History of SSA During the Johnson Administration 1963-1968


As already noted, overall responsibility for administration of the Medicare program is vested by law in the Secretary of Health, Education, and Welfare. The statute also provides for participation in the administration of the program by private organizations and by public agencies at the State level. In addition, the Secretary in developing administrative policies and procedures, has sought the advice of leaders of organizations affected by the program and of other individuals who are experts in the delivery and financing of health care.

Within the Department of Health, Education, and Welfare, the Secretary delegated major policy and administrative responsibilities to the Social Security Administration, certain responsibilities in the areas of implementation of title VI of the Civil Rights Act of 1964 and of professional standards to the Public Health Services {3} and certain consultative responsibilities concerning the interrelationships of the health insurance program, public assistance, and State medical assistance programs to the Welfare Administration (now to the Social and Rehabilitation Service).

Role of the Social Security Administration

Under its delegated responsibility for the formulation of policy and the general management of the health insurance program, the Social Security Administration negotiates and administers agreements with the intermediaries and carriers which perform the payment function; with the State agencies which certify health facilities for participation in the program; and with hospitals and other institutions which provide services for which the program makes reimbursement. The Administration also develops the principles for the reimbursement of institutions and agencies which provide services covered by the program; participates with the Public Health Service in the formulation of the conditions of participation; formulates Medicare regulations; develops program policy and procedural instructions; performs the recordkeeping and data processing functions required for administration of the program; collects and analyzes a variety of cost and utilization data; and prepares estimates of future program costs. {4}

Within the Administration, the Bureau of Health Insurance--established shortly after the enactment of the program--has primary responsibility for the formulation of policies and procedures and for the overall administration of the health insurance program. {5}

In addition to the Bureau of Health Insurance, many other Administration components have substantial program responsibilities. The Administration's field organization--composed of the various regional offices, district and branch offices and contact stations throughout the country--carries out enrollment activities and serves as a continuing source of basic program information and direct service to beneficiaries and to the general public.

A Division of Health Insurance Studies has been established in the Administration's Office of Research and Statistics, to collect data on program operations and to carry out analytical studies designed to evaluate the program and measure its performance.

The Office of the Actuary has responsibility for the actuarial evaluation of the hospital insurance and medical insurance programs, including the preparation of the actuarial estimates used in setting the medical insurance premium and hospital insurance deductible and coinsurance amounts. {6}

The Office of Information, which has primary responsibility for developing and coordinating the Administration's informational activities, prepares exhibits, films, visual aids, booklets, and other informational materials required to inform the public as well as special professional audiences of their rights and responsibilities under the program. {7}

The Bureau of Data Processing and Accounts expanded its electronic data processing capabilities to maintain the millions of records on beneficiary eligibility, utilization of covered services, and deductible status for the health insurance program. The Bureau also sends premium notices to, and maintains records on the payment of medical insurance premiums by the approximately 2.5 million enrollees who make direct payments or for whom premium payment is made through. private retirement groups or similar organizations.

An Insurance Compliance Staff was established in the Office of Administration of the Social Security Administration to assure that insurance companies, Blue Cross and Blue Shield Plans, and other organizations performing on insurance contracts with the Federal Government--including the fiscal intermediaries and carriers assisting in the administration of Medicare--fully comply with the equal employment opportunity requirements of Executive Order 1126. Since the Social Security Administration's equal employment opportunity activities got underway, substantial progress has been made by the insurance industry. Between December 1965 and November 1967, total employment of Medicare carriers and intermediaries increased. by 11.9%, of which nearly 35% represented hirings of members of minority groups. Perhaps more important in the long run, there have been significant changes in attitudes, promotional policies and other personnel practices which are certain to result in continuing improvements. Examples include the abolition of tests which previously barred minority group members from employment, and an uptrend in hiring of minority group employees for white collar, technical, and sales positions.

Role of the Public Health Service

Within the Public Health Service, the Division of Medical Care Administration provides primary support for professional health aspects of the Medicare program, calling on other units of the Service for special consultation as needed. The ongoing activities of the Division of Medical Care Administration which are directly related to Medicare include: participating with the Social Security Administration in formulating the conditions of participation for providers of services, developing policies on the role of State agencies, providing assistance to the State agencies in carrying out their Medicare responsibilities, supporting and evaluating experimental approaches to utilization review, and providing professional advice on the many technical and medical questions that arise.

