Senior Living History: 1960 – 1969

The Senate created the Special Committee on Aging in 1961, chaired by Senator Frank Moss. They began to hold hearings on nursing home problems. The Moss Committee hearings in 1965 documented a huge lack of consistency in state nursing home standards and enforcement efforts. However, they also expressed caution about increasing enforcement because that meant closing facilities, which were already in short supply. They were concerned that there would be no place to put the dispossessed patients.

Medicare is created.

President Kennedy did not receive majority support for a national health insurance program while he was alive. However, the programs he had been supporting took on new life after his assassination. Lyndon Johnson ran for President in 1964 and promised to implement Kennedy’s plans. He won by a landslide, convincing many opponents that Medicare had overwhelming public support.

There was still a lot of debate and intense opposition from the American Medical Association (AMA). Some opponents were concerned that covering hospital costs would only take care of about 25 percent of the medical costs of seniors. Meanwhile, others were concerned about providing more coverage for poor older adults. Another concern was the need to get the support of Ways and Means Chairman Wilbur Mills, who had co-sponsored the Kerr-Mills program for the poorest seniors. They also needed the support of the AMA, which had floated a voluntary program called “Eldercare” as an alternative to Medicare.

These concepts were incorporated into the legislation to counter the opposition and get the bill passed. The 1965 amendments to the Social Security Act established the Medicare and Medicaid programs. Medicare Part A covered hospital costs, Part B was a voluntary program partially financed by premiums that covered physician and other out-of-hospital costs. Kerr-Mills was converted to a program called “Medicaid” to cover those in poverty.

The Older Americans Act is enacted.

Another major event that occurred in 1965 was the passage of the Older Americans Act. This Act created the Administration on Aging; authorized grants to states for aging-related community planning, services programs, research, demonstration, and training projects; and called for the development of State Units on Aging. This created what is now called the “Aging Network.” It’s a web of federal, state, and local agencies linked together to focus on social services and other programs primarily targeted to older adults aging in place at home.

In subsequent years, the mission of the Aging Network was expanded to include advocacy, meal programs, and several other services. Because of a lack of funding, many of the services developed long waiting lists, which limited the benefits to a relatively small proportion of the poorest seniors. The program had the potential to save the government money by providing more services to people who wanted to remain in the community instead of entering a nursing home. However, it never had the visibility or legislative urgency of Medicare and Medicaid.

Medicaid is created as an afterthought.

Unlike Medicare, the Medicaid program was almost an afterthought. There had been no national debate about what to include or how to design Medicaid as had happened with Medicare. Medicaid was added to the Medicare legislation late in the process, partly as a compromise for those who wanted to add assistance for low-income seniors to Medicare.

Medicaid was created from the Kerr-Mills program. It kept many of the aspects of Kerr-Mills, but added new categories of eligible beneficiaries, like the blind, the disabled, and families with children. Medicaid was to be a state-run program, and no one had thought through what the federal government wanted to accomplish. For this reason, Medicaid was turned over to the states to develop and administer as they saw fit, and the states proceeded to create 50+ varieties of Medicaid.

Medicare coverage for nursing homes is limited.

There has been a huge debate about what costs should be covered by Medicare. Nursing home costs were deliberately carved out of Medicare because lawmakers feared that nursing home care would financially devastate the program.

“I think that has other implications because it would be comparatively simple administratively to handle the problem of the institutional case because if you attempt to handle on an insurance basis the problem of the chronic illness, the long-time illness cared for in the home and cover the cost of professional services and the other costs, such as medicine, a great deal of difficulty will result. The problem of not padding the costs, or extending the period of illness at the desire of the patient or at the desire of the physician, which in some cases might occur, the problem of supervision, of keeping the cost down, or of being compelled to set arbitrarily the number of visits that would be paid for over a given period, which is done in many of these schemes, would present very great difficulties. I think it would be very difficult to carry out the plan of covering the catastrophic illness in the home whereas I think it would be quite simple to cover the high-cost illness in the hospital.” (Dr. Davis, Unpublished CES Reports, 1935)

The 1965 Advisory Council said in their report “Since the proposed program is designed primarily to support efforts to cure and rehabilitate, and since ‘nursing home’ care, in many cases, is oriented not to curing or rehabilitating the patient but to giving him custodial care, the Council does not propose the coverage of care in nursing homes generally.” (Advisory Council, 1965)

The Department of Health, Education, and Welfare (HEW), under the leadership of Anthony Celebrezze, complied with that recommendation and wrote the bill to ensure that nursing home coverage would be limited. Department officials and legislators were worried about nursing home costs, but they also feared ballooning hospital costs if demand exploded when the government started paying for hospital care. As a compromise, 60 days of “extended care” was included under Medicare, but only if that care would be a substitute for a more expensive hospital stay.

The bill said that Medicare would provide funding for beneficiaries who needed post-hospital convalescence in what was to be called an “extended care facility” (ECF). The ECF terminology was created instead of using any reference to “nursing homes” to make it clear that these stays were not regular nursing home stays and that they would not be provided in regular nursing homes. Originally, only hospital-based facilities were to be certified as ECFs, but a later decision was made to allow free-standing nursing homes to apply for ECF status. The standards for ECFs were set high, with an expectation that few nursing homes would be able to meet them, to put a cap on expenditures. The program also dictated that ECF coverage would only apply if there had been a previous 3-day hospital stay. This provision was intended to ensure that the ECF stay was really a substitute for a hospital stay by limiting care to those who had already been in the hospital for some acute episode.

While the bill’s authors intended to exclude nursing home coverage from Medicare, the general public assumed that long-term care costs would be paid for by Medicare, since much of the promotional material they were hearing said that Medicare would help the elderly “avoid dependence.” Discussions in the U.S. Senate underscored the fact that legislators knew that there was a discrepancy between the public expectation and the bill that was being voted on. During 1965 Senate Finance Committee hearings, Chairman Russell Long asked HEW Chairman Celebrezze, “Why do you leave out the real catastrophes, the catastrophic illnesses?” Celebrezze replied that it was “not intended for those that are going to stay in institutions year in and year out.” Senator Long responded, “Almost everybody I know of who comes in and says we ought to have medicare picks out the very kind of cases that you and I are talking about where a person is sick for a lot longer than 60 days and needs a lot more hospitalization.” Senator Allen Ellender stated on the Senate floor that “many sons and daughters whose mothers and fathers are growing old are of the belief that under the pending bill they will be able to get the Government to take care of their older parents, in the event they become ill for long periods of time” (Twight, 1997).

In spite of the debates and discrepancies, the legislation was signed into law with only limited coverage for nursing home care. The only real compromise was to increase the limit from 60 to 100 days. The final “solution” was to provide unlimited coverage for nursing home services to the poorest of the elderly under the Medicaid program.

Medicaid provides coverage for nursing home care.

The question about how long-term care services would be covered by the federal government was answered by requiring the states to provide both medical home health and nursing home services to their poor elderly in order to receive a federal match for the costs of their Medicaid program. States also could optionally include people who did not qualify as “poor” based on their income or assets if they could not afford to pay for the medical care they needed (the medically-needy), so long as the recipients “spent down” their assets to pay for as much as they could before receiving Medicaid payments.

Medicare costs quickly exceed projections.

To help appease the AMA, Medicare reimbursement to providers would not be based on fixed “rate schedules.” Instead, reimbursement for physicians and other providers would be based on their “reasonable costs.” This was intended to assure that the providers would not lose money, which encouraged them to support the program. However, it also meant there was no cap on program costs, and there was no incentive for providers to control the amount of money they were spending.

