On July 1, 1966, Medicare becomes available following the signing of the Medicare Act into law by President Lyndon B. Johnson. The new law begins a revolution in health care, but its compromises result in a system that institutionalizes fee-for-service care. This in turn will spur chronic increases in health-care costs, since the system, instead of controlling costs, pays physicians' "usual and customary" fees, which inevitably begin rising. Institutions with an incentive to keep down costs like Group Health Cooperative (where service is provided based on advance payments, not fee for service), are at a disadvantage. Nevertheless, Group Health advocated the reform, works to improve it, and begins accepting Medicare patients.
The bill signed by President Johnson on July 31, 1965, offered the public a "three-layered cake" of health reform baked in the oven of congressional compromise. Part A of Medicare covered hospitalization and some extended care costs on a reimbursement basis through compulsory insurance paid by workers through Social Security. Part B was a partially subsidized, voluntary program to cover physician care. The legislation also established Medicaid, which expanded federal aid to finance health care for the poor through state-administered programs.
Early in 1966, the Group Health Board of Trustees adopted a Part B plan offering Medicare participants full Group Health Coverage for $6 a month. Until this time, Group Health Cooperative admitted to membership only people under 60 years of age. Now the board amended the membership agreement to admit members over the age of 65. Not until 1980 did Group Health admit members between 60 and 65.
