Pursuant to a congressional request, GAO discussed on the impact of payment reforms in the Balanced Budget Act of 1997 (BBA) on the Medicare Choice program.

GAO noted that: (1) the net effect of BBA payment revisions has been to reduce but not fully eliminate excess payments to health plans; (2) some of the provisions, such as the reduced annual updates, have already been implemented, while others, such as the health-based risk adjustment system, will be phased in over time; (3) despite industry alarm over the increase in plan withdrawals in 1999, GAO's work suggests that sweeping amendments to the BBA are not yet warranted for several reasons; (4) the net effect of BBA reforms on plans has been modest to date; (5) cuts in rate increases have held down per capita payment growth by only a little more than 1 percent; (6) data submitted by plans themselves indicate that at least some plans can provide the traditional Medicare package of benefits, offer some additional benefits, and make a profit even if they are paid less than they are today; (7) according to their own data, plans serving the Los Angeles area can provide the traditional Medicare package of benefits for about 79 percent of what they are currently paid; (8) the withdrawals GAO observed this year were not a reaction to BBA rate reductions alone; (9) market forces appear to have played a larger role; (10) because of cuts in rate increases and expected improvements in risk adjustment, the BBA's health plan payment reforms will reduce aggregate excess payments; (11) as a consequence, some Medicare Choice plans may reduce supplemental benefits and rethink their participation in the Medicare program; and (12) the continuing challenge for Congress is to strike the appropriate balance between containing Medicare spending and fostering growth in Medicare Choice.