PRESIDENT CLINTON'S PLAN TO MODERNIZE AND STRENGTHEN
MEDICARE FOR THE 21st CENTURY
June 29, 1999
Today, President Clinton will unveil his plan to modernize and
strengthen the Medicare program to prepare it for the health,
demographic, and financing challenges it faces in the 21st Century.
This historic initiative would: (1) make Medicare more competitive and
efficient; (2) modernize and reform Medicare's benefits, including the
provision of a long-overdue prescription drug benefit and cost sharing
protections for preventive benefits; and (3) make an unprecedented
long-term financing commitment to the program that would extend the life
of the Medicare Trust Fund until 2027. The President will call on the
Congress to work with him to reach a bipartisan consensus on important
reforms this year.
MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT. Since taking office,
President Clinton has worked to implement Medicare reforms that, coupled
with the strong economy and the Administration's aggressive anti-fraud
and abuse enforcement efforts, have saved hundreds of billions of
dollars and helped to extend the life of the Medicare trust fund from
1999 through 2015. Building on this success, the plan he unveils today:
Gives traditional Medicare new private sector purchasing and quality
improvement tools. The President's proposal would make the traditional
fee-for-service program more competitive through the use of
market-oriented purchasing and quality improvement tools to improve care
and constrain costs. It would provide new or broader authority for
competitive pricing, incentives for beneficiaries to use physicians who
provide high quality care at reasonable costs, coordinating care for
beneficiaries with chronic illnesses, and other best-practice private
sector purchasing mechanisms. Savings: $25 billion over 10 years.
Extends competition to Medicare managed care plans by establishing a
"Competitive Defined Benefit" while maintaining a viable traditional
program. The Competitive Defined Benefit (CDB) proposal would, for the
first time, inject true price competition among managed care plans in
Medicare. Plans would be paid for covering Medicare's defined benefits,
including a new subsidized drug benefit, and would compete by offering
lower cost and higher quality. Price competition would make it easier
for beneficiaries to make informed choices about their plan options and
would, over time, save money for both beneficiaries and the program. The
CDB would do so by providing beneficiaries with 75 cents of every dollar
of savings that result from choosing lower cost plans. Beneficiaries
opting to stay in the traditional fee-for-service program would be able
to do so without an increase in premiums. Savings: $8 billion over 10
years, starting in 2003.
Constrains out-year program growth, but more moderately than the BBA
1997. To ensure that program growth does not significantly increase
after most of the Medicare provisions of the BBA expire in 2003, the
proposal includes out-year policies that protect against a return to
unsustainable growth rates, but are more modest than those included in
the BBA of 1997. This proposal would reduce average annual Medicare
spending growth from 4.9 percent to 4.3 percent per beneficiary between
2002 and 2009. Savings: $39 billion over 10 years (including
interactions and premium offsets).
Takes administrative and legislative action to smooth out the Balanced
Budget Act (BBA) of 1997 provider payment reductions. The proposal
includes a provider set-aside designed to smooth out provisions in the
BBA that may be affecting Medicare beneficiaries' access to quality
services. The Administration will work with Congress, outside groups,
and experts to identify real access problems and the appropriate policy
solutions. The plan also includes a number of administrative actions
that are designed to moderate the impact of the BBA 1997 on some health
care providers' ability to deliver quality services to beneficiaries.
Cost: $7.5 billion over 10 years.
MODERNIZING MEDICARE'S BENEFITS. The current Medicare benefit package
does not include all the services needed to treat health problems facing
the elderly and people with disabilities. The President's plan would
take strong new steps to ensure that Medicare beneficiaries have access
to affordable prescription drug and preventive services that have become
essential elements of high-quality medicine. It also addresses excess
utilization and waste associated with first-dollar coverage of clinical
lab services and reforms the current Medigap market. Finally, it
integrates the President's Medicare Buy-In proposal to provide an
affordable coverage option for vulnerable Americans between the ages of
55 and 65. His plan:
Establishes a new voluntary Medicare "Part D" prescription drug
benefit that is affordable and available to all beneficiaries. The
historic outpatient prescription drug benefit would:
Have no deductible and pay for half of the beneficiary's drug costs
from the first prescription filled each year up to $5,000 in spending
($2,500 in Medicare payments) when fully phased-in by 2008.
