[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 1996 Placed on Calendar Senate (PCS)]

                                                       Calendar No. 408

103d CONGRESS

  2d Session

                                S. 1996

_______________________________________________________________________

                                 A BILL

  To amend title XVIII of the Social Security Act to provide medicare 
   beneficiaries a choice among health plans, and for other purposes.

_______________________________________________________________________

                             April 11, 1994

            Read the second time and placed on the calendar





                                                       Calendar No. 408
103d CONGRESS
  2d Session
                                S. 1996

  To amend title XVIII of the Social Security Act to provide medicare 
   beneficiaries a choice among health plans, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             March 25 (legislative day, February 22), 1994

Mr. Durenberger introduced the following bill; which was read the first 
                                  time

                             April 11, 1994

            Read the second time and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
  To amend title XVIII of the Social Security Act to provide medicare 
   beneficiaries a choice among health plans, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Choice Act of 1994''.

SEC. 2. PURPOSE.

    The purpose of this Act is to provide better health care to 
medicare beneficiaries at less cost by giving such beneficiaries 
meaningful choices among health plans competing on the basis of price 
and quality.

SEC. 3. MEDICARE CHOICE.

    (a) In General.--Section 1876 of the Social Security Act (42 U.S.C. 
1395mm) is amended to read as follows:

                           ``medicare choice

    ``Sec. 1876. (a) Establishment of Medicare Market Areas.--The 
Secretary shall establish various medicare market areas within the 
United States in such manner as to--
            ``(1) ensure that each individual entitled to benefits 
        under part A and enrolled under part B, or enrolled under part 
        B only, resides in a medicare market area,
            ``(2) maintain all portions of each metropolitan 
        statistical area within one medicare market area, and
            ``(3) maximize the number of such individuals who will have 
        the opportunity for a meaningful choice among competing 
        medicare health plans under contract with the Secretary under 
        this section.
    ``(b) Medicare Health Plans.--
            ``(1) Contracts with medicare health plans.--The Secretary 
        shall enter into a contract with any medicare health plan 
        desiring to do business in a medicare market area and to 
        receive payment under this section, but only if the Secretary 
        certifies that such plan meets the requirements of paragraph 
        (2).
            ``(2) Certification requirements.--Each medicare health 
        plan must--
                    ``(A) except as provided in paragraph (3), provide 
                those services covered by this title (hereafter in this 
                section referred to as `medicare benefits') when 
                medically necessary for a uniform monthly premium for a 
                year;
                    ``(B) not discriminate against beneficiaries based 
                on their health status, claims experience, medical 
                history, or other factors that are generally related 
                with utilization of health care services;
                    ``(C) demonstrate the ability to provide medicare 
                benefits to all potential enrollees throughout the 
                medicare market area, unless the Secretary determines 
                it appropriate for such plan to target unique community 
                needs within the medicare market area;
                    ``(D) demonstrate financial solvency;
                    ``(E) have arrangements, established in accordance 
                with regulations prescribed by the Secretary, for an 
                ongoing quality-assurance program for the health care 
                services such plan provides to such beneficiaries, 
                which program--
                            ``(i) stresses health outcomes, and
                            ``(ii) provides review by physicians and 
                        other health care professionals of the process 
                        followed in the provision of such health care 
                        services;
                    ``(F) meet the requirement of section 1866(f) 
                (relating to maintaining written policies and 
                procedures respecting advance directives);
                    ``(G) not operate any compensation arrangement 
                between such plan and a physician or physician group 
                that may directly or indirectly have the effect of 
                reducing or limiting services provided with respect to 
                enrollees in such plan (hereafter in this subparagraph 
                such arrangement shall be referred to as a `physician 
                incentive plan'), unless the following requirements are 
                met:
                            ``(i) No specific payment is made directly 
                        or indirectly under the physician incentive 
                        plan to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with respect to a 
                        specific enrollee in the medicare health plan.
                            ``(ii) If the physician incentive plan 
                        places a physician or physician group at 
                        substantial financial risk (as determined by 
                        the Secretary) for services not provided by the 
                        physician or physician group, the medicare 
                        health plan--
                                    ``(I) provides stop-loss protection 
                                for the physician or physician group 
                                that is adequate and appropriate, based 
                                on standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk under the physician 
                                incentive plan and the number of 
                                enrollees in the medicare health plan 
                                who receive services from the physician 
                                or the physician group, and
                                    ``(II) conducts periodic surveys of 
                                both enrollees and former enrollees in 
                                the medicare health plan to determine 
                                the degree of access of such enrollees 
                                to services provided by the medicare 
                                health plan and satisfaction with the 
                                quality of such services;
                    ``(H) collect and provide such standard information 
                as the Secretary shall prescribe by regulation as 
                necessary to evaluate the performance and quality of 
                such plan, including enrollee satisfaction, to compare 
                such performance and quality with competing plans, and 
                to prepare comparative materials for distribution to 
                beneficiaries;
                    ``(I) demonstrate the ability to integrate 
                additional benefits into such plan for qualified 
                medicare beneficiaries; and
                    ``(J) offer the supplementary coverage plans 
                established by the Secretary under subsection 
                (g)(3)(B).
            ``(3) Cost-sharing.--
                    ``(A) Actuarially equivalent medicare benefits.--
                Each medicare health plan must offer either--
                            ``(i) medicare benefits, including the 
                        cost-sharing requirements otherwise provided in 
                        this title; or
                            ``(ii) actuarially equivalent medicare 
                        benefits, as established by the Secretary in 
                        regulations, which are medicare benefits, but 
                        with cost sharing requirements that are 
                        actuarially equivalent to the cost-sharing 
                        requirements otherwise provided in this title 
                        and consistent with common practices among 
                        health maintenance organizations and other 
                        managed care health plans.
                In establishing actuarially equivalent medicare 
                benefits, the Secretary shall not include in the 
                calculation any charge in costs associated with 
                alternative forms of health care delivery, management, 
                or utilization control.
                    ``(B) Out-of-network cost-sharing.--Each medicare 
                health plan may offer a point of service option for 
                which the plan may require enrollees to pay higher 
                cost-sharing for services than is otherwise required by 
                this title (or required in the actuarially equivalent 
                alternative) if--
                            ``(i) the plan maintains relationships with 
                        affiliated providers for all medicare benefits 
                        that would not require higher cost-sharing; and
                            ``(ii) the plan provides enrollees with 
                        such information.
            ``(4) Capacity limits.--Each medicare health plan shall 
        accept up to the limits of its capacity (as determined by the 
        Secretary) and without restrictions (except as may be 
        authorized by regulation) beneficiaries that may enroll in the 
        plan on a first-come first-served basis, unless to do so would 
        result in the enrollment of enrollees substantially 
        nonrepresentative (as determined by regulation) of the 
        population in the medicare market area served by such plan.
    ``(c) Employer-Sponsored Health Plans.--
            ``(1) Criteria for certification.--The Secretary shall 
        prescribe, by regulation, criteria for certifying medicare 
        health plans sponsored by employers which will be offered only 
        to current or former employees, including requirements that 
        such health plans--
                    ``(A) provide benefits that cover at least those 
                services covered by this title at a premium for the 
                enrollee that does not exceed the base beneficiary 
                premium (as defined pursuant to subsection (f)); and
                    ``(B) are available to all eligible current and 
                former employees in the medicare market area.
            ``(2) Secondary payer coverage.--To be certified under 
        paragraph (1), employer-sponsored health plans shall accept, at 
        the option of individuals eligible only for secondary coverage 
        under this title pursuant to section 1862(b), a fixed monthly 
        payment from the Secretary to provide such individuals coverage 
        at least actuarially equivalent to the secondary coverage 
        available to such individuals under this title.
    ``(d) Managing Medicare Choice.--
            ``(1) Medicare health plan premiums.--By August 1 of each 
        calendar year (beginning in 1995), each medicare health plan or 
        employer-sponsored health plan under contract pursuant to 
        subsection (b) or (c) shall submit to the Secretary the monthly 
        premium that such plan intends to charge in such year.
            ``(2) Annual open enrollment.--
                    ``(A) In general.--The Secretary shall provide for 
                an annual open enrollment period, and may take into 
                consideration existing employer enrollment periods, 
                during which all individuals entitled to benefits under 
                part A and enrolled under part B, or enrolled under 
                part B only, residing in a medicare market area--
                            ``(i) shall choose enrollment for the next 
                        calendar year in--
                                    ``(I) a medicare health plan in 
                                such area,
                                    ``(II) an employer-sponsored health 
                                plan, or
                                    ``(III) coverage otherwise provided 
                                under this title (hereafter in this 
                                section referred to as `medicare fee-
                                for-service'), and
                            ``(ii) may choose supplementary benefits 
                        offered by such health plan or a medicare 
                        supplemental policy (certified under section 
                        1882).
                    ``(B) Secondary payer.--Individuals who are 
                eligible for secondary coverage under this title 
                pursuant to section 1862(b), may not enroll in a 
                medicare health plan but may enroll in an employer-
                sponsored health plan, to which the Secretary shall 
                make a monthly payment, pursuant to subsection 
                (e)(2)(C).
                    ``(C) Period of enrollment.--
                            ``(i) In general.--Except as provided in 
                        clauses (ii), (iii), and (iv), an individual 
                        may not choose another enrollment until the 
                        next annual period provided under subparagraph 
                        (A).
                            ``(ii) Enrollment upon eligibility.--The 
                        Secretary shall provide an enrollment period of 
                        30 days to any individual beginning 30 days 
                        before the date such individual first becomes 
                        entitled to benefits under part A or enrolled 
                        under part B only. Such enrollment shall be 
                        effective on the date of such entitlement.
                            ``(iii) Termination of plan.--If a contract 
                        for a medicare health plan under this section 
                        is terminated during any calendar year, the 
                        Secretary shall provide for an enrollment 
                        period of 30 days to any individual enrolled in 
                        such plan beginning on the date of such 
                        termination.
                            ``(iv) Individual no longer in area.--An 
                        individual terminating residence in a medicare 
                        market area may terminate enrollment with the 
                        medicare health plan of such area as of the 
                        beginning of the first calendar month following 
                        the date on which the request is made for such 
                        termination, and the Secretary shall provide 
                        for an open enrollment period of 30 days to 
                        such individual for enrollment in the new 
                        medicare market area in which such individual 
                        resides beginning on the date of such 
                        termination. In the case of an individual's 
                        termination of enrollment, the medicare health 
                        plan shall provide the individual with a copy 
                        of the written request for termination of 
                        enrollment and a written explanation of the 
                        period (ending on the effective date of the 
                        termination) during which the individual 
                        continues to be enrolled with the plan and may 
                        not receive medicare benefits other than 
                        through such plan.
                            ``(v) Effective date of new enrollment.--
                        Enrollment under clause (iii) or (iv) shall be 
                        effective 30 days after the end of the 
                        enrollment period, or, if the Secretary 
                        determines that such date is not feasible, such 
                        other date as the Secretary specifies.
                    ``(D) Default enrollment.--
                            ``(i) In general.--If an individual does 
                        not choose an enrollment option during an 
                        enrollment period under this paragraph, such 
                        individual shall be automatically enrolled in--
                                    ``(I) the same option into which 
                                such individual enrolled in the 
                                preceding enrollment period, or
                                    ``(II) if the individual was not 
                                enrolled in such preceding period, the 
                                medicare fee-for-service.
                            ``(ii) No medicare health plans in area.--
                        If there are no medicare health plans in the 
                        medicare market area in which the individual 
                        resides, such individual shall be automatically 
                        enrolled in the medicare fee-for-service.
            ``(3) Information regarding medicare options in market 
        area.--
                    ``(A) In general.--The Secretary shall provide each 
                individual making an enrollment decision during any 
                enrollment period described in paragraph (2) with the 
                following information, in comparative form, regarding 
                the medicare health plans and medicare fee-for-service 
                available in the medicare market area in which such 
                individual resides:
                            ``(i) The individual's premiums, 
                        deductibles, and copayments for medicare 
                        benefits.
                            ``(ii) The individual's premiums, 
                        deductibles, and copayments for any 
                        supplementary benefits.
                            ``(iii) Enrollee restrictions, including 
                        provider limitations.
                            ``(iv) Quality information, including 
                        enrollee satisfaction and health outcomes.
                            ``(v) Out-of-area coverage provided.
                            ``(vi) Coverage of emergency services and 
                        urgently needed care.
                            ``(vii) Appeal rights of enrollees.
                            ``(viii) Any other necessary information as 
                        determined by the Secretary.
                    ``(B) Marketing requirements.--The Secretary shall 
                prescribe the procedures and conditions under which a 
                medicare health plan that has entered into a contract 
                with the Secretary under this section may inform 
                individuals eligible to enroll under this section with 
                the plan about the plan. No brochures, application 
                forms, or other promotional or informational material 
                may be distributed by such plan to (or for the use of) 
                individuals eligible to enroll with the plan under this 
                section unless--
                            ``(i) at least 45 days before its 
                        distribution, the plan has submitted the 
                        material to the Secretary for review,
                            ``(ii) the material is made available to 
                        all individuals eligible to enroll in the 
                        medicare health plan in the medicare market 
                        area, and
                            ``(iii) the Secretary has not disapproved 
                        the distribution of the material.
                The Secretary shall review all such material submitted 
                and shall disapprove such material if the Secretary 
                determines, in the Secretary's discretion, that the 
                material is materially inaccurate or misleading or 
                otherwise makes a material misrepresentation.
            ``(4) Risk adjustments.--
                    ``(A) In general.--The Secretary shall adjust the 
                payments made to medicare health plans and employer-
                sponsored health plans under this title to reflect the 
                relative health risks of classes of beneficiaries 
                enrolled in such plans in the medicare market area. The 
                Secretary shall, at a minimum, define appropriate 
                classes of beneficiaries, based on age, sex, disability 
                status, eligibility under title XIX, and such other 
                factors as the Secretary determines to be appropriate, 
                so as to ensure actuarial equivalence and the efficient 
                delivery of health care. The Secretary may add to, 
                modify, or substitute for such classes, if such changes 
                will improve the determination of actuarial 
                equivalence. The Secretary may enter into risk sharing 
                arrangements in a medicare market area, if the 
                Secretary determines it to be appropriate.
                    ``(B) Penalties for discrimination.--The Secretary 
                shall prescribe the procedures and conditions under 
                which the Secretary shall impose financial penalties on 
                medicare health plans or employer-sponsored health 
                plans that knowingly violate the prohibition against 
                discrimination against potential enrollees based on 
                their health status, claims experience, medical 
                history, or other factors that are generally related 
                with utilization of health care services.
            ``(5) Payments to plans.--
                    ``(A) In general.--The Secretary shall forward to 
                each medicare health plan or employer-sponsored health 
                plan the medicare per capita rate for the medicare 
                market area, as determined under subsection (e), for 
                every beneficiary enrolled in such plan for that month, 
                excluding any beneficiary premium but reflecting any 
                adjustments required pursuant to paragraph (4)(A).
                    ``(B) Collection of beneficiary premiums and 
                rebates.--
                            ``(i) Premiums.--Each medicare health plan 
                        or employer-sponsored plan shall be responsible 
                        for collecting premiums owed by beneficiaries 
                        for enrolling in such plan, including premiums 
                        for medicare benefits and any supplementary 
                        benefits.
                            ``(ii) Rebates.--Any medicare health plan 
                        or employer-sponsored plan which charges a 
                        monthly premium which is less than the medicare 
                        per capita rate for an enrollee shall be 
                        responsible for paying to such enrollee a 
                        rebate equal to the excess medicare per capita 
                        rate or may use such rebate to offset any 
                        premium owed by the enrollee for any 
                        supplementary benefits selected by the 
                        enrollee.
                    ``(C) Source of payment.--The amounts paid to 
                medicare health plans and employer-sponsored health 
                plans shall be made from the Federal Hospital Insurance 
                Trust Fund and the Supplementary Insurance Trust Fund 
                based on an allocation determined by the Secretary.
    ``(e) Medicare Per Capita Rate.--
            ``(1) Announcement.--With respect to each medicare market 
        area, the Secretary shall announce, not later than October 1 
        (beginning with 1995) the per capita rate that will apply to 
        such market area beginning with the enrollment year (which 
        coincides with the next calendar year).
            ``(2) Per capita rate.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B), (C), and (D), the per capita rate 
                for a medicare market area shall be equal to the lesser 
                of--
                            ``(i) the excess of--
                                    ``(I) the benchmark premium for 
                                such area, over
                                    ``(II) the base beneficiary premium 
                                for such area; or
                            ``(ii) the maximum per capita rate.
                    ``(B) Exception.--For individuals eligible for 
                medicare benefits prior to January 1, 1999, the per 
                capita rate for a medicare market area shall be equal 
                to the lesser of the maximum per capita rate or the sum 
                of--
                            ``(i) the excess of--
                                    ``(I) the benchmark premium for 
                                such area, over
                                    ``(II) the base beneficiary premium 
                                for such area, and
                            ``(ii) the applicable percentage of the 
                        excess of--
                                    ``(I) the fee-for-service per 
                                capita costs (hereafter in this section 
                                referred to as `FFSPCC') for such area, 
                                over--
                                    ``(II) such benchmark premium.
                For purposes of the preceding sentence, the applicable 
                percentage shall be determined by the following table:

          
                                                             Applicable
                    ``Enrollment year:
                                                            Percentage:
                            1996.....................            90    
                            1997.....................            80    
                            1998.....................            70    
                            1999.....................            60    
                            2000 and thereafter......           50.    
                    ``(C) Secondary payer per capita rate.--For 
                individuals who are eligible for secondary coverage 
                under this title pursuant to section 1862(b) and elect 
                to enroll in an employer-sponsored health plan, the 
                Secretary shall determine a per capita rate for each 
                medicare market area equal to the costs of providing 
                secondary coverage to all individuals in such market 
                area divided by the number of individuals eligible for 
                such coverage in such market area.
                    ``(D) Rural enrollees.--
                            ``(i) Five-year bonus.--For enrollment 
                        periods beginning in 1996 through 2000, the per 
                        capita rate in each medicare market area 
                        (otherwise determined under this paragraph) 
                        shall be increased by 10 percent with respect 
                        to each individual enrolling in a medicare 
                        health plan or employer-sponsored health plan 
                        who resides in an underserved rural area within 
                        such market area, as determined by the 
                        Secretary.
                            ``(ii) Improve access.--The bonus amount 
                        paid under this subparagraph shall be used by 
                        such health plans to improve access and 
                        coordinated service delivery in the underserved 
                        rural area in which the enrollee resides. The 
                        bonus amount shall not reduce the premiums owed 
                        by the enrollee for medicare benefits or any 
                        supplementary coverage.
                            ``(iii) Study and recommendations.--The 
                        Secretary shall report to the Congress at the 
                        end of the 5-year period described in clause 
                        (ii) on the status of health care access in 
                        underserved rural areas and shall make 
                        recommendations regarding continuation of bonus 
                        per capita payments.
                    ``(E) Calculation requirements.--The FFSPCC shall 
                be calculated directly to accurately reflect the costs 
                of providing care in the fee-for-service system. The 
                FFSPCC shall not be derived from the removal of 
                medicare health plan payments and enrollees from total 
                payments and enrollees.
            ``(3) Maximum per capita rate.--
                    ``(A) In general.--Except as provided in 
                subparagraph (E), the maximum per capita rate in any 
                medicare market area shall be the excess of--
                            ``(i) the product of--
                                    ``(I) FFSPCC in all medicare market 
                                areas, and
                                    ``(II) an adjustment factor for 
                                such market area, over
                            ``(ii) the base beneficiary premium in such 
                        market area.
                    ``(B) Adjustment factor.--For purposes of 
                subparagraph (A)(i)(II), and except as provided in 
                subparagraph (D):
                            ``(i) FFSPCC ratio less than .8.--For 
                        medicare market areas with a FFSPCC ratio less 
                        than or equal to .8, the adjustment factor 
                        shall be .8.
                            ``(ii) FFSPCC ratio between .8 and .95.--
                        For medicare market areas with a FFSPCC ratio 
                        less than .95 but greater than .8, the 
                        adjustment factor shall be the sum of .85, 
                        plus--
                                    ``(I) .1, multiplied by
                                    ``(II) the ratio of the excess of 
                                the FFSPCC ratio over .8, to .15.
                            ``(iii) FFSPCC ratio between .95 and 
                        1.05.--For medicare market areas with a FFSPCC 
                        ratio of at least .95 but less than 1.05, the 
                        adjustment factor shall be the FFSPCC ratio.
                            ``(iv) FFSPCC ratio between 1.05 and 1.2.--
                        For medicare market areas with a FFSPCC ratio 
                        of at least 1.05 but less than 1.2, the 
                        adjustment factor shall be the sum of 1.05, 
                        plus--
                                    ``(I) .1, multiplied by
                                    ``(II) the ratio of the excess of 
                                the FFSPCC ratio over 1.05, to .15.
                            ``(v) FFSPCC ratio greater than 1.2.--For 
                        medicare market areas with a FFSPCC ratio 
                        greater than or equal to 1.2, the adjustment 
                        factor shall be 1.2.
                    ``(C) FFSPCC ratio.--For purposes of subparagraph 
                (B), for each medicare market area, the Secretary shall 
                determine a FFSPCC ratio by dividing FFSPCC in such 
                market area by FFSPCC for all medicare market areas.
                    ``(D) Budget neutrality.--The Secretary shall 
                change the adjustment factors as necessary to ensure 
                that total spending under this title shall not exceed 
                the level of spending that would occur if the maximum 
                per capita rate in each medicare market area were equal 
                to the FFSPCC in each such market area.
                    ``(E) Alternative formula.--The Secretary may 
                substitute an alternative formula for determining the 
                maximum rate in each medicare market area. Such an 
                alternative formula shall generally conform to the 
                pattern of adjustment factors specified in subparagraph 
                (B), except that such formula shall maintain a 
                consistent mathematical relationship between the 
                adjustment factor and the FFSPCC ratio in each such 
                market area in a manner that achieves budget 
                neutrality.
                    ``(F) Study and recommendations.--The Secretary and 
                the Physician Payment Review Commission shall report to 
                the Congress every 2 years (beginning in 1997) on the 
                method for determining the maximum per capita rate and 
                the experience of each medicare market area with the 
                formula. The Secretary and the Physician Payment Review 
                Commission shall make recommendations regarding the 
                appropriateness of basing the maximum per capita rate 
                formula on fee-for-service per capita costs. The 
                Secretary and the Physician Payment Review Commission 
                shall also examine the appropriateness of implementing 
                urban and rural adjusters to the maximum per capita 
                rate formula.
            ``(4) Definitions.--For purposes of this subsection:
                    ``(A) Benchmark premium.--The benchmark premium for 
                a medicare market area shall be equal to the sum of--
                            ``(i) the lowest health plan monthly 
                        premium submitted by a medicare health plan in 
                        such area for the enrollment year, and
                            ``(ii) the applicable percentage of the 
                        excess of--
                                    ``(I) the average of all medicare 
                                health plan premiums submitted in such 
                                area, over
                                    ``(II) the lowest health plan 
                                premium in such area.
                For purposes of the preceding sentence, the applicable 
                percentage shall be determined by the following table:

                  
                                                             Applicable
                    ``Enrollment year:
                                                            Percentage:
                            1996.....................            80    
                            1997.....................            60    
                            1998.....................            40    
                            1999 and thereafter......           20.    
                    ``(B) Fee-for-service per capita costs.--The 
                Secretary shall determine FFSPCC for a medicare market 
                area by dividing--
                            ``(i) the total spending for medicare 
                        benefits (not including beneficiary cost 
                        sharing) for individuals who reside in such 
                        area, who are not enrolled in a medicare health 
                        plan or employer-sponsored health plan, and who 
                        are not in secondary payer status, by
                            ``(ii) the number of such individuals.
                The Secretary shall make such other adjustments as may 
                be necessary to allow an accurate comparison of FFSPCC 
                for the medicare market area with premiums charged by 
                medicare health plans in such area.
    ``(f) Beneficiary Premiums.--For purposes of this section:
            ``(1) Base beneficiary premium.--The base beneficiary 
        premium for each medicare market area shall be equal to the 
        product of--
                    ``(A) the premium determined under section 1839, 
                and
                    ``(B) the FFSPCC for such area divided by the 
                average national FFSPCC, as determined by the 
                Secretary.
            ``(2) Monthly premiums.--
                    ``(A) In general.--To be enrolled for coverage in a 
                medicare health plan or medicare fee-for-service during 
                an enrollment year for medicare benefits, each 
                beneficiary shall pay a monthly premium equal to the 
                excess of--
                            ``(i) the premium charged by the plan 
                        (determined under subsection (d)(1)) or the 
                        fee-for-service (determined under subparagraph 
                        (B)), over
                            ``(ii) the medicare per capita rate in the 
                        medicare market area in which the beneficiary 
                        resides.
                    ``(B) Fee-for-service beneficiary premium.--
                            ``(i) In general.--For beneficiaries 
                        selecting medicare fee-for-service in a 
                        medicare market area, the monthly premium shall 
                        be equal to the excess of--
                                    ``(I) the FFSPCC for such area, 
                                over
                                    ``(II) the medicare per capita rate 
                                for such area.
                            ``(ii) Exception.--For individuals eligible 
                        for medicare benefits prior to January 1, 1999, 
                        who select medicare fee-for-service for 
                        coverage, the beneficiary premium shall equal--
                                    ``(I) the base beneficiary premium, 
                                plus
                                    ``(II) any additional premium 
                                required pursuant to section 1893.
    ``(g) Supplementary Coverage Plans.--
            ``(1) In general.--The Secretary shall ensure that all 
        supplementary coverage plans meet the requirements of this 
        subsection, in addition to any requirements that may be 
        applicable under section 1882.
            ``(2) Coordination with medicare choice.--Supplementary 
        coverage plans may only be offered to beneficiaries during the 
        same annual open enrollment period during which beneficiaries 
        select medicare coverage and must be offered to all 
        beneficiaries in the same medicare market area for the same, 
        uniform monthly premium during the enrollment period.
            ``(3) Standard benefits.--
                    ``(A) In general.--Medicare health plans may only 
                offer standardized supplementary coverage plans as the 
                Secretary shall prescribe by regulation.
                    ``(B) Required options.--Among the standardized 
                plans, the Secretary shall include a plan--
                            ``(i) covering only outpatient prescription 
                        drugs, and
                            ``(ii) which, together with medicare 
                        benefits, would resemble coverage typically 
                        offered by health maintenance organizations to 
                        employer groups, including an annual out-of-
                        pocket maximum beneficiary liability (covering 
                        coinsurance, copayments, and deductibles).
            ``(4) One sponsor.--A sponsor of supplementary coverage may 
        not offer such coverage to a beneficiary selecting a medicare 
        health plan from a different sponsor, except that sponsors of 
        supplementary coverage may offer such coverage to any 
        individual selecting medicare fee-for-service.
            ``(5) Surcharge on certain plans.--Notwithstanding any 
        other provision of this section, if an individual chooses to 
        purchase a medicare supplemental policy certified pursuant to 
        section 1882 and the coverage under such policy results in 
        increased costs to the program under this title, the monthly 
        premium otherwise applicable under this section shall be 
        increased by a surcharge actuarially equivalent to such 
        increased costs.
            ``(6) Definitions.--The term `supplementary coverage plan' 
        means any health insurance coverage offered by a medicare 
        health plan or medicare supplemental policy (as defined in 
        section 1882) that covers health care costs not covered under 
        as medicare benefits and for which the enrollee must pay a 
        premium.''.
    (b) Conforming Amendments.--
            (1) Section 1882(c) of the Social Security Act (42 U.S.C. 
        1395ss(c)) is amended--
                    (A) by striking ``with respect to paragraph (3)'' 
                and inserting ``with respect to paragraphs (3) and 
                (6)'',
                    (B) by striking ``and'' at the end of paragraph 
                (4),
                    (C) by striking the period at the end of paragraph 
                (5) and inserting ``; and'', and
                    (D) by adding at the end the following new 
                paragraph:
            ``(6) agrees--
                    ``(A) to offer such policy during the annual open 
                enrollment period specified in section 1876(c)(2) at a 
                uniform monthly premium to all beneficiaries in a 
                medicare market area established under section 1876(a); 
                and
                    ``(B) not to discriminate against beneficiaries 
                based on their health status, claims experience, 
                medical history, or other factors that are generally 
                related with utilization of health care services.''.
            (2) Section 1882(s) of such Act (42 U.S.C. 1395ss(s)) is 
        amended--
                    (A) by striking paragraph (2),
                    (B) by striking ``paragraphs (1) and (2)'' in 
                paragraph (3) and inserting ``paragraph (1)'', and
                    (C) by redesignating paragraph (3) as paragraph 
                (2).
            (3) Section 1839(e) of such Act (42 U.S.C. 1395r(e)) is 
        amended to read as follows:
    ``(e) Notwithstanding the provisions of subsection (a), the monthly 
premium for each individual enrolled under this part for each month--
            ``(1) in 1994 shall be $41.10,
            ``(2) in 1995 shall be $46.10, and
            ``(3) after December 1995 shall be an amount equal to 25 
        percent of the monthly actuarial rate for enrollees age 65 and 
        over, as determined under subsection (a)(1) and applicable to 
        such month.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contracts entered into with respect to calendar years 
beginning after December 31, 1995.

SEC. 4. FEE-FOR-SERVICE COST CONTAINMENT.

    (a) In General.--Part C of title XVIII of the Social Security Act 
(42 U.S.C. 1395x et seq.) is amended by adding at the end thereof the 
following new section:

                   ``fee-for-service cost containment

    ``Sec. 1893. (a) In General.--Unless Congress otherwise provides, 
notwithstanding any other provision of this title, payment for services 
provided to individuals entitled to benefits under part A and enrolled 
under part B, or enrolled under part B only (other than to individuals 
enrolled in medicare health plans or employer-sponsored health plans) 
(hereafter in this section referred to as `service payments') shall be 
subject to an aggregate fee-for-service spending limit in each market 
area for each calendar year, beginning with 1997.
    ``(b) Setting Aggregate Fee-For-Service Spending Limits.--
            ``(1) Limits for each market area.--By not later than 
        October 1 of each year (beginning with 1996), and subject to 
        paragraph (2), the Secretary shall determine and publish in the 
        Federal Register, the fee-for-service spending limits for each 
        medicare market area for the succeeding calendar year.
            ``(2) Formula for determining limits.--The Secretary shall 
        calculate such limits by allowing aggregate fee-for-service 
        spending in each medicare market area to increase for--
                    ``(A) inflation, as measured by the consumer price 
                index,
                    ``(B) changes in the numbers of enrollees described 
                in subsection (a), and
                    ``(C) an additional growth allowance of--
                            ``(i) 4.0 percent in 1997,
                            ``(ii) 3.5 percent in 1998,
                            ``(iii) 3.0 percent in 1999, and
                            ``(iv) 2.5 percent in 2000 and thereafter.
    ``(c) Determining Excess Spending.--
            ``(1) In general.--The Secretary shall determine the amount 
        of excess spending (if any) for each medicare market area by 
        subtracting the limit determined by the Secretary for such 
        market area under subsection (b) from baseline spending for 
        such market area.
            ``(2) Baseline spending.--The Secretary shall measure 
        baseline spending for each medicare market area as the 
        aggregate amount of service payments that would be made in such 
        a market area on behalf of individuals in fee-for-service (as 
        defined in subsection (a)) under the provisions of this title 
        without regard to this section.
            ``(3) Look back.--In determining excess spending for a 
        medicare market area--
                    ``(A) the Secretary shall reduce the amount of 
                excess spending for the succeeding year by the amounts 
                in the current or prior years by which aggregate 
                spending fell below the aggregate spending limit for 
                the medicare market area, and
                    ``(B) the Secretary shall increase the amount of 
                excess spending for the succeeding year by the amounts 
                in the current or prior years by which aggregate 
                spending exceeded the aggregate spending limit for the 
                medicare market area.
    ``(d) Enforcing Market Area Aggregate Spending Limits.--
            ``(1) In general.--By not later than October 1 of each year 
        (beginning with 1996), the Secretary shall determine and 
        publish in the Federal Register adjustments (if any) in service 
        payment rates and beneficiary premiums that are required to 
        eliminate excess spending in the succeeding calendar year in 
        each medicare market area.
            ``(2) Service payment rates.--The Secretary shall reduce 
        service payments that would otherwise apply under this title by 
        the percentage that is necessary to reduce aggregate service 
        payments in the medicare market area by an amount equal to one-
        half of the estimated excess spending in the succeeding 
        calendar year.
            ``(3) Premium add-on.--The Secretary shall increase the 
        monthly part B premium that would otherwise apply under this 
        title for the succeeding calendar year by an amount that is 
        sufficient to increase aggregate part B premium payments from 
        individuals (as defined in subsection (a)) by an amount equal 
        to one-half of the estimated excess spending in the succeeding 
        calendar year.
    ``(e) Exempting Low-Cost Areas.--
            ``(1) In general.--Any medicare market area in which fee-
        for-service spending per individual is below 90 percent of the 
        national average shall be exempt from enforcement of the 
        aggregate spending limit for such market area.
            ``(2) Budget neutrality.--The Secretary shall increase the 
        amount of excessive spending in medicare market areas with fee-
        for-service spending per individual to ensure the application 
        of paragraph (1) does not increase total spending under this 
        title.
            ``(3) High fee-for-service spending.--Medicare market areas 
        with high fee-for-service spending per individual are those 
        areas where spending per individual is higher than 120 percent 
        of all other medicare market areas.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to payments under title XVIII of the Social Security 
Act in calendar years beginning after December 31, 1995.

SEC. 5. MEDICARE ADMINISTRATIVE SIMPLIFICATION.

    (a) Consolidation of Parts A and B.--By not later than October 1, 
1995, the Secretary shall submit to the Congress a proposal to 
consolidate entitlement for part A of the title XVIII of the Social 
Security Act and enrollment in part B of such title into eligibility or 
enrollment into the entire medicare program under such title. In 
preparing such a proposal, the Secretary shall consider phasing in such 
a consolidation, and shall ensure that no beneficiary shall pay higher 
premiums for coverage under such program than under such program as of 
the date of the enactment of this Act.
    (b) Consolidation of Fee-For-Service Administration.--
            (1) In general.--The Secretary shall take such steps as may 
        be necessary to consolidate the administration (including 
        processing systems) of parts A and B of the medicare program 
        (under title XVIII of the Social Security Act), including 
        medicare supplemental policies, over a 5-year period.
            (2) Combination of intermediary and carrier functions.--In 
        taking such steps, the Secretary may contract with a single 
        entity that combines the fiscal intermediary and carrier 
        functions in an area. No medicare market area (established 
        under section 1876(a)) may be subject to more than 1 entity.
            (3) Streamlined processing systems.--In carrying out this 
        subsection, the Secretary may ensure--
                    (A) a streamlined, standardized, and paperless 
                process for handling all fee-for-service claims, and
                    (B) that payments under title XVIII of the Social 
                Security Act are made first by the medicare program and 
                medicare supplemental policies before providers can 
                bill beneficiaries for services using standardized 
                forms.
            (4) Superseding conflicting requirements.--The provisions 
        of sections 1816 and 1842 of the Social Security Act (including 
        provider nominating provisions in such section 1816) are 
        superseded to the extent required to carry out this subsection.
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