Medicare Reform:

Ensuring Fiscal Sustainability While Modernizing the Program Will be Challenging

T-HEHS/AIMD-99-294: Published: Sep 22, 1999. Publicly Released: Sep 22, 1999.

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Pursuant to a congressional request, GAO discussed efforts to reform the administration, structure, and financing of the Medicare program.

GAO noted that: (1) in March, the Bipartisan Commission on the Future of Medicare completed its deliberations; (2) reform options emerged from these discussions that touched on all aspects of the Medicare program, including: (a) modernization of the traditional Medicare fee-for-service program both to update the benefit package and enhance its potential for containing program costs; (b) modernization of the Medicare Choice program to ensure beneficiaries health plan choices and allow the program to more efficiently purchase plan services; and (c) adoption of a Federal Employees Health Benefits Program-like model to foster quality and price based competition among health plans and to elevate beneficiary consciousness about and responsibility for program costs; (3) given the size of Medicare's unfunded liability, it is realistic to expect that reforms intended to bring down future costs will have to proceed in an incremental fashion; (4) ideally, the unfunded promises associated with today's program should be addressed before or concurrent with proposals to make new ones, such as adding prescription drug coverage; (5) if additional benefits are added, policymakers need to consider targeting strategies and fully offsetting the related costs; (6) they may also want to design a mechanism to monitor these and aggregate program costs over time as well as establish expenditure or funding thresholds that would trigger a call for fiscal action; (7) in addition, any potential program expansion should be accompanied by meaningful reform of the Medicare program to help ensure its sustainability; (8) to qualify for meaningful reform, a proposal should make a significant down payment toward ensuring Medicare's long-range financial integrity and sustainability; (9) the 1999 annual reports of the Medicare Trustees project that program costs will continue to grow faster than the rest of the economy; (10) proposals to reform Medicare should be assessed against the following criteria: affordability, equity, adequacy, feasibility, and acceptance; (11) the particulars of payment mechanisms largely determine the extent to which a reform option can eliminate excess government spending while protecting beneficiaries' access to care; (12) revisions to newly implemented policies should be based on a thorough assessment of their effects so that they are not unduly affected by external pressures and premature conclusions or remain static when change is clearly warranted; and (13) for choice-based models to function as intended, consumers must have information that is sufficiently comparable.

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