Improving the President's Medicare Prescription Drug




June 26, 2000


The President will improve his comprehensive plan to strengthen and modernize Medicare by investing additional surplus -- available in part due to lower Medicare growth and a healthier trust fund -- to his voluntary Medicare prescription drug proposal and increasing of certain provider payments affected by the Balanced Budget Act of 1997 (BBA). Specifically, the President will invest an additional $58 billion over 10 years to: (1) specify his limit on out-of-pocket prescription drug spending at $4,000; (2) maintain the beneficiary premium at the same level even with the enhanced benefit; (3) start the program one year earlier; and (4) provide immediate payments to managed care plans to provide a prescription drug benefit. He will also add $40 billion over 10 years to increase Medicare health care provider payments in the wake of the BBA. The President will reiterate his commitment to critical structural reforms that will be needed as the baby boom generation retires. Finally, he will drop savings proposals that are no longer needed. Altogether, the President would invest $264 billion over 10 years -- less than one-fifth of the on-budget surplus. Combined with taking Medicare off-budget and extending the life of its trust fund, this plan represents the most important set of changes to Medicare in the program's history.


The President will add $58 billion over 10 years ($39 billion over 5 years) to his voluntary, affordable Prescription drug benefit for all beneficiaries. His original proposal would cover half of all cost up to $5,000 when fully phased in, at a premium that begins at $25 per month with extra protections for low-income people. In addition, the President's February budget set aside a surplus reserve to develop protections against catastrophic prescription drug costs. He will add to this plan by:

Specifying that no beneficiary would pay more than $4,000 in out-of-pocket drug costs. The President's plan would limit beneficiary spending on prescription drugs to $4,000 per year in 2002, indexed to drug inflation in subsequent years. This reaffirms the President's commitment to providing true insurance, enabling beneficiaries to afford needed drugs when they have high costs.

Limiting premiums to $25 per month even with the benefit improvement. The President's proposal will dedicate a portion of this new investment to maintain the monthly premium at the levels that were in his February proposal, even with the newly specified catastrophic benefit. Thus, premiums for this coverage would start at $25 per month in the first year and would increase as the benefit is phased in.

Starting the benefit in 2002, not 2003. The President's plan accelerates the implementation of the drug benefit to January 1, 2002. Seniors and people with disabilities need prescription drug coverage as soon as possible and the new resources available will allow for an earlier start-up.

Paying managed care plans to provide prescription drugs in 2001. To help managed care plans continue to offer prescription drug coverage next year and stabilize the managed care market, the President proposes to increase payments to the Medicare+Choice plans in 2001 to explicitly pay for prescription drug coverage. Plans that provide at least 50 percent coinsurance to $2,000 would be eligible for these subsidies. Under the President's plan, managed care plans would receive direct subsidies for the provision of a prescription drug benefit for the first time in program history. This will increase payments by over $25 billion over 5 years and over $75 billion over 10 years, including $2 billion in 2001.

Altogether, the new total cost of the Medicare prescription drug benefit would be about $253 billion over 10 years ($79 billion over 5 years).


The Balanced Budget Act of 1997 (BBA) helped to eliminate the deficit, created the State Children's Health Insurance Program, and reduced and restructured Medicare and Medicaid payments to health care providers. Many of the provider payment changes were justified and have contributed to improved efficiency and the unprecedented fiscal health of the Medicare trust fund. However, some of the policies may have the potential to affect the quality of and access to health care services. To address this, the President has proposed to dedicate $40 billion over 10 years ($21 billion over 5 years) to a provider payment initiative designed to ensure adequate reimbursement to hospitals, rural providers, teaching facilities, home health agencies, nursing homes, managed care plans, and others.

Increasing provider payments for 2001. About half -- $19 billion over 10 years ($9 billion over 5 years) -- is devoted to specific policies that are primarily designed to address payment reductions the BBA scheduled to occur on October 1. This includes: updating inpatient, home health, and skilled nursing facility payments at the full market basket update; delaying the further reductions in Medicare and Medicaid disproportionate share hospital payments; and postponing the 15 percent reduction to home health agencies.

Setting aside enough funds for permanent and/or targeted policy solutions. The plan also includes $21 billion over 10 years ($11 billion over 5 years) in unspecified funding for use in developing additional policies that target and/or permanently correct flawed BBA policies.

The proposal, designed to ensure access to high-quality care, clearly illustrates that adequate financing for provider payments need not conflict with necessary funding for a long-overdue, voluntary Medicare prescription drug benefit.


Last June, the President proposed a series of far-reaching proposals to structurally reform Medicare provider payment. Specifically, the plan would give traditional Medicare essential payment tools to improve quality and efficiency like adding encouraging disease management and innovative payment options for doctors and hospital. It would also create a system called "Competitive Defined Benefit" plan that would allow managed care plans to compete on price and quality and get paid based on their bids rather than a complex, statutory formula. He also proposed in his budget policies, supported by the Inspector General, General Accounting Office and others, to reduce Medicare fraud, waste and overpayments. Finally, his plan included rational cost sharing changes and benefit improvements (e.g., extension of coverage of immunosuppressive drugs and people with disabilities who go back to work). These policies remain an important part of the President's plan to strengthen and modernize Medicare. However, traditional provider payment policies for 2003 through 2007 appear to no longer be needed given the reduction in projected Medicare spending and are thus no longer in the plan. In addition, the plan does not include proposals to repeal the Balanced Budget Refinement Act managed care risk adjustment delay, to reduce bad debt payments, and to create preferred provider arrangements in Medicare. These changes reduce net savings by $30 billion over 10 years. The net Medicare effect of the reform policies in the package therefore is $29 billion over 10 years ($8 billion over 5 years).

Budget Framework - Table of Contents

Clinton-Gore Administration - Appendix A1

Clinton-Gore Administration - Appendix A2

Clinton-Gore Administration's Budget Framework

American Families in a Framework of Fiscal Discipline

Taking Medicare Off-Budget and Dedicating the Resulting Interest Savings

Improving the President's Medicare Prescription Drug

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