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July 27
09:55 2017

Public Policy Analysis & Opinion

The federal-state healthcare funding program is proposed as “the public option” at the same time Washington considers significant cuts

After 30 years of working in and around the glamorous and exciting world of insurance public policy, one becomes accustomed to wild surprises.

So when, in June of this year, New York magazine carried a story about Nevada considering legislation to fix health insurance, this proved quite interesting, indeed. The legislation would enable Nevadans to purchase health insurance coverage through the state’s Medicaid program. The bill passed the general assembly in early June.

At least 32 states currently allow disabled citizens to buy into Medicaid programs, so replicable procedures exist for expanding those transactions. Although at the national level, progressive pressure groups and officials have proposed “Medicare for All” for many years, “Medicaid for All” might gain traction.

Accidental and tragic moments punctuate the history of the Medicaid program.

It seems that Nevada Republican Governor Brian Sandoval and the Democratic sponsor in the state legislature stayed in close contact as the bill received consideration. As of this writing, the bill sits on the governor’s desk. Even if the governor vetoes the legislation, the proposal provides a framework that other states might replicate.

At the same time, Congress and the Trump Administration continue to ponder cuts to the Medicaid program. The cuts could come through a repeal of the Affordable Care Act or through the routine budgeting process.

Accidental and tragic moments punctuate the history of the Medicaid program. The program came about as the result of a political consideration paid to a powerful committee chair by a powerful president in 1965.

Truman lesson

In the mid-1960s, the shared experience that shaped most public officials’ view of healthcare policy was the running battle that President Harry Truman fought with the American Medical Association.

On September 6, 1945, President Truman proposed an Economic Bill of Rights, which included a healthcare plank. In a November 19, 1945, statement to Congress that focused on the plank, Truman noted shortcomings in the American healthcare system that sound familiar today. He decried the inadequate numbers of clinics, hospitals, and medical personnel in the United States and the inequitable distribution of those healthcare assets. America’s vast and poor rural areas suffered the most. “Inequalities in the distribution of medical personnel are matched by inequalities in hospitals and other health facilities,” wrote Truman.

Truman noted that rural poverty dissuaded doctors from practicing in rural communities because they could not count on compensation for care.  Neither could poor rural areas afford to attract private construction of clinics and hospitals or provide local taxpayer support for public facilities. Truman asserted that, until the United States addressed the demand side of the equation, the supply side would suffer. In his statement to Congress, he said:

I want to emphasize, however, that the basic problem in this field cannot be solved merely by building facilities. They have to be staffed; and the communities have to be able to pay for the services. Otherwise the new facilities will be little used.

The inadequate and inequitable distribution of healthcare assets not only harmed the well-being of Americans, but also raised the price of healthcare. Simple supply and demand explained the inflationary pressure, and the AMA, through its state medical societies, championed policies that restricted medical school enrollment and the construction of physical assets. In proposing his plan, Truman pointed to “federal-state partnership” and “federal-state cooperative health programs.”

To maintain restrictions on supply, the AMA focused its public attack on Truman’s proposal to expand responsible demand for healthcare through direct public funding. Truman’s plan fell victim to “red-baiting.” The AMA described the proposal as a directive of “the party line from Moscow.” Apparently the federal-state partnership model for “socialized medicine” came directly from Stalin.

With his grand plan for healthcare financing dashed, Truman signed legislation in 1950 that made federal matching funds available to states that initiated programs to fund vendor payments (institutional providers of medical care) for welfare recipients. Over the next ten years, the vast majority of the states launched programs that allowed them to access the federal matching funds.


In the late 1950s, liberals in Congress continued to introduce healthcare funding proposals. In 1957, Representative Aime Forand (D-R.I.) and Representative Cecil King (D-Calif.) decided to take an incremental approach to building a national healthcare program, which began with providing health insurance for the elderly. The Forand-King Bill coined the name “Medicare.” Senator Hubert Humphrey (D-Minn.) and Representative Richard Bolling (D-Mo.) collaborated on a similar proposal.

Opponents continued to cast communist aspersions on the age-limited proposals. To offer something positive, a few opponents introduced plans based on vouchers for senior citizens that would partially fund the purchase of private health insurance. Of course, this approach assumed that health insurers would even sell policies to older adults at any price and that retirees could make up the difference between the price of such policies and the voucher’s value.

In 1960, the final year of President Dwight Eisenhower’s administration, Congress passed the Medical Assistance for the Aged (MAA) Act. The statute is also referred to as the Kerr-Mills Act to reflect the legislation’s two lead sponsors: Senator Robert Kerr (D-Okla.) and Representative Wilbur Mills (D-Ark.), both conservative Southern Democrats. The legislatures worked closely with a career health policy analyst in the Social Security Administration named Wilbur J. Cohen.

