Why Do We Have Medicare Part A and Part B?

For over 55 years, Medicare has provided health insurance to adults age 65 and older. Since its inception, Original Medicare has been divided up into two parts, Part A and Part B. Are you wondering why there’s a Medicare split? In this article, we’ll cover the history of Medicare, the reasoning behind the split, and major milestones along Medicare’s journey to the present day.

Important Medicare Milestones

Before we dive into the history of Medicare, let’s take a look at the key milestones in Medicare coverage. These crucial events helped expand health care coverage and eligibility.2

• 1965: Medicare and Medicaid were signed into law under the Social Security Act.
• 1966: Medicare coverage began. For the inaugural Medicare rollout, more than 19 million Americans enrolled in Medicare.
• 1972: Medicare eligibility was extended to those under 65 who had long-term disabilities and to those with end-stage renal disease.
• 1980: Medicare supplemental insurance, also known as Medigap, became available through private insurance companies to help fill the gaps in Medicare’s coverage.
• 1983: The Medicare hospice benefit began offering the option for enrollees to receive all-inclusive hospice care to relieve pain and help manage symptoms in a home setting instead of in an institution.
• 1988: The Qualified Medicare Beneficiary (QMB) program, one of the four Medicare Savings Programs, was established to help pay Medicare premiums and cost-sharing charges for people with limited income and assets.
• 1990: New federal standards for Medigap were enacted to ensure all insurance companies offered identical plan coverage.
• 1997: Medicare Part C, also known as Medicare Advantage, was established as an alternative to Original Medicare. Part C was offered through private insurance companies contracting with Medicare.
• 2006: Medicare Part D was launched to provide much-needed prescription drug coverage.

The History of Original Medicare (Part A and Part B)

President Lyndon B. Johnson signed into law legislation that established Medicare and Medicaid on July 30, 1965. At the time, seniors were the most likely population group to be living in poverty. Only around half of seniors had health insurance coverage at the time.2 The process of legislating Medicare was certainly challenging. It began with the contentious battle that raged over the enactment of the Medicare program in the 1960s. On one side were the Democrats and the American Hospital Association (AHA), who felt that a comprehensive, all-inclusive national health care program was needed for Social Security participants. On the opposing side were the Republicans, the insurance industry, and the American Medical Association (AMA), the association that represents many physicians. In a compromise effort to gain support for a federal Medicare plan, physician services were carved out of the original Medicare proposal so that the federal plan primarily covered hospital care. This became Medicare Part A, or Hospital Insurance, the premium-free part of the program that is available to all Social Security beneficiaries. Eventually, the insurance industry softened its resistance, as hospitals were “shifting” the costs of care they provided to the indigent onto those who had insurance, which meant that insurers would benefit if some part of those costs were covered by the government. The AMA proposed an alternative, state-run program that would provide health care services to the indigent, and the Republicans proposed a federally run, optional program to cover health care services for the indigent. Compromise legislation eventually resulted in the restoration of benefits for physician and outpatient services back into the federally run Medicare program as Medicare Part B, or Medical Insurance. To satisfy the original plan’s opponents, Part B was made optional. It was not to be funded from payroll taxes like Part A was, but it would require beneficiaries to pay a monthly premium.

Learn More About Medicare Part A and Part B

Are you looking for more information about Medicare Part A and Part B, or additional details about Medicare coverage? Check out our “Introduction to Medicare” video below. Here, we go over the basics of Medicare, explore Part A and Part B coverage, and discuss Medigap coverage.