There had been a huge debate about what costs should be covered by Medicare. Nursing home costs were deliberately carved out of Medicare because of a fear that nursing home care would be a bottomless pit that would financially devastate the program.
"I think that has other implications because it would be comparatively simple administratively to handle the problem of the institutional case, because if you attempt to handle on an insurance basis the problem of the chronic illness, the long-time illness cared for in the home and cover the cost of professional services and the other costs, such as medicine, a great deal of difficulty will result. The problem of not padding the costs, or extending the period of illness at the desire of the patient or at the desire of the physician, which in some cases might occur, the problem of supervision, of keeping the cost down, or of being compelled to set arbitrarily the number of visits that would be paid for over a given period, which is done in many of these schemes, would present very great difficulties. I think it would be very difficult to carry out the plan of covering the catastrophic illness in the home whereas I think it would be quite simple to cover the high cost illness in the hospital." (Dr. Davis, Unpublished CES Reports, 1935)
The 1965 Advisory Council said in their report "Since the proposed program is designed primarily to support efforts to cure and rehabilitate, and since 'nursing home' care, in many cases, is oriented not to curing or rehabilitating the patient but to giving him custodial care, the Council does not propose the coverage of care in nursing homes generally." (Advisory Council, 1965)
The Department of Health, Education and Welfare (HEW), under the leadership of Anthony Celebrezze, complied with that recommendation, and had written the bill to ensure that nursing home coverage would be limited. Department officials and legislators were worried about nursing home costs, but they were also feared ballooning hospital costs if demand exploded when the government started paying for hospital care. As a compromise, 60 days of "extended care" was included under Medicare, but only if that care would be a substitute for a more expensive hospital stay.
The bill said that Medicare would provide funding for beneficiaries who needed post-hospital convalescence in what was to be called an "extended care facility" (ECF). The ECF terminology was created instead of using any reference to "nursing homes" to make it clear that these stays were not regular nursing home stays and that they would not be provided in regular nursing homes. Originally, only hospital-based facilities were to be certified as ECFs, but a later decision was made to allow free-standing nursing homes to apply for ECF status. The standards for ECFs were set high, with an expectation that few nursing homes would be able to meet them, to put a cap on expenditures. The program also dictated that ECF coverage would only apply if there had been a previous 3-day hospital stay. This provision was intended to ensure that the ECF stay was really a substitute for a hospital stay by limiting care to those who had already been in the hospital for some acute episode.
While the bill's authors intended to exclude nursing home coverage from Medicare, the general public assumed that long term care costs would be paid for by Medicare, since much of the promotional material they were hearing said that Medicare would help the elderly "avoid dependence". Discussions in the U.S. Senate underscored the fact that legislators knew that there was a discrepancy between the public expectation and the bill that was being voted on. During 1965 Senate Finance Committee hearings, Chairman Russell Long asked HEW Chairman Celebrezze, "Why do you leave out the real catastrophes, the catastrophic illnesses?" Celebrezze replied that it was "not intended for those that are going to stay in institutions year-in and year-out." Senator Long responded, "Almost everybody I know of who comes in and says we ought to have medicare picks out the very kind of cases that you and I are talking about where a person is sick for a lot longer than 60 days and needs a lot more hospitalization." Senator Allen Ellender stated on the Senate floor that "many sons and daughters whose mothers and fathers are growing old are of the belief that under the pending bill they will be able to get the Government to take care of their older parents, in the event they become ill for long periods of time" (Twight, 1997).
In spite of the debates and discrepancies, the legislation was signed into law with only limited coverage for nursing home care. The only real compromise was to increase the limit from 60 to 100 days. The final "solution" was to provide unlimited coverage for nursing home services to the poorest of the elderly under the Medicaid program.