Medicare Structural Reform: Background and Options

Publication Date: January 2003

Publisher: Library of Congress. Congressional Research Service

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Research Area: Health

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Abstract:

Medicare is a nationwide health insurance program for the aged and certain disabled persons. Over its nearly 37-year history, it has provided important protections for millions of Americans. However, the program is facing a number of problems. One concern is that Medicare's financing mechanisms will be unable to sustain it in the long run. Many are also concerned that the program's structure, which in large measure reflects both the health care delivery system as well as political considerations in effect at the time of enactment, has failed to keep pace with the changes in the health care system as a whole.

The major problems facing Medicare, and possible solutions to these problems, have been debated for a number of years. Some persons suggest that major structural reforms are required. However, others contend that the existing system should be improved rather than replaced. To date, no consensus has been reached. In recent years, the major focus has been on providing prescription drug coverage for beneficiaries. Some observers state that it would be inappropriate to add a new costly benefit before structural reforms are enacted. Other observers state that seniors, particularly low-income seniors, should not be required to wait for benefits until resolution of the entire restructuring issue.

The 108th Congress is expected to consider a variety of Medicare reform proposals. Some changes could be made while still retaining Medicare's current structure. Examples include increasing the program's eligibility age, introducing means testing, increasing beneficiary cost-sharing, and introducing innovations into the current fee-for-service program. Other changes could only be made in the context of major program restructuring. Proposals which have been suggested include modernizing the benefit structure and combining the Part A and Part B programs. Also receiving attention are variations of a premium support model under which beneficiaries would be entitled to a specified level of financial support toward the costs of Medicare covered services. Many of the proposals could be combined as part of an overall reform package that would include prescription drug coverage. The Congress may also review the operations of the agency that administers Medicare and could consider restructuring that agency. This report will be updated to reflect legislative activity.