[Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
[III. Major Functions of the Federal Government]
[13. Medicare]
[From the U.S. Government Printing Office, www.gpo.gov]
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13. MEDICARE
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Table 13-1. Federal Resources in Support of Medicare
(Dollar amounts in millions)
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Percent
Function 570 1993 2001 Change:
Actual Estimate 1993-2001
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Spending:
Discretionary budget authority............................................ 2,829 3,372 19%
Mandatory outlays......................................................... 127,903 218,820 71%
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At the beginning of the Clinton-Gore Administration, Medicare was
projected to become insolvent in 1999. Throughout the past eight years,
the Administration proposed and secured important legislation and took
appropriate administrative actions that strengthened the Medicare
program and modernized it for the 21st Century. The Administration's
stewardship of Medicare has resulted in the longest Medicare Trust Fund
solvency in a quarter century, extending the life of the Medicare Trust
Fund by a total of 26 years and offering beneficiary premiums that are
nearly 20 percent lower today than projected in 1993.
Plan to Restructure Medicare
The Administration also proposed a new and comprehensive plan to
strengthen and modernize Medicare for the 21st Century. The
Administration's plan prepares the program for its upcoming health,
demographic, and financing challenges. This initiative would: (1) make
Medicare more competitive and efficient; (2) modernize and reform
Medicare's benefits, including the provision of a long-overdue voluntary
prescription drug benefit and cost-sharing protections for preventive
benefits; and, (3) dedicate part of the non-Medicare/Social Security
surplus to the program to extend the life of the Medicare Trust Fund as
an alternative to beneficiary cuts or further provider reductions.
Make Medicare More Competitive and Efficient: The Administration'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 within the existing
Medicare program, incentives for beneficiaries to use physicians who
provide high quality care at reasonable costs, coordinated care for
beneficiaries with chronic illnesses, and other best-practice private
sector purchasing mechanisms. The President's competitive defined
benefit proposal would, for the first time, inject true price
competition among managed care plans into Medicare, which make it easier
for beneficiaries to make informed choices about their plan options and,
over time, save money for both beneficiaries and the program.
Modernize Medicare's Benefits: The President's initiative would also
modernize Medicare's benefit structure by adding a long-overdue
voluntary outpatient prescription drug benefit. The Administration's
proposal offers a broad-based benefit through the Medicare program. A
broad-based benefit ensures that all Medicare beneficiaries receive a
standard, affordable drug benefit and is the only means by which to
provide effective assistance. This historic drug benefit has no
deductible and pays for half of the beneficiary's drug costs from the
first prescription filled each year up to $5,000 in spending when fully
phased-in.
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This benefit also ensures that beneficiaries' liability for drug cost
sharing is limited to $4,000. The benefit provides beneficiaries with a
price discount similar to that offered by many employer-sponsored plans
for each prescription purchased--even after the $5,000 limit is reached.
The Administration's plan ensures low-income beneficiaries assistance
with cost-sharing. The Administration estimates the costs of this
benefit at $253 billion over 10 years.
Extend the Life of the Trust Fund: While the President's Medicare plan
would strengthen the program and make it more competitive and efficient,
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. The President's
proposal would take the Hospital Insurance (HI) Trust Fund off-budget,
ensuring that its surpluses are not used for any other purposes and,
therefore, will be used for debt reduction. The proposal would transfer
the $115 billion of interest savings due to the resulting debt reduction
to the HI Trust Fund to ensure that it remains solvent until at least
2030.
Without new financing, excessive and unsupportable provider payment
cuts or beneficiary cost sharing increases would be needed. Protecting
the Medicare surplus for Medicare is necessary in order to maintain
solvency of the Trust Fund into the future.
Legislative Successes
During the last eight years the Administration advocated strongly for
several pieces of crucial legislation that have been instrumental in
making Medicare more efficient and extending its Trust Fund solvency
through program reforms and increased program integrity efforts.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993): The
President proposed and later signed, on August 10, 1993, legislation
that was the Administration's first step towards improving Medicare
solvency. OBRA 1993 increased the percentage of Old-Age and Survivors
and Disability Insurance benefits that are subject to the income tax,
transferring the increased revenues to the Medicare HI Trust Fund. OBRA
1993 also reduced the growth rates of Medicare payments to providers
such as hospitals, skilled nursing facilities, and home health agencies.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA): The President also proposed and, on August 21, 1996, signed
additional legislation, HIPAA, which created a new and stable source of
funding to fight Medicare fraud and abuse. It provided mandatory funding
to the Health Care Financing Administration (HCFA) for specified program
integrity functions such as medical review and audit. It also provided
mandatory funding for the Office of the Inspector General in the
Department of Health and Human Services (HHS) and the Department of
Justice for investigation and prosecution of fraudulent providers in the
Medicare program. Since HIPAA's passage, nearly $1.6 billion in fraud
and abuse savings has been returned to the Medicare Trust Fund.
Moreover, the HCFA actuaries attribute some of the recent decreases in
Medicare expenditures to certain efforts to combat fraud and abuse. The
actuaries conclude that the Department of Justice investigations,
subsequent indictments, and the possibility of triple damages may have
prompted hospitals to reduce the incidence of ``up-coding'' (i.e.,
excessive billing for hospital procedures) which has contributed to the
increased solvency of the Medicare Trust Fund.
HIPAA also provided the Administration with the authority to develop a
single set of national standards for all health care providers and
health plans that engage in electronic administrative and financial
transactions to promote more cost-effective electronic claims processing
and coordination of benefits. Implementation of this law will eliminate
administratively burdensome, duplicative, and wasteful billing
requirements for health care providers and insurers.
The Balanced Budget Act of 1997 (BBA): In 1997, the Administration
secured enactment of this legislation, which balanced the budget,
modernized the Medicare program, and added at least 10 years to the life
of the Medicare Trust Fund. The BBA included a series of structural
reforms, bringing Medicare in line with the private sector and preparing
it for the baby boom generation. These reforms included: 1) increased
number of health plan
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options; 2) improved Medicare managed care payment methodology and
informed beneficiary choice; 3) new prospective payment systems for
skilled nursing facilties, home health, inpatient rehabilitation
hospital, and hospital outpatient departments; and, 4) new private-
sector purchasing tools such as competitive bidding for durable medical
equipment.
The BBA also made important changes to beneficiary services which
include: 1) a waiver of cost-sharing for mammography services and the
provision of annual screening mammograms for beneficiaries age 40 and
over; 2) a diabetes self-management benefit; 3) Medicare coverage of
colorectal screening and cervical cancer screening; 4) coverage of bone
mass measurement tests to help women detect osteoporosis; and, 5)
increased Medicare reimbursement rates for certain immunizations to
protect seniors from pneumonia, influenza, and hepatitis.
The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of
1999 (BBRA): After the BBA's enactment, it became clear that some of the
payment reductions needed modification. The Administration worked to
secure enactment of the BBRA, addressing the larger than intended cuts
in payments to Medicare providers. Complementing the over 25 actions
taken by the Administration to improve Medicare payment methodologies,
the BBRA increased Medicare payments for hospitals, nursing homes, home
health agencies, managed care plans, and other Medicare providers. The
bill modified the hospital outpatient department prospective payment
system by smoothing the transition for certain hospitals that are
greatly affected by enactment of this system.
In addition, the BBRA increased payments for rehabilitative therapy
services, provided longer coverage of immunosuppressive drugs, and
established limits on outpatient department coinsurance. The law altered
HCFA's plan for risk adjustment for managed care plans by allowing for a
five-year phase-in plan. The law also provided an entry bonus for
managed care plans entering counties not previously served and for plans
that had previously announced that they were withdrawing from certain
counties.
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA): The Administration worked to secure enactment of the
BIPA, which invests about $35 billion over five years in order to
address some of the overly aggressive payment reductions resulting from
the BBA of 1997 as well as other shortcomings in the Medicare program.
The BIPA addressed the needs of health care providers by increasing
Medicare reimbursement to hospitals, nursing homes, home health
agencies, and other providers. The BIPA expanded the preventive benefits
available to all Medicare beneficiaries including new nutrition therapy
and glaucoma screening and ensured greater access to colon and cervical
cancer screening. It reduced the cost-sharing that beneficiaries have to
pay for hospital outpatient services; provided permanent coverage of
drugs that help prevent the rejection of organ transplants; and
facilitated the use of therapeutic adult day care services for persons
with Alzheimer's disease. Finally, the BIPA established an improved
coverage and appeals process for beneficiaries to ensure that they have
access to the health care services they need.
Administrative Actions
In addition to securing important legislation, the Administration has
used its administrative authority to improve and modernize the Medicare
program. One of the major administrative efforts was Operation Restore
Trust, which aimed to reduce Medicare fraud through provider and
beneficiary awareness. Its Nursing Home Initiative, to improve the
quality of care for Medicare beneficiaries residing in nursing homes,
resulted in a major increase in enforcement actions. The Administration
also launched efforts to increase beneficiaries' awareness of Medicaid's
cost sharing assistance programs; long-term care options; and,
preventive services including a major drive to increase the number of
seniors receiving flu shots.
Most significantly, the Administration took action to increase access
to clinical trials for Medicare beneficiaries. Previously, Medicare did
not pay for items and services related to clinical trials because of
their experimental nature, i.e., their unknown benefits and potential
risks to Medicare
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beneficiaries. The absence of Medicare coverage has been a contributing
factor to these low participation rates by the elderly. On June 7, 2000,
the President issued an Executive Memorandum directing the Medicare
program to revise its payment policy and immediately begin to reimburse
providers explicitly for the cost of routine patient care associated
with participation in clinical trials. The President also directed HHS
to take additional action to promote the participation of Medicare
beneficiaries in clinical trials for all diseases, including: activities
to increase beneficiary awareness of the new coverage option; actions to
ensure that the information gained from important clinical trials is
used to inform coverage decisions by properly structuring the trial; and
reviewing the feasibility and advisability of other actions to promote
research on issues of importance to Medicare beneficiaries.
Medicare Management Reform
In its 1999 Budget, the Administration introduced its management
reform initiative to address the challenges facing HCFA. These
challenges include modernizing its administrative infrastructure,
meeting pressing statutory deadlines for program changes from BBA, BBRA,
and HIPAA, and the need to be highly responsive to its customers. This
initiative was designed to improve HCFA's management of the Medicare
program through a continuing reform process by increasing HCFA's
flexibility to operate as a prudent purchaser of health care while also
increasing accountability. HCFA has evaluated its personnel needs and
potential hiring flexibility, developed a long-term human resources
strategic plan, increased accountability to constituencies, and
implemented structural reforms to improve relationships between HCFA's
central and regional offices and HHS. Additionally, the Administration
transmitted to the Congress its contracting reform legislative proposal,
which is designed to introduce competition into the Medicare contracting
environment and allow HCFA to select contractors from a wider pool.
Finally, the President's 2001 Budget also included a proposal to fund a
contractor oversight initiative to ensure that contractors have
appropriate controls in place. This initiative builds on HCFA's
successes in guarding program integrity in the Medicare program.
In summary, the Administration has taken important steps to ensure
that the Medicare Trust Fund remains viable for coming generations
through both legislative and administrative actions. The President has
proposed a plan for the future of the program that is progressive and
will modernize the program for the 21st Century. These changes are
crucial to ensure that upcoming generations receive quality health care.