A research paper in Health Care Financing Review (Volume 27, Number 2) by Judith D. Moore and David G. Smith, Ph.D., titled “Legislating Medicaid: Considering Medicaid and Its Origins,” notes that the MAA broke new ground in public policy by making beneficiaries eligible based on their age and vulnerability to financial loss incurred through medical expenses, rather than prior eligibility for welfare.


During his years in the Senate and carrying through the 1960 presidential campaign, John F. Kennedy demonstrated an interest Medicare legislation.

As Julian E. Zelizer observed in the February 15, 2015, issue of The New Yorker, Kennedy took more interest in Medicare than he did in most domestic policy. Kennedy viewed the issue as vital to the national interest, and therefore a proper target for national attention. Furthermore, Kennedy identified the issue as one he could work on with the liberal and labor activists in the Democratic Party. Zelizer observed: “On August 14, 1960, Kennedy visited Hyde Park to celebrate, with Eleanor Roosevelt, the twenty-fifth anniversary of Social Security, and he used the occasion to promote Medicare.”

President Kennedy proved unable to move the Medicare bill past conservative Democratic chairpersons like Senator Kerr and Representative Mills. The bill was locked in the committees.

After the Kennedy assassination, Lyndon Johnson promised to complete the work on Medicare that Kennedy had started. After winning large congressional majorities along with his 1964 landslide victory, Johnson moved quickly to advance a Medicare bill. Large majorities, however, mean little in Congress if the committee leadership opposes a bill. The majorities rarely get the chance to vote if the committee chairs do not bring up legislation. Lyndon Johnson faced this reality.

The seniority system of appointing committee chairs favored conservative Southern Democrats. In what political scientist Daniel Elazar termed a traditionalistic political culture, the South tended to award members of Congress with very long careers. Even when Southern voters made a change, the election often transferred a seat from one generation of a family to another. As Robert Caro explains in his books on Lyndon Johnson, voters who granted long tenure to their representatives in the House or Senate guaranteed Southern leadership on congressional committees.

An old bull

Representative Wilbur Mills personified the storied “Old Bull” of the House. Mills hated taxes, and he chaired the House Ways and Means Committee, which writes tax law.  Or, as was often the case under his reign, did not write tax law.

Mills had a long history of seeking government financing for the healthcare expenses of poor people. In the early 1930s, as a county official in Arkansas, he created a fund for poor citizens to petition for reimbursement of medical bills or access to pharmaceuticals sold at cost. Participation in the program had to be approved by a justice of the peace.

One can imagine that this small-scale program proved popular with poor voters, and it also proved popular with the doctors, clinics, and hospitals that received payment for services.

Throughout his political career, Mills cultivated a close relationship with the AMA. The AMA came to rely on Mills to kill any proposals to adjust tax policy to pay for a public program to deliver health insurance.

Deal cut

President Johnson deployed Wilbur Cohen to see what it would take to get the Medicare bill out of Mills’s Ways and Means Committee. Some in the administration were very surprised when Cohen brought back an answer that called for more spending, not less. Mills wanted the Medicare bill amended to include a more robust form of federal-state spending on health insurance for the poor and disabled: Medicaid.

Although contemporary observers seem to have assumed that Mills opposed federal health insurance legislation from a conservative bias against spending, there was a deeper explanation for his opposition. What observers missed was that Mills wanted doctor bills included in any legislation.

In 1987, Mills explained his opposition to health insurance legislation in the 1950s and early 1960s during an oral history interview conducted by the Lyndon B. Johnson Presidential Library:

No, it was a question of details always. I was always for a program, but I wanted certain details of it different from what he [President John F. Kennedy] had suggested. What he had recommended, what Kennedy had recommended merely took care of the costs, or most of the costs of hospitalization; they did not take care of the costs of the doctor bill and other related services.

Mills continued later in the interview:

One thing, they didn’t propose to do anything except pay the hospital bill, and that was by a payroll tax. There was no argument about that. But I didn’t want the elderly citizens to be told that we were taking care of their medical expense, pass their bill, and then they find out that we were only taking care of about 25 per cent of their total cost in an ordinary sickness. I wanted to do a complete job once we started in that direction, because I have a fear of what would happen if we did it piecemeal, step by step. I wanted a total package, and that’s what we finally got.

A somewhat surprised Johnson Administration offered Mills a deal in early 1965: Give us federal health insurance for the elderly, and we will support the state-federal partnership for the poor.

If Nevada or other states open their Medicaid programs to consumer buy-in without a financial means test, the legacy of Wilbur Mills will grow far beyond what he envisioned. Of course, this Congress and presidential administration seem determined to cut federal funding to the program.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Companies. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.



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