Other activities of the Public Health Service, such as its participation in the assessment of the adequacy of existing health resources and in the development of additional needed resources, although not specifically related to the implementation of Medicare, are of great importance to the success of the program. In addition, the Public Health Service had the lead responsibility for establishing the compliance of providers with title VI of the Civil Rights Act {8}--an effort that initially involved heavy staff commitments by both the Public Health Service and the Social Security Administration.

Role of the Social and Rehabilitation Service

The Social and Rehabilitation Service collaborates with the Social Security Administration and th Public Health Service in those aspects; of program planning, coordination, and evaluation involving the interrelationships of the health insurance program with public assistance, and State medical assistance programs. In addition, the Social and Rehabilitation Service provides consultation and general and technical assistance to State agencies administering medical assistance programs and coordinates these plans with Medicare.

Health Insurance Benefits Advisory Council

As previously noted, the law provides for the establishment of a Health Insurance Benefits Advisory Council to advise the Secretary on matters of general policy in the administration of the health insurance program. {9} The initial appointments to the Council, which, as required by law, included leaders in the health care field and representatives of the general public, were announced by President Johnson on November ll, 1965. Kermit Gordon, former Director of the Bureau of Budget and now President of the Brookings Institution, was named Chairman. {10}

From its establishment through June 30, 1968, the Council met 20 times, usually for periods of 2 to 3 days, to consider and offer recommendations on all major aspects of Medicare administration. In all, the Council adopted resolutions constituting formal advice to the Secretary on more than 100 policy issues, including the conditions of participation for hospitals, extended care facilities, home health agencies, and independent laboratory and other providers of services covered under the program; the principles of reimbursement for provider costs and for physicians' services; and on the policies governing physician certification and re-certification of the need for medical services. Virtually all of the Council's recommendations are embodied in existing policy and regulations. There were few instances in which there was any significant difference between recommendations of the Council and the policies adopted, and there was no instance in which the policies adopted were unacceptable to the Council. In addition, the Council has made numerous decisions constituting informal advice to the staff in developing policy and regulations and requests for staff development or research on alternative policies for consideration.

Other Consultation

In addition to the Health Insurance Benefits Advisory Council, the Administration established nine technical work groups. These groups included representatives of medical associations, hospital associations, nursing associations, dental associations, nursing home associations, commercial insurance companies, Blue Cross, Blue Shield, public health organizations, speciality organizations, as well as consumers, independent experts, and others. The groups studied and offered recommendations on such issues as the conditions of participation, the requirements for physician certification and recertification of the need for services, and the principles of reimbursement for provider costs: Their recommendations were considered in the formulation of the program policies and regulations submitted to the Health Insurance Benefits Advisory Council. Intermediary and carrier consultation groups were also established to allow a continuous flow of information on claims payment procedures and to facilitate the resolution of difficulties encountered by the intermediaries and carriers in the performance of their duties.

Role of the State Agencies

It has already been noted the law requires that, wherever possible, the Secretary use the services of appropriate State or local health agencies or other appropriate State or local agencies in determining whether providers of medical services and independent laboratories meet the conditions for participation in the Medicare program. Shortly after enactment, upon invitation from the Secretary, the Governor or Chief Executive of all 55 jurisdictions, (including the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and American Samoa had designated agencies--in most instances State health agencies--to perform this function, and agreements were negotiated with all of the States by the end of January 1966. {11}

In carrying out their responsibilities under the health insurance program, the State agencies conduct field surveys of institutions and agencies to determine the extent to which these facilities meet the applicable conditions of participation, undertake periodic surveys of participating facilities to determine whether they continue to meet such conditions, provide consultative services to facilities experiencing difficulties in meeting the participation requirements, {12} identify nonparticipating hospitals which can be reimbursed under the program for emergency services, and coordinate activities under the health insurance program with activities conducted under medical assistance programs. The State agencies are reimbursed for the costs of activities they perform in the program including related costs of administrative overhead and staff.