Nursing homes were anxious to tap into this new Medicare program. About 6,000 nursing homes applied for the ECF program when they were able to, but only 740 would meet the tough standards. By that time, it seemed politically inadvisable to leave so many homes out of the program. For that reason, a decision was made to accept the facilities that failed to meet the standards, but which were in “substantial compliance.” On that basis, 3,000 additional homes were accepted into the program. “Substantial compliance” meant that they intended to fix anything that didn’t meet the standards, but many of them never got around to doing that. Once they were in the program they weren’t decertified.

Nothing about the ECF program went as projected. Medicare ECF costs in the first year of the program had been estimated at $25-$50 million, but they ended up being $275 million. This huge overage came about for several reasons:

• There were many more facilities in the program than had been budgeted for because of the admission of so many “substantially compliant” ECFs.
• The daily cost ended up being 50 percent higher than was expected, because the program reimbursed operators for their cost, using “cost-based reimbursement,” without knowing ahead of time what those costs were or putting any caps on those costs.
• The 3-day hospital stay requirement did not end up reducing hospital costs or limiting the number of nursing home admissions. In fact, the 3-day hospital stay requirement may have actually increased costs when hospital discharges were postponed long enough to meet that requirement.

Medicaid costs quickly exceed expectations.

Although no one had thought through what the Medicaid program would cost, some features of the program guaranteed it would be much more expensive than anyone had anticipated:

1. Medicaid coverage of nursing home services created a large problem when Medicaid covered nursing home care but only provided limited coverage for home care. If someone needed help and was unable or unwilling to pay for it, they could move to a nursing home to receive that assistance and have the cost covered by Medicaid. Once in a nursing home, the high nursing home bills allowed people to qualify for Medicaid at higher income levels because of the “medically needy” provisions, greatly increasing the number of people on Medicaid. At the same time, the program cost per beneficiary increased because Medicaid was now paying for housing, food, housekeeping, and laundry services that would not have been covered for in-home care.
2. The option of a federal match provided a huge incentive for states to shift other obligations to the Medicaid system. It meant that the federal government would pick up part of those costs as well. The states could, and did, move people from the community, where the state and local government covered 100 percent of the cost, to nursing homes, where the federal government would pick up half of the cost. This also meant that the states had an opportunity to greatly expand the services they provided while paying little or none of the additional cost themselves.
3. States could set rates wherever they wanted, with no caps or ceilings, but they would never have to pay more than 50 percent of the cost. That made it easier to increase rates since they only had to pay part of the increase themselves. If they combined this with the transfers described above, they could increase the rates paid to providers while reducing the cost to the state!
4. Fiscal control of the system at the federal level was virtually impossible. All of the data was maintained by the states in over 50 different, disconnected systems. The federal government found it difficult to identify costs or utilization statistics even for services that had already been rendered, let alone derive enough information to make accurate projections for the future.

The cost of Medicaid quickly overran all initial projections. As Ways and Means Chairman Wilber Mills remembers it, “We were told by Bob [Meyers], the actuary, that the cost of Medicaid over Kerr-Mills in the first year would be $250 million, nationwide. It was $250 million in New York State alone…They had 41 percent of the people in the state of New York eligible for Medicaid, the legislature did after we passed it. And of course, they’d upped the numbers and that upped the cost over and above what Bob Meyers ever anticipated.” (Social Security Oral Histories)

Nursing Home Supply, Expenditures, and Utilization, Mid-Twentieth Century

The data in the following table comes from a variety of sources. It’s impossible to tell if all of them were referring to the same facilities and residents, so it is imprecise. However, it probably is good enough to create a general picture of nursing home utilization and expenses in the mid-twentieth century.

The explosion in utilization and costs that took place after FHA financial assistance for nursing home construction was made available in 1959, and again after Medicare and Medicaid were enacted in 1965 is obvious. Also, note that the percentage of the cost borne by the federal government increased far more than that borne by state and local governments. (IOM, NCHS, CMS)