In 1959, Congress attempted to fill many gaps in health care coverage by amending the Old Age Assistance ("OAA") program. The amendment sought to increase medical assistance for welfare recipients through federal and state matching funds. In addition, Congress added a proposal to create the Medical Assistance for the Aged ("MAA") program which would make health care available to people age sixty-five and older with low or moderate incomes. The MAA program also required state matching funds. By 1960, both proposals became law.
An extremely important change was made in public assistance by what is known as the Kerr-Mills bill. A new section was added to the old-age assistance title of the Social Security Act which provided federal matching of the cost of medical care for persons over 65 years of age who were not sufficiently needy to qualify for cash assistance to cover their ordinary expenses but who were unable to pay their medical expenses. The percentage of the total cost met by the federal grant ranges from 50 to 80%, depending upon the per capita income of a state. The federal matching of cost of medical care provided for recipients of cash old-age assistance was correspondingly liberalized. (Altmeyer, 1963)
Nursing homes were so entrenched in the welfare system by 1960 that the surveys mandated by the licensure requirements of the Social Security Act were done by the state welfare departments, rather than the health care departments.
Interest was growing in creating a national health insurance program to help Social Security beneficiaries pay their medical costs because medical costs were increasing far faster than other costs. Retired people were particularly at risk because many weren't covered under the employer health insurance plans which had become more widely available since the debate on national health insurance had begun in the 1940's. President John F. Kennedy strongly supported legislation to create such a program, but the debate was highly charged. (Kennedy's interest in the subject apparently grew after his father had a stroke which resulted in enormous medical bills which Kennedy realized most seniors would have been unable to pay.) The concept of national health insurance was opposed by the insurance industry, the American Medical Association, most members of the Republican party and some members of the Democratic party. As a compromise, opponents agreed to support a program to pay for more of the medical costs for the indigent elderly, and in 1960 the medical assistance component of the OAA program (the "vendor payment" program) was replaced with a new program called Medical Assistance for the Aged (MAA), or "Kerr-Mills"
Kerr-Mills provided that the federal government would share welfare costs with the states by paying 50%-85% of the cost of the program, with the higher percentage payments going to states with the lowest average income. The Kerr-Mills program established an additional category of welfare for aged people who were not on public assistance, but who could not pay for needed medical services, who were called "medically needy". These programs benefited thousands of older people who were not technically "poor" but whose incomes were inadequate to pay for expensive medical costs like nursing home care. The program also helped nursing home operators, since they now had a source of payment for a whole new group of people who otherwise would not have been able to pay for their care.