficiaries receive their Part A and Part B benefits through private insurance plans contracted with the federal government. Options included HMOs, preferred provider organizations, and private fee-for-service plans, with the program going live on January 1, 1999.19CMS. Medicare Health Plans The same law established the State Children’s Health Insurance Program, which provided federal matching funds for states to cover low-income children with family incomes above Medicaid thresholds but too low for private insurance.20KFF. How Has Medicaid Evolved Over Time
A year earlier, Congress had severed the longstanding link between Medicaid eligibility and cash welfare when it replaced Aid to Families with Dependent Children with Temporary Assistance for Needy Families. After 1996, Medicaid eligibility for children, pregnant women, and low-income parents was determined independently of cash assistance.20KFF. How Has Medicaid Evolved Over Time
Part D and the Prescription Drug Benefit
For nearly four decades, Medicare did not cover outpatient prescription drugs. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, signed by George W. Bush on December 8, 2003, addressed the gap by creating Part D, a voluntary drug benefit administered by private insurers.21National Center for Biotechnology Information. The Medicare Part D Prescription Drug Benefit The same law renamed Medicare+Choice as Medicare Advantage.19CMS. Medicare Health Plans
Part D carried a design quirk known as the “donut hole,” a coverage gap in which beneficiaries paid the full cost of their drugs. Under the original structure, enrollees paid 25 percent of costs between $251 and $2,250, then 100 percent between $2,250 and $5,100, before catastrophic coverage began.21National Center for Biotechnology Information. The Medicare Part D Prescription Drug Benefit The law also prohibited the federal government from directly negotiating drug prices, a provision that would stand for nearly two decades. Polling at the time showed 47 percent of seniors opposed the changes. The program launched in January 2006 with an estimated 43 million eligible beneficiaries.22National Center for Biotechnology Information. Medicare and Medicaid at 50
The Affordable Care Act and Medicaid Expansion
The Patient Protection and Affordable Care Act, signed by Barack Obama in 2010, affected both programs. For Medicaid, it expanded eligibility to nearly all adults with incomes up to 133 percent of the federal poverty level (effectively 138 percent after a standard income disregard).23MACPAC. Overview of the Affordable Care Act and Medicaid The federal government initially covered 100 percent of the cost of covering newly eligible adults, gradually declining to 90 percent by 2020.24Center on Budget and Policy Priorities. Medicaid Expansion Frequently Asked Questions
Expansion was originally mandatory, but the Supreme Court’s 2012 ruling in National Federation of Independent Business v. Sebelius made it optional for states.23MACPAC. Overview of the Affordable Care Act and Medicaid As of early 2025, 41 states including the District of Columbia have adopted expansion, and 10 have not: Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming. An estimated 1.4 million uninsured people fall into the resulting coverage gap, with Texas, Florida, and Georgia accounting for roughly three-quarters of them.25AJMC. Medicaid Expansion’s Unfinished Map
Drug Price Negotiation and the Inflation Reduction Act
The Inflation Reduction Act of 2022 reversed the ban on Medicare drug price negotiations. The law authorized CMS to negotiate prices for high-spending drugs that face no generic or biosimilar competition, and in 2023 CMS selected 10 Part D drugs for the first round.26The Commonwealth Fund. Medicare Drug Price Negotiations The negotiated maximum fair prices took effect on January 1, 2026, and CMS estimated beneficiaries would save approximately $1.5 billion in 2026.27CMS. Medicare Drug Price Negotiation Program Negotiated Prices
The law delivered more immediate benefits too. Starting in 2023, out-of-pocket costs for insulin under Part D were capped at $35 per month per covered insulin product.28CMS. Anniversary of the Inflation Reduction Act In 2025, the Part D donut hole was formally eliminated and replaced with a new manufacturer discount program, and annual out-of-pocket drug spending for Part D enrollees was capped at $2,000.29KFF. Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act About 19 million seniors were projected to save an average of $400 per year under the cap.
The 2025 Reconciliation Law
On July 4, 2025, President Trump signed H.R. 1, commonly known as the One Big Beautiful Bill Act. The Congressional Budget Office projects the law will reduce federal Medicaid spending by approximately $911 billion over 10 years.30KFF. Medicaid: What to Watch in 2026
Key provisions include mandatory work reporting requirements of 80 hours per month of “community engagement” for able-bodied Medicaid expansion adults aged 19 to 64 without dependents, effective January 1, 2027, with some states moving earlier. The law also increases eligibility redeterminations for the expansion population to every six months, restricts state provider tax rates, and imposes new cost-sharing requirements on expansion enrollees earning above the poverty level.31Bipartisan Policy Center. 2025 Reconciliation Health Provisions
CBO projects the law will increase the uninsured population by 10 million by 2034, with 7.5 million attributable to Medicaid and CHIP reductions. Work reporting requirements alone account for an estimated 5.3 million of those coverage losses.32Georgetown University Center for Children and Families. New CBO Health Coverage Estimates of Budget Reconciliation Law Because the law increases the federal deficit by an estimated $3.4 trillion over 10 years, it may also activate automatic sequestration cuts to Medicare under existing pay-as-you-go rules.33KFF. Tracking the Medicare Provisions in the 2025 Budget Bill
Where the Programs Stand Today
Medicare now covers approximately 69 million people. About 64 million have both Part A and Part B coverage, and 35 million of those are enrolled in Medicare Advantage plans, roughly 55 percent of eligible beneficiaries.34KFF. Medicare Advantage in 2026: Enrollment Update and Key Trends Medicaid and CHIP enrollment stood at approximately 77.7 million as of June 2025, down 18 percent from a pandemic-era peak in March 2023 but still nine percent higher than pre-pandemic levels.35KFF. Medicaid Enrollment and Spending Growth, FY 2025–2026 Medicaid alone covers roughly one in five people living in the United States.
In 2024, Medicare spending totaled approximately $1.1 trillion, or 21 percent of national health expenditures. Medicaid spending reached approximately $932 billion, or 18 percent.1CMS. NHE Fact Sheet
The Medicare Solvency Problem
The most pressing long-term issue for Medicare is the financial health of its Part A trust fund. According to the 2026 Medicare Trustees Report, released on June 9, 2026, the Hospital Insurance trust fund is projected to be depleted in the second quarter of 2033. Once depleted, incoming revenue would cover only 89 percent of scheduled benefits. The trust fund’s 75-year unfunded obligation stands at $4.2 trillion, and Part A spending is expected to exceed trust fund income starting in 2027.36Bipartisan Policy Center. What’s in the 2026 Medicare Trustees Report
The worsening outlook is driven by the aging of the baby boomer generation and rapid growth in spending on skilled nursing, home health, and hospice services. The 2025 reconciliation law’s changes to Social Security benefit taxation are also expected to reduce the trust fund’s revenue.37Georgetown University Medicare Resource Center. Beyond Insolvency: The Bigger Picture of Medicare’s 2026 Financial Outlook To achieve fiscal balance over 75 years, the trustees noted, policymakers would have needed to reduce scheduled benefits by 12 percent starting in January 2026 or raise the Medicare payroll tax rate from 2.90 percent to 3.46 percent.36Bipartisan Policy Center. What’s in the 2026 Medicare Trustees Report Federal law does not prescribe what happens if Congress fails to act before depletion, leaving the question to future legislators.