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PRESIDENT CLINTON’S PLAN TO MODERNIZE AND STRENGTHEN
MEDICARE FOR THE 21st CENTURY
June 29, 1999
Today, President Clinton unveiled 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 called on the Congress to
work with him to reach a bipartisan consensus on needed reforms this year.
MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT. Since taking office,
President Clinton has worked to pass and 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, his plan:
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 over cost and 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
have been developed to be 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 can access affordable prescription drug
and preventive services that have become essential elements of high-quality
medicine. It also would address 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 reached.
- 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/$15,000
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 participants.
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 Medicare by:
- Adding a 20 percent copayment for clinical laboratory services. The modest
lab copayment would help prevent overuse, reduce fraud.
- 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 sufficient
to address the fact that the elderly population will double from almost 40
million today to 80 million over the next three decades. Every respected expert
in the nation recognizes that additional financing will be necessary to maintain
basic services and quality for any length of time. Because of this and his
strong belief that the baby boom generation should not pass along its inevitable
Medicare financing crisis to its children, the President 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 assures the
financial health of the Trust Fund through at least 2027, but it will also
eliminate the need for future excessive cuts and radical restructuring that
would be inevitable in the absence of these resources.
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 $45.5 billion of the surplus
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
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Goals for Reform:
- Make Medicare More Competitive and Efficient
- Modernize Medicare’s Benefits
- Strengthen Medicare’s Financing for the 21st Century
- Surplus for Drug Benefit -22 -45.5
- 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 4.3 percent.
- 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 surplus.
- 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.
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