THE WHITE HOUSE

Office of the Press Secretary

                PRESIDENT CLINTON UNVEILS PRINCIPLES FOR 
                    MEDICARE REFORM AND UNDERSCORES
                NEED TO DEDICATE THE SURPLUS TO MEDICARE

                            February 3, 1999

Today, in his speech to the American Association of Retired Persons (AARP), President Clinton will underscore the need to dedicate 15 percent of the budget surplus to secure the Medicare Trust Fund until 2020. He will stress his preference for bipartisan Medicare reform that is necessary to modernize Medicare and achieve additional savings to strengthen the program, and will outline four main principles that he believes any such plan should meet. The President will:

Highlight the Need to Dedicate Budget Surplus to Strengthen Medicare. The President will highlight the fact that, while we need reform to improve competition and efficiency in the Medicare program, these reforms will not produce savings that are sufficient to significantly extend the life of the Trust Fund. In fact, if reductions in growth alone were used to extend the life of the Medicare Trust Fund, spending growth per beneficiary would have to be limited to 2.8 percent per year -- in every year -- to get to 2020. This rate is over 60 percent below projected private health insurance spending per person (7.3 percent). Moreover, since this growth rate is below general inflation, the value of Medicare spending per beneficiary would erode. These projections help explain why virtually every independent health analyst agrees that Medicare cannot be significantly strengthened without adding outside financial support such as the surplus.

Unveil Principles to Guide Medicare reform. The President will outline principles that he will use to evaluate any Medicare reform proposal. Any broad-based reforms should:

• Dedicate Surplus to Secure Medicare until 2020. One of the fundamental goals of Medicare reform is to put the program on stronger financial footing to better prepare it for the demographic and health challenges of the next century. These challenges cannot be addressed solely through making the program more efficient, transferring current liabilities out of the Trust Fund, or increasing payments. The President is proposing to use 15 percent of the projected surpluses over the next 15 years to secure the Medicare Trust Fund until 2020 as part of broader reforms to further strengthen the program.
• Modernize Medicare and Make It More Competitive. Medicare should adopt the best management, payment, clinical and competitive practices used by the private sector, to help maintain high-quality services and keep spending growth in line with the private spending. Moreover, strong and effective Federal administration of Medicare should be assured.
• Guarantee Defined Set of Benefits Without Excessive New Costs to Beneficiaries. Beneficiaries should still be entitled to an adequate set of health benefits. A modernized, well-defined benefits package is needed to assure that health plans compete on cost and quality rather than price. Reforms should also maintain or strengthen protections for low-income beneficiaries, assure that any new cost burdens are not excessive, and assure that beneficiaries have access to a viable traditional Medicare program.
• Use Savings from Reform to Help Fund a Prescription Drug Benefit. Millions of Medicare beneficiaries have no or inadequate coverage for their medications, limiting their access to needed treatments. In fact, over half of Medicare beneficiaries pay more than $500 per month for prescription drugs and one in 10 pay more than $2,000. Prescription drugs have become an essential part of treatments and cures, and are expected to play an even greater role in health care in the next century. The President believes that additional savings from making Medicare more efficient should be used to help finance a long-overdue prescription drug benefit for all Medicare beneficiaries.

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