Role of the Intermediaries

Under the Medicare law, hospitals, extended care facilities, and home health agencies participating in the program may deal either through a fiscal intermediary of their choice for reimbursement of the costs of services rendered to Medicare beneficiaries or directly with the Government.. The Secretary is authorized to enter into agreements under which. the intermediary assumes responsibility for determining the reasonable costs of services provided to beneficiaries and reimburses the providers for these costs on behalf of the program. In addition, the agreements authorize the intermediary to provide consultative services to providers, make audits of provider records, and perform related functions.

To be selected as a fiscal intermediary, an organization must first be nominated by an association or group of providers. Then the Social Security Administration must determine that the selection of the nominee is consistent with effective and efficient administration. Hospitals and other providers of services may choose a fiscal intermediary other than their group or association nominee under certain circumstances, or deal directly with the Social Security Administration. In evaluating intermediaries nominated by providers the Social Security Administration considered the organization's size, experience, demonstrated capability and capacity for paying claims, the effectiveness of its ongoing professional and institutional relationships, and its compliance with the equal employment opportunity requirements of Executive Order 11246. An additional consideration in the selection of intermediaries was the need to provide, through the participation of a variety of health insurance organizations, a basis for the comparison of relative performances in accordance with the intent of Congress.

Twenty agencies and organizations were nominated by provider associations or groups of hospitals. The American Hospital Association, representing about 85 percent of the Nation's hospitals, nominated the Blue Cross Association as the intermediary for its member hospitals. By July 1,1966, when the program went into operation, agreements with the Blue Cross Association and 12 commercial health insurers had been established. {13}

The same procedure was followed in the selection of intermediaries for extended care facilities and home health agencies. Except for variations in geographic locations and the addition of one commercial health insurer (in the case of extended care facilities) and one State department of health (in the case of home health agencies), intermediaries were the same as those chosen by hospitals across the Nation. By January 1, 1967, all of the extended care facility intermediaries had signed agreements and were ready to accept claims. {14}

Role of the Carriers

The Secretary is required by law to contract with organizations engaged in providing, paying for or reimbursing the cost of, health services under group insurance policies to serve as carriers under the medical insurance program. Under the terms of these contracts, carriers are required to determine the amounts to be paid to physicians and to suppliers for services rendered under the program and to make payments for such services on behalf of the program, to assist in the application of safeguards against the unnecessary utilization of services, and to serve as a channel of communication for information relating to the administration of the program.

In the selection of carriers, consideration was given to such matters as the organization's financial responsibility and experience; its capacity to absorb the additional workload that would accrue from the Medicare program; its ability to maintain effective professional relations within its service area; its compliance with the equal employment opportunity requirements of Executive Order 11246; and the need to provide, through the participation of a variety of health insurance organizations, a basis for the comparison of relative performance. Organizations wishing to serve as carriers were asked to indicate their willingness to do so in writing along with a statement of their qualifications. Approximately 140 such organizations submitted proposals. Following intensive review of the qualifications of potential carriers, which included onsite reviews of their operations by staff of the Social Security Administration, 33 Blue Shield plans, 15 insurance companies and one independent health insurer were selected to serve as carriers. {15}

Supervision of Intermediary and Carrier performance

Shortly after the selections of carriers and intermediaries were completed, the Administration began the dissemination of manuals and other instructional materials to assist them in discharging their program responsibilities. Training sessions, including a series of technical workshops for carrier and intermediary staffs, were conducted throughout the country. Budgets were set up, funds were allocated to finance their Medicare operations, and the procurement of needed equipment and space was closely monitored by the Administration to assure that by July 1, 1966, carriers would be as prepared as possible to perform the functions assigned to them.

Financial Management

Intermediaries and carriers operate under cost contracts with the Government under which they are expected to have neither profit nor loss as a result of their Medicare operations.
Guidelines were issued to enable intermediaries and carriers to determine what costs are reimbursable if incurred in the performance of Medicare responsibilities. Two means of controlling carrier financial activities were instituted--a budget system and a cost reporting system.

Under the budget system, annual and quarterly claims workload estimates form the core of the budgeting process. In addition to the costs involved in claims processing, intermediaries and carriers have costs related to their other responsibilities which do not lend themselves so readily to precise measurement. These include provider and professional relations, utilization review, beneficiary services, and, most important from a cost standpoint, audits of providers. Provider audits are generally done by independent accounting firms under sub-contract with the intermediaries.

Intermediaries and-carriers are required to submit detailed justifications with their annual budget estimates which sufficiently explain the proposed use of funds requested. Items of possible expenditure must be explained fully and are considered. in light of estimated workloads and productivity.

When budget analysis is completed, intermediaries and carriers are granted annual budget approvals which are apportioned on a quarterly basis. They are required to plan their operations within these annual and quarterly allocations and are not permitted to incur expenses in excess of them without written authorization.

Under the cost reporting system, each intermediary and carrier is required to submit quarterly cost statements and final annual cost reports based on its accounting year. The quarterly reports reflect actual administrative costs distributed functionally. In addition, they report total benefits paid and workloads processed during the period. These are reviewed in relation to such factors as manpower use, productivity, cost per claim, and the ratio of administrative costs to benefit payments. Significant deviations of incurred cost from the approved budget must be explained.

Final cost reports form the basis for audit and final cost settlement each year and are, therefore, submitted in greater detail. All of the information contained in the quarterly reports is included in these annual reports and, in addition, a detailed justification of proposed expenditures much like that required for budget estimates must be submitted. All pertinent information which has been accumulated about each intermediary and carrier becomes part of the contract reporting and monitoring system used to coordinate the entire system.

Contract Reporting and Monitoring System

The various workload and financial reports which intermediaries and carriers are required to submit for a reporting period permit the evaluation of their operations and cost required for those operations. Workload reports reflect not only the quantity of work being done but also the timeliness of performance. Quantity of production is measured in terms of units received and units cleared. Currency of performance is measured in terms of claims awaiting action and the time required to complete them. Promptness is also measured in terms of the number and proportion of cases awaiting action for an atypical period (e.g., over 30 days) in relation to total pending. Complexity of workload is indicated by the distribution of claims by type, and the number of cases which must be returned for additional information or documentation before payment may be made. The monitoring system provides pertinent data for each intermediary and carrier and permits the computation of national averages for comparison purposes. When significant disparities between individual performance and national averages are identified, necessary corrective action is undertaken.

Audits of Intermediaries and Carriers

The DHEW Audit Agency examines intermediary and carrier Medicare operations. Although the primary purpose of the audits conducted by the Audit Agency is to review and approve administrative costs, the scope of these audits is not limited to financial considerations. In addition to verifying financial transactions, auditors verify that funds were spent according to law, regulations and procedures, and they consider whether policies, plans and procedures are adequate for effective operations.

Contract Performance Review

Teams from the Social Security Administration visit intermediaries and carriers to review their performance. The review team spends 3 to 5 days with the intermediary or carrier, observing and analyzing operating procedures, examining records, and interviewing personnel at all levels. The teams make a detailed examination of organisation for performance of Medicare functions, staffing of Medicare positions, personnel and management practices, and claims processing techniques. The team also assesses the effectiveness of the application of reimbursement principles, professional relations, beneficiary services, training, as well as the adequacy of space and equipment. Other aspects of performance are also included as may be considered appropriate in the particular situation.

Establishing the Claims Process

A major task in implementing the Medicare program was the establishment of a nationwide system for obtaining uniform and reliable program information from organizations and individuals--providers, physicians, suppliers, intermediaries, and carriers–with widely differing recordkeeping systems and reporting capabilities. Such a system is basic to sound claims administration and management of the program and had to be operative at the outset of program operations. Design of the claims process for the health insurance program was begun before the Medicare legislation was enacted. Methods and forms utilized by other programs were scrutinized for possible adaptation to Medicare's needs. For example, the medical insurance claims form (Form SSA-1490, Request for Payment) was developed after extensive consultation with representatives of the health insurance industry and the medical profession.

Each step in the claims process was considered, researched, and analyzed with the help of representatives of the health professions and insurers and individual experts both in and out of Government. The planning and consultation required for developing the claims review, data processing and recordkeeping systems went into full-scale operation after enactment. As a result of these efforts, when the program went into effect the Medicare program was prepared to receive, record, and adjudicate claims and to make benefit payments.

The systems for recording and updating each health insurance beneficiary's eligibility status, his medical insurance premium account, his utilization of covered services, and his deductible status, as well as systems for recording the participation of institutional providers of services andindependent laboratories, were set up centrally within the Social Security Administration. One of the important issues considered during the preliminary consultation with various groups on the basic design of the claims processing and recordkeeping systems was whether the Medicare eligibility records should be maintained centrally or on a decentralized basis by the fiscal intermediaries and the carriers. The existence, pre-dating Medicare, of a master eligibility record on all social security beneficiaries and the Administration's ready access--through the premium collection process, long-established beneficiary reporting procedures and the ongoing enrollment process--to information on accretions to, and deletions from, the eligibility records were persuasive arguments for a centralized system. Moreover, the maintenance of such records by individual intermediaries and carriers would have required the development of a system of communications among them to disseminate eligibility information that would have substantially increased administrative costs.

The master eligibility record maintained at Social. Security headquarters in Baltimore indicates whether aged individuals are entitled to hospital insurance benefits, to medical insurance benefits, or to both. The master eligibility file was established by combining data from the preexisting social security and railroad retirement beneficiary records with the records obtained from applications of uninsured people applying to establish eligibility under the health insurance program. The same sources are used to keep the eligibility records current--to add those reaching 65, and drop those who die or (in the case of the medical insurance program) who withdraw. The record also contains information on the extent to which individuals have used the benefits available in each spell of illness (now generally referred to as abenefit period) and on how much of the $50 medical insurance deductible has been met.

Each time a Medicare beneficiary is admitted to a participating hospital or extended care facility, or begins a plan of care from a home health agency, the intermediary receives an admission or start-of-care notice. The intermediary sends identifying information and the date of admission or start-of-care to the Social Security Administration's central record system, which replies giving the patient's entitlement and deductible status, and remaining eligibility for benefits. The intermediary then advises the provider of the patient's eligibility for further benefits and his deductible status. Admission and start-of-care notices are sent to the Social Security Administration by teletype or, in some instances, on magnetic tape, or by direct magnetic-tape to magnetic-tape transmission over high speed wires. Replies can usually be sent to the intermediary on the second working day after a request for eligibility information has been made.

During the course of treatment, or after the beneficiary is discharged from the hospital or extended care facility or completes a course of home health treatments, the provider submits either an interim or final bill to the intermediary for payment, subject to final settlement at the end of the accounting period. Utilization data are forwarded to the Social Security Administration so that the central records may be updated to provide accurate information in replying to subsequent notices of admission or starts of home health care.

Claims for payment of medical insurance benefits are submitted to the carrier by the beneficiary, or by the physician or supplier if they have agreed to accept an assignment of benefits. The carrier teletypes essential identifying information and the amount determined to be the reasonable charge for the services to the Social Security Administration. When the Administration receives the message, it informs the carrier of the amount of the deductible remaining to be satisfied and updates the deductible records. (Once a carrier has been advised that the deductible has been met, no further query on that beneficiary need be made for the remainder of that calendar year.) The carrier then makes the appropriate payment to the patient or physician. A record of the payment is sent to the Social Security Administration.

As a by-product of the claims process, data are gathered which permit careful evaluation of the operations and impact of Medicare. Before being finally adopted, Medicare's statistical program was reviewed by a special Advisory Committee on Health Insurance Benefits Research and Statistics, composed of people prominent in the field of health and medical research and statistics.

Statistical Data

The following approximations are indicative of the size of the recordkeeping task in mid-1908.

Monthly Volume
1. Accretions to the file 100,000
2. Changes in identifying eligibility status 1,00,000
3. Direct billing for premiums 1,500,000
4. Queries (by carriers and intermediaries) 1,700,000
5. Payment Records Processed 2,750,000
6. Bills Processed. 1,200,000

As a matter of additional interest, the basic recordkeeping system (excluding purely statistical operations) required an average of 200 hours of large scale computer time per week (5 computers on a single shift). Peripheral (medium and small scale) computers Were used an average of 350 hours per week for auxiliary card-to-tape, listing, punching, and microfilming operations. The complete processes involved the use of some 175 programs (85 large scale and 90 for auxiliary operations) programmed and maintained by a staff of some 60 analyst programmers. {16}

Coordination of Medicare and State Medical Assistance Programs

The intent and language of the Medicare law and the principles of sound administration require coordination of Medicare and State medical assistance programs and the adoption of complementary procedures wherever it is practical.

Most State welfare agencies need Medicare billing information to determine the liability of welfare programs to medical vendors for services they provide to Medicare beneficiaries who are also assistance recipients. The specific information needed is dependent upon the characteristics and provisions of the particular State medical assistance program. All State medical assistance programs participate to some extent in the payment of some combination of Medicare deductibles, coinsurance amounts, or health care expenses not covered by Medicare.

To facilitate welfare medical payments which supplement Medicare coverage, a claims process was adopted which called for the flow of claims from the provider, physician, or other supplier to the Medicare intermediary or carrier, and from there to the medical assistance agency. Even closer coordination can be achieved where the same organization serves in an administrative capacity for both programs. For the most part, mutually satisfactory arrangements have been reached between the intermediaries and the State agencies, but some difficulties have occurred in arranging for coordinated payment for services covered under the medical insurance program and State medical assistance programs. Procedures have been developed to overcome these and other administrative problems involving coordination of Medicare and medical assistance programs. For example, common Medicare and medical assistance claims forms have been developed, common carriers for both the Medicare and medical assistance programs are authorized to issue combined checks covering payment under both programs, and common provider cost report forms and audits are under development.

Footnotes (Footnote numbers not same as in the printed version)

{3} Responsibility for establishing compliance of providers with title VI of the Civil Rights Act has since been assumed by the DHEW Office of Civil Rights.

{4} Charts showing involvement of the present organization of the Social Security Administration appears in Appendix A, Exhibit 1.

{5} A chart showing the organization of the Bureau of Health Insurance appears in Appendix A, Exhibit 2.

{6} The actuarial assumptions and bases employed in arriving at the medical insurance premium for the period April 1, 1968, through June 30, 1969, are set out in Appendix F. The first annual promulgation of the hospital insurance deductible is to be made between July 1 and October 1, 1968, and will be effective for calendar year 1969.

{7} A list of selected informational publications on Medicare appears in Appendix G.

{8} Responsibility for establishing compliance of providers with title VI of the Civil Rights Act has since been assumed by the DHEW Office of Civil Rights.

{9} The Social Security Amendments of 1967 increased the membership of the Council from 16 to 19 members and broadened the scope of the Council's responsibility to include study of the utilization of hospital and other medical care services for which payment may be made under title XVIII with a view to recommending any changes which may seem desirable in the way in which such care and services are utilized, in the administration of the programs established by title XVIII, or in the provisions of title XVIII.

{10} Council members as of June 30, 1967, and as of April 28, 1968, are listed in Appendix A, Exhibit 3.

{11} A list of participating State agencies appears in Appendix A, Exhibit 4.

{12} The consultative function is now fully financed by Medicare. However, under the 1967 amendments, it will be financed instead from Federal and State matching funds under the Medicaid program beginning July 1, 1969.

{13} A list of all hospital intermediaries, together with their service areas, appears in Appendix A, Exhibit 5.

{14} A list of all extended care facility and home health agency inter-' mediaries and their respective service areas appears in Appendix A, Exhibit 5.

{15} A list of all carriers for the medical insurance program appears in Appendix A, Exhibit 6.

{16} Project Report Number 4, Project Z, dated March 11, 1966–Prepared by the Claims EDP Systems Branch, Bureau of Data Processing and Accounts, Social Security Administration.
Project Report Number 5, Project Z, dated June 25, 1966–Prepared by the Claims EDP Systems Branch, Bureau of Data Processing and Accounts, Social Security Administration.
Project Report Number 10, Project Z, dated June, 30,1967–Prepared by the Claims EDP Systems Branch, Bureau of Data Processing and Accounts, Social Security Administration.
Project Report Number 12, Project Z, dated December 7,1967–Prepared by the Claims EDP Systems Branch, Bureau of Data Processing and Accounts, Social Security Administration.