II

103D CONGRESS

2D SESSION S. 1996

To amend title XVIII of the Social Security Act to provide medicare

beneficiaries a choice among health plans, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 25 (legislative day, FEBRUARY 22), 1994

Mr. DURENBERGER introduced the following bill; which was read the first

time

A BILL

To amend title XVIII of the Social Security Act to provide

medicare beneficiaries a choice among health plans, and

for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Medicare Choice Act

5 of 1994’’.

6 SEC. 2. PURPOSE.

7 The purpose of this Act is to provide better health

8 care to medicare beneficiaries at less cost by giving such

9 beneficiaries meaningful choices among health plans com10 peting on the basis of price and quality.
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1 SEC. 3. MEDICARE CHOICE.

2 (a) IN GENERAL.—Section 1876 of the Social Secu3 rity Act (42 U.S.C. 1395mm) is amended to read as

4 follows:

5 ‘‘MEDICARE CHOICE

6 ‘‘SEC. 1876. (a) ESTABLISHMENT OF MEDICARE

7 MARKET AREAS.—The Secretary shall establish various

8 medicare market areas within the United States in such

9 manner as to—

10 ‘‘(1) ensure that each individual entitled to ben11 efits under part A and enrolled under part B, or en12 rolled under part B only, resides in a medicare mar13 ket area,

14 ‘‘(2) maintain all portions of each metropolitan

15 statistical area within one medicare market area,

16 and

17 ‘‘(3) maximize the number of such individuals

18 who will have the opportunity for a meaningful

19 choice among competing medicare health plans

20 under contract with the Secretary under this section.

21 ‘‘(b) MEDICARE HEALTH PLANS.—

22 ‘‘(1) CONTRACTS WITH MEDICARE HEALTH

23 PLANS.—The Secretary shall enter into a contract

24 with any medicare health plan desiring to do busi25 ness in a medicare market area and to receive pay26 ment under this section, but only if the Secretary
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1 certifies that such plan meets the requirements of

2 paragraph (2).

3 ‘‘(2) CERTIFICATION REQUIREMENTS.—Each

4 medicare health plan must—

5 ‘‘(A) except as provided in paragraph (3),

6 provide those services covered by this title

7 (hereafter in this section referred to as ‘medi8 care benefits’) when medically necessary for a

9 uniform monthly premium for a year;

10 ‘‘(B) not discriminate against beneficiaries

11 based on their health status, claims experience,

12 medical history, or other factors that are gen13 erally related with utilization of health care

14 services;

15 ‘‘(C) demonstrate the ability to provide

16 medicare benefits to all potential enrollees

17 throughout the medicare market area, unless

18 the Secretary determines it appropriate for such

19 plan to target unique community needs within

20 the medicare market area;

21 ‘‘(D) demonstrate financial solvency;

22 ‘‘(E) have arrangements, established in ac23 cordance with regulations prescribed by the

24 Secretary, for an ongoing quality-assurance pro-
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1 gram for the health care services such plan pro2 vides to such beneficiaries, which program—

3 ‘‘(i) stresses health outcomes, and

4 ‘‘(ii) provides review by physicians

5 and other health care professionals of the

6 process followed in the provision of such

7 health care services;

8 ‘‘(F) meet the requirement of section

9 1866(f) (relating to maintaining written policies

10 and procedures respecting advance directives);

11 ‘‘(G) not operate any compensation ar12 rangement between such plan and a physician

13 or physician group that may directly or indi14 rectly have the effect of reducing or limiting

15 services provided with respect to enrollees in

16 such plan (hereafter in this subparagraph such

17 arrangement shall be referred to as a ‘physician

18 incentive plan’), unless the following require19 ments are met:

20 ‘‘(i) No specific payment is made di21 rectly or indirectly under the physician in22 centive plan to a physician or physician

23 group as an inducement to reduce or limit

24 medically necessary services provided with
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1 respect to a specific enrollee in the medi2 care health plan.

3 ‘‘(ii) If the physician incentive plan

4 places a physician or physician group at

5 substantial financial risk (as determined by

6 the Secretary) for services not provided by

7 the physician or physician group, the medi8 care health plan—

9 ‘‘(I) provides stop-loss protection

10 for the physician or physician group

11 that is adequate and appropriate,

12 based on standards developed by the

13 Secretary that take into account the

14 number of physicians placed at such

15 substantial financial risk under the

16 physician incentive plan and the num17 ber of enrollees in the medicare health

18 plan who receive services from the

19 physician or the physician group, and

20 ‘‘(II) conducts periodic surveys of

21 both enrollees and former enrollees in

22 the medicare health plan to determine

23 the degree of access of such enrollees

24 to services provided by the medicare
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1 health plan and satisfaction with the

2 quality of such services;

3 ‘‘(H) collect and provide such standard in4 formation as the Secretary shall prescribe by

5 regulation as necessary to evaluate the perform6 ance and quality of such plan, including en7 rollee satisfaction, to compare such performance

8 and quality with competing plans, and to pre9 pare comparative materials for distribution to

10 beneficiaries;

11 ‘‘(I) demonstrate the ability to integrate

12 additional benefits into such plan for qualified

13 medicare beneficiaries; and

14 ‘‘(J) offer the supplementary coverage

15 plans established by the Secretary under sub16 section (g)(3)(B).

17 ‘‘(3) COST-SHARING.—

18 ‘‘(A) ACTUARIALLY EQUIVALENT MEDI19 CARE BENEFITS.—Each medicare health plan

20 must offer either—

21 ‘‘(i) medicare benefits, including the

22 cost-sharing requirements otherwise pro23 vided in this title; or

24 ‘‘(ii) actuarially equivalent medicare

25 benefits, as established by the Secretary in
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1 regulations, which are medicare benefits,

2 but with cost sharing requirements that

3 are actuarially equivalent to the cost-shar4 ing requirements otherwise provided in this

5 title and consistent with common practices

6 among health maintenance organizations

7 and other managed care health plans.

8 In establishing actuarially equivalent medicare

9 benefits, the Secretary shall not include in the

10 calculation any charge in costs associated with

11 alternative forms of health care delivery, man12 agement, or utilization control.

13 ‘‘(B) OUT-OF-NETWORK COST-SHARING.—

14 Each medicare health plan may offer a point of

15 service option for which the plan may require

16 enrollees to pay higher cost-sharing for services

17 than is otherwise required by this title (or re18 quired in the actuarially equivalent alternative)

19 if—

20 ‘‘(i) the plan maintains relationships

21 with affiliated providers for all medicare

22 benefits that would not require higher cost23 sharing; and

24 ‘‘(ii) the plan provides enrollees with

25 such information.
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1 ‘‘(4) CAPACITY LIMITS.—Each medicare health

2 plan shall accept up to the limits of its capacity (as

3 determined by the Secretary) and without restric4 tions (except as may be authorized by regulation)

5 beneficiaries that may enroll in the plan on a first6 come first-served basis, unless to do so would result

7 in the enrollment of enrollees substantially

8 nonrepresentative (as determined by regulation) of

9 the population in the medicare market area served

10 by such plan.

11 ‘‘(c) EMPLOYER-SPONSORED HEALTH PLANS.—

12 ‘‘(1) CRITERIA FOR CERTIFICATION.—The Sec13 retary shall prescribe, by regulation, criteria for cer14 tifying medicare health plans sponsored by employ15 ers which will be offered only to current or former

16 employees, including requirements that such health

17 plans—

18 ‘‘(A) provide benefits that cover at least

19 those services covered by this title at a premium

20 for the enrollee that does not exceed the base

21 beneficiary premium (as defined pursuant to

22 subsection (f)); and

23 ‘‘(B) are available to all eligible current

24 and former employees in the medicare market

25 area.
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1 ‘‘(2) SECONDARY PAYER COVERAGE.—To be

2 certified under paragraph (1), employer-sponsored

3 health plans shall accept, at the option of individuals

4 eligible only for secondary coverage under this title

5 pursuant to section 1862(b), a fixed monthly pay6 ment from the Secretary to provide such individuals

7 coverage at least actuarially equivalent to the sec8 ondary coverage available to such individuals under

9 this title.

10 ‘‘(d) MANAGING MEDICARE CHOICE.—

11 ‘‘(1) MEDICARE HEALTH PLAN PREMIUMS.—By

12 August 1 of each calendar year (beginning in 1995),

13 each medicare health plan or employer-sponsored

14 health plan under contract pursuant to subsection

15 (b) or (c) shall submit to the Secretary the monthly

16 premium that such plan intends to charge in such

17 year.

18 ‘‘(2) ANNUAL OPEN ENROLLMENT.—

19 ‘‘(A) IN GENERAL.—The Secretary shall

20 provide for an annual open enrollment period,

21 and may take into consideration existing em22 ployer enrollment periods, during which all indi23 viduals entitled to benefits under part A and

24 enrolled under part B, or enrolled under part B

25 only, residing in a medicare market area—
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1 ‘‘(i) shall choose enrollment for the

2 next calendar year in—

3 ‘‘(I) a medicare health plan in

4 such area,

5 ‘‘(II) an employer-sponsored

6 health plan, or

7 ‘‘(III) coverage otherwise pro8 vided under this title (hereafter in this

9 section referred to as ‘medicare fee10 for-service’), and

11 ‘‘(ii) may choose supplementary bene12 fits offered by such health plan or a medi13 care supplemental policy (certified under

14 section 1882).

15 ‘‘(B) SECONDARY PAYER.—Individuals who

16 are eligible for secondary coverage under this

17 title pursuant to section 1862(b), may not en18 roll in a medicare health plan but may enroll in

19 an employer-sponsored health plan, to which the

20 Secretary shall make a monthly payment, pur21 suant to subsection (e)(2)(C).

22 ‘‘(C) PERIOD OF ENROLLMENT.—

23 ‘‘(i) IN GENERAL.—Except as pro24 vided in clauses (ii), (iii), and (iv), an indi25 vidual may not choose another enrollment
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1 until the next annual period provided

2 under subparagraph (A).

3 ‘‘(ii) ENROLLMENT UPON ELIGI4 BILITY.—The Secretary shall provide an

5 enrollment period of 30 days to any indi6 vidual beginning 30 days before the date

7 such individual first becomes entitled to

8 benefits under part A or enrolled under

9 part B only. Such enrollment shall be ef10 fective on the date of such entitlement.

11 ‘‘(iii) TERMINATION OF PLAN.—If a

12 contract for a medicare health plan under

13 this section is terminated during any cal14 endar year, the Secretary shall provide for

15 an enrollment period of 30 days to any in16 dividual enrolled in such plan beginning on

17 the date of such termination.

18 ‘‘(iv) INDIVIDUAL NO LONGER IN

19 AREA.—An individual terminating resi20 dence in a medicare market area may ter21 minate enrollment with the medicare

22 health plan of such area as of the begin23 ning of the first calendar month following

24 the date on which the request is made for

25 such termination, and the Secretary shall
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1 provide for an open enrollment period of

2 30 days to such individual for enrollment

3 in the new medicare market area in which

4 such individual resides beginning on the

5 date of such termination. In the case of an

6 individual’s termination of enrollment, the

7 medicare health plan shall provide the indi8 vidual with a copy of the written request

9 for termination of enrollment and a written

10 explanation of the period (ending on the

11 effective date of the termination) during

12 which the individual continues to be en13 rolled with the plan and may not receive

14 medicare benefits other than through such

15 plan.

16 ‘‘(v) EFFECTIVE DATE OF NEW EN17 ROLLMENT.—Enrollment under clause (iii)

18 or (iv) shall be effective 30 days after the

19 end of the enrollment period, or, if the

20 Secretary determines that such date is not

21 feasible, such other date as the Secretary

22 specifies.

23 ‘‘(D) DEFAULT ENROLLMENT.—

24 ‘‘(i) IN GENERAL.—If an individual

25 does not choose an enrollment option dur-
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1 ing an enrollment period under this para2 graph, such individual shall be automati3 cally enrolled in—

4 ‘‘(I) the same option into which

5 such individual enrolled in the preced6 ing enrollment period, or

7 ‘‘(II) if the individual was not en8 rolled in such preceding period, the

9 medicare fee-for-service.

10 ‘‘(ii) NO MEDICARE HEALTH PLANS IN

11 AREA.—If there are no medicare health

12 plans in the medicare market area in

13 which the individual resides, such individ14 ual shall be automatically enrolled in the

15 medicare fee-for-service.

16 ‘‘(3) INFORMATION REGARDING MEDICARE OP17 TIONS IN MARKET AREA.—

18 ‘‘(A) IN GENERAL.—The Secretary shall

19 provide each individual making an enrollment

20 decision during any enrollment period described

21 in paragraph (2) with the following information,

22 in comparative form, regarding the medicare

23 health plans and medicare fee-for-service avail24 able in the medicare market area in which such

25 individual resides:
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1 ‘‘(i) The individual’s premiums,

2 deductibles, and copayments for medicare

3 benefits.

4 ‘‘(ii) The individual’s premiums,

5 deductibles, and copayments for any sup6 plementary benefits.

7 ‘‘(iii) Enrollee restrictions, including

8 provider limitations.

9 ‘‘(iv) Quality information, including

10 enrollee satisfaction and health outcomes.

11 ‘‘(v) Out-of-area coverage provided.

12 ‘‘(vi) Coverage of emergency services

13 and urgently needed care.

14 ‘‘(vii) Appeal rights of enrollees.

15 ‘‘(viii) Any other necessary informa16 tion as determined by the Secretary.

17 ‘‘(B) MARKETING REQUIREMENTS.—The

18 Secretary shall prescribe the procedures and

19 conditions under which a medicare health plan

20 that has entered into a contract with the Sec21 retary under this section may inform individ22 uals eligible to enroll under this section with the

23 plan about the plan. No brochures, application

24 forms, or other promotional or informational

25 material may be distributed by such plan to (or
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1 for the use of) individuals eligible to enroll with

2 the plan under this section unless—

3 ‘‘(i) at least 45 days before its dis4 tribution, the plan has submitted the mate5 rial to the Secretary for review,

6 ‘‘(ii) the material is made available to

7 all individuals eligible to enroll in the medi8 care health plan in the medicare market

9 area, and

10 ‘‘(iii) the Secretary has not dis11 approved the distribution of the material.

12 The Secretary shall review all such material

13 submitted and shall disapprove such material if

14 the Secretary determines, in the Secretary’s dis15 cretion, that the material is materