Medicare:

Options for Reform

T-HEHS-99-130: Published: May 26, 1999. Publicly Released: May 26, 1999.

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Pursuant to a congressional request, GAO discussed efforts to reform the Medicare program, focusing on: (1) a conceptual framework for considering the various possible combinations of reform options; and (2) lessons about implementing reforms learned from recent Medicare experience.

GAO noted that: (1) options to reform Medicare have two major dimensions: (a) expansion of Medicare's benefit package; and (b) cost containment through financing and other structural transformations; (2) two commonly discussed benefit expansions are the inclusion of a prescription drug benefit and coverage for extraordinary out-of-pocket costs, known as stop-loss, or catastrophic coverage; (3) the financing reforms are reflected in three models: (a) fee-for-service modernization; (b) Medicare Choice modernization; and (c) a premium support system fashioned after the Federal Employees Health Benefits Program; (4) each of these models is designed, to different degrees, to alter program incentives in place to make beneficiaries more cost conscious and providers more efficient; (5) as the various reform options come under scrutiny, the importance of design details should not be overlooked; (6) GAO's work on efforts to implement reforms mandated in the Balanced Budget Act of 1997 is instructive regarding reform specifics; and (7) the principal lessons drawn from recent experience include the following: (a) the particulars of payment mechanisms largely determine the extent to which a reform option can eliminate excess government spending while protecting beneficiary access to care; (b) revisions to newly implemented policies should be based on a thorough assessment of their effects so that, at one extreme, they are not unduly affected by external pressures and premature conclusions or, at the other extreme, they remain static when change is clearly warranted; and (c) for choice-based models to function as intended, consumer information that is sufficiently comparable to create competition based on cost and quality is essential.

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