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PRESIDENT CLINTONíS 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 Medicareís 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 Administrationís 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 Medicareís 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 beneficiariesí 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 providersí ability to deliver quality services to beneficiaries. Cost: $7.5 billion over 10 years.

MODERNIZING MEDICAREíS 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 Presidentís 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 Presidentís 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 beneficiaryís 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 Ė 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 Presidentís 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 Presidentís 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 Presidentís 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 Presidentís 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 ďCOBRAĒ continuation coverage if their old firm reneged on their commitment. The $1.4 billion cost is offset in the Presidentís FY 2000 budget.

STRENGTHENING MEDICAREíS 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.

PRESIDENTíS PLAN TO STRENGTHEN AND MODERNIZE
MEDICARE FOR THE 21st CENTURY

  • Goals for Reform:
    • Make Medicare More Competitive and Efficient
    • Modernize Medicareís Benefits
    • Strengthen Medicareís 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 proposalís 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 Presidentís 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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