Medicare began in 1965 as a federal health insurance program for people 65 and older
President Lyndon B. Johnson signed Medicare into law on July 30, 1965. The program started on July 1, 1966. At that time, most Americans over 65 had no health insurance at all — many could not afford it, and insurance companies often refused to cover older adults because they were seen as too costly to insure.
Medicare was created to solve this problem. It was built on the idea that older Americans who had paid taxes their whole working lives deserved access to hospital and doctor care in retirement. The program was part of Johnson's "Great Society" legislation, which also created Medicaid (a separate program for low-income people of any age) on the same day.
When Medicare started, it covered about 19 million people. Today it covers over 66 million Americans — not just those 65 and older, but also some younger people with disabilities and people with end-stage renal disease.
Key Takeaways
- Medicare was signed into law in 1965 and began covering people on July 1, 1966, solving the problem of older Americans having no health insurance.
- The original program had two parts: Part A covered hospital stays, and Part B covered doctor visits and outpatient care.
- Medicare has been expanded several times since 1966, most notably in 2006 when Part D added prescription drug coverage.
- The program is funded through payroll taxes during working years and through premiums and general tax revenue once someone is enrolled.
What the original Medicare program covered in 1966
When Medicare launched, it had two parts. Part A covered inpatient hospital care — hospital stays, skilled nursing facility care after a hospital stay, hospice care, and some home health services. Part B covered doctor visits, outpatient hospital services, medical equipment, and some preventive care.
Part A was automatically included for anyone 65 or older who had paid Medicare taxes for at least 10 years. Part B was optional and required a monthly premium, which was $3 per month in 1966 (about $30 in today's dollars). Most people chose to enroll in Part B because the premium was low and the coverage was valuable.
What Medicare did not cover was significant: prescription drugs, dental care, vision care, hearing aids, and long-term nursing home care. These gaps remain today, though some coverage options have been added over the decades.
How Medicare expanded after 1966
Medicare has changed many times since it began. In 1972, the program was expanded to cover people under 65 who had been receiving Social Security disability benefits for two years, and people of any age with end-stage renal disease (permanent kidney failure requiring dialysis or transplant).
In 1997, Congress created Part C, also called Medicare Advantage. This allowed private insurance companies to offer Medicare coverage as an alternative to the traditional Part A and Part B program. Part C plans often include prescription drug coverage and extra benefits like dental or vision, but they typically require you to use doctors and hospitals in their network.
In 2006, Part D was added to cover prescription drugs. This was a major change because prescription drug costs had become a serious burden for older adults. Part D is offered through private insurance companies, and you choose which plan to join during the annual enrollment period.
Why Medicare was created and what problem it solved
Before 1966, being old and sick often meant financial ruin. A hospital stay could cost thousands of dollars — a sum most retirees could not pay. Insurance companies would not sell policies to people over 65 because they used too much medical care. Many older Americans skipped doctor visits and medications because they could not afford them.
Studies from the 1950s and early 1960s showed that older Americans were sicker than younger people but received less medical care, straightforward because they could not pay. Political leaders from both parties recognized this as a crisis. After years of debate, Congress passed Medicare with broad support.
The program was named "Medicare" to echo "Medicaid," which was created at the same time for low-income people. The word "care" was chosen to emphasize that this was about access to medical services, not just insurance.
How Medicare is funded and who pays for it
Medicare is funded through three main sources. First, payroll taxes during your working years: you and your employer each pay 1.45% of your wages into the Medicare trust fund (2.9% total). This money goes into a pool that pays for Part A benefits.
Second, premiums that people pay when they are enrolled. Part B and Part D both require monthly premiums, which vary by plan and income. Part A has no premium for most people, but it does have a deductible (an amount you pay before Medicare starts paying).
Third, general tax revenue from the federal government. This covers the gap between what payroll taxes and premiums bring in and what the program actually costs. This is why Medicare is sometimes described as a "pay-as-you-go" program — current workers' taxes pay for current retirees' care.
Major changes to Medicare since its creation
| Year | Change |
|---|---|
| 1965 | Medicare signed into law; Part A and Part B created |
| 1966 | Program begins; 19 million people enroll |
| 1972 | Expanded to cover people under 65 with disabilities and end-stage renal disease |
| 1997 | Part C (Medicare Advantage) created as private insurance alternative |
| 2006 | Part D added to cover prescription drugs |
| 2020 | Telehealth coverage expanded, especially during COVID-19 pandemic |
What Medicare does not cover, then and now
The gaps in Medicare coverage have stayed remarkably similar since 1966. Medicare does not pay for routine dental care, eyeglasses, hearing aids, or routine eye exams. It does not cover long-term custodial nursing home care (though it does cover skilled nursing care for a limited time after a hospital stay). It does not cover most cosmetic surgery or experimental treatments.
Prescription drugs were not covered at all until Part D began in 2006, and even now Part D coverage has limits and gaps. Many older adults buy Medigap (supplemental insurance) or choose Part C (Medicare Advantage) plans to fill some of these gaps, but these options cost extra money.
Understanding what Medicare does and does not cover is important when you turn 65 or become may be able to access for other reasons. The gaps are real, and planning for them — through savings, supplemental insurance, or other means — is part of retirement planning.
Frequently Asked Questions
Did Medicare exist before 1965?
No. Before 1965, there was no federal health insurance program for older Americans. Some states had small programs, and some employers offered retiree health benefits, but most older adults had no insurance. This is why Medicare's creation was considered such a major change in American healthcare.
Was Medicare always free for people 65 and older?
Part A (hospital insurance) has been free for most people 65 and older since 1966, as long as they or their spouse paid Medicare taxes for at least 10 years. Part B (doctor insurance) has always required a monthly premium, though the amount has increased over time. Part D (prescription drugs) also requires a premium.
Why did it take until 2006 to add prescription drug coverage?
When Medicare started in 1966, prescription drugs were much cheaper and less central to medical treatment than they are today. As drug costs rose in the 1980s and 1990s, many older adults pushed for coverage. Congress debated the issue for years before Part D was created in 2006.
Has Medicare changed since I first enrolled?
Yes. If you enrolled in 1966, you would have had only Part A and Part B. If you enrolled in 2010, you would have had access to Part C and Part D as well. Coverage rules, premiums, and deductibles change almost every year. It is worth reviewing your coverage each year during the annual enrollment period to see if a different plan would save you money.
Could Medicare be changed or eliminated in the future?
Medicare is a federal program established by law, so any major change would require Congress to pass new legislation. There are ongoing debates about how to fund Medicare as the population ages, but eliminating the program entirely would require an act of Congress. Changes to coverage, premiums, or may be able to access are possible, but they happen through the legislative process.