Ensure beneficiaries a discount similar to that offered by many
employer sponsored plans (estimated to be, on average, over 10 percent)
for each prescription purchased - even after the $5,000 limit is
Cost about $24 per month beginning in 2002 (when the benefit starts at
a $2,000 cap) and $44 per month when fully phased-in by 2008. (This is
one-half to one-third of the typical cost of private Medigap premiums.)
Ensure that beneficiaries with incomes below 135 percent of poverty
($11,000/$17,000 single/couples) would not pay premiums or cost sharing.
Those with incomes between 135 and 150 percent of poverty would receive
premium assistance as well.
Provide financial incentives for employers to retain their retiree
health coverage if they provide a prescription drug benefit to retirees
that was at least equivalent to the new Medicare outpatient drug
benefit. This approach would save money for the program because the
subsidy given would be generous enough for employers to maintain
coverage yet lower than the Medicare subsidies for traditional
Most Medicare beneficiaries will choose this new prescription drug
option because of its attractiveness and affordabilty. Because older
and disabled Americans rely so heavily on medications, about 31 million
beneficiaries would benefit from this coverage each year. Cost: $118
billion over 10 years, beginning in 2002.
Eliminates all cost sharing for all preventive benefits in Medicare
and institutes a major health promotion education campaign. This
proposal would cost $3 billion over 10 years and would:
Eliminate existing copayments and the deductible for every preventive
service covered by Medicare, including colorectal cancer screening, bone
mass measurements, pelvic exams, prostate cancer screening, diabetes
self management benefits, and mammographies.
Initiate a three-year demonstration project to provide cost-effective
smoking cessation services to Medicare beneficiaries.
Launch a new, nationwide health promotion education campaign targeted
to all Americans over the age of 50.
Rationalizes cost sharing. To help pay for the new prescription drug
and preventive benefits, the President's plan would save $11 billion
over 10 years by rationalizing the current cost sharing requirements for
Adding a 20 percent copayment for clinical laboratory services. The
modest lab copayment would help prevent overuse, reduce fraud, and has
been advocated by the Medicare Payment Advisory Commission.
Indexing the Part B deductible for inflation. The Part B deductible
index would guard against the program assuming a growing amount of Part
B costs because, over time, inflation decreases the amount of the
deductible in real terms. Compared to average annual Part B per capita
costs, the deductible has fallen from 43 percent in 1967 to about 3
percent in 1999, according to CBO.
Reforms Medigap. The President's plan would reform private insurance
policies that supplement Medicare (Medigap) by: (1) working with the
National Association of Insurance Commissioners to add a new lower-cost
option with low copayments and to revise existing plans to conform with
the President's proposals to strengthen Medicare; (2) directing the
Secretary of HHS to determine the feasibility and advisability of
reforms to improve supplemental cost sharing in Medicare, including a
Medigap-like plan offered by the traditional Medicare program and steps
to make it easier for beneficiaries to compare the cost and quality of
private Medigap options; (3) providing easier access to Medigap if a
beneficiary is in an HMO that withdraws from Medicare; and (4) expand
the initial six month open enrollment period in Medigap to include
individuals with disabilities and end stage renal disease (ESRD).
Includes the President's Medicare Buy-In proposal. The plan includes
the President's proposal to offer any American between the ages of 62-65
the choice to buy into the Medicare program for approximately $300 per
month if they agree to pay a small risk adjusted payment once they
become eligible for traditional Medicare at age 65. Displaced workers
between 55-62 who had involuntarily lost their jobs and insurance could
buy in at a slightly higher premium (approximately $400). And retirees
over age 55 who had been promised health care in their retirement years
would be provided access to "COBRA" continuation coverage if their old
firm reneged on their commitment. The $1.4 billion cost is offset in
the President's FY 2000 budget.
STRENGTHENING MEDICARE'S FINANCING FOR THE 21ST CENTURY. The Medicare
plan the President is proposing would strengthen the program and make it
more competitive and efficient. However, no amount of policy-sound
savings would be enough to handle the doubling of the elderly population
from almost 40 million today to 80 million over the next three decades.
Every respected expert recognizes that additional financing will be
necessary to maintain basic services and quality for any length of time.
The President believes that the baby boom generation should not pass
along its inevitable Medicare financing crisis to its children. That is
why he has proposed that a significant portion of the surplus be
dedicated to strengthening the program. Specifically, his plan:
Extends the life of the Trust Fund until at least 2027. Dedicating 15
percent of the surplus ($794 billion over 15 years) to Medicare not only
ensures the financial health of the Trust Fund through at least 2027,
but it also eliminates the need for future excessive cuts and radical
restructuring that would be inevitable in the absence of these
Responsibly finances the new prescription drug benefit through savings
and a modest amount from the surplus. The new drug benefit would cost
about $118 billion over 10 years. It would be fully financed by:
Savings from competition and efficiency. About 60 percent of the $118
billion Federal cost of the new Medicare prescription drug benefit would
be offset through these savings.
Dedicating a small fraction of the surplus. About 40 percent, or
$45.5 billion, of the surplus allocated to Medicare would be used to
help finance the benefit. To put this amount in context, it is:
Less than one eighth of the amount of the surplus dedicated for
Medicare (2 percent of the entire surplus); and
Less than the reduction in the Medicare baseline spending between
January and June, 1999.
Policy experts advising the Congress (MedPAC, CBO, and the Medicare
Trustees) have consistently underscored their belief that much of the
recent decline in Medicare spending beyond initial projections is due
to our success in combating fraud and waste. Reinvesting the savings
that can be reasonably attributed to our anti-fraud and waste
activities into a new prescription drug benefit is completely
consistent with the past actions of the Congress and the
Administration utilizing such savings for programmatic improvements.
PRESIDENT'S PLAN TO STRENGTHEN AND MODERNIZE
MEDICARE FOR THE 21st CENTURY
Goals for Reform:
Make Medicare More Competitive and Efficient
Modernize Medicare's Benefits
Strengthen Medicare's Financing for the 21st Century
Prescription Drug Benefit +29 +118
Cost Sharing Changes -2 -8
Total +27 +110
Contribution to Solvency -28 -328.5**
Surplus for Drug Benefit -22 -45.5
Surplus Allocation -50 -374
Includes $5.7 billion in interactions/premium offset
** Does not count toward package
Reduces Medicare spending by $72 billion over 10 years. About half of
these savings come from innovative proposals to adopt successful private
sector tools and competition. As a result of these policies, Medicare
growth per beneficiary from 2003 to 2009 would slow from 4.9 percent to
Adds an optional prescription drug benefit. This benefit would cost
$118 billion over 10 years. This cost is only about 5 percent of total
Medicare spending in 2009.
Over 60 percent of the costs are offset by the proposal's savings.
The remaining $45.5 billion would come from the Medicare allocation of
the surplus. This amount is one-eighth of the $374 billion over 10
years dedicated to Medicare, and less than 2 percent of the overall
Extends the life of the Medicare trust fund for a quarter of a
century, to at least 2027. The President's plan would dedicate 15
percent of the surplus to strengthen Medicare. This amount, when
combined with the offset for the drug benefit and Part A savings, would
extend the life of the Medicare Trust Fund for a quarter century,
through at least 2027. This is the best prognosis for Medicare since
the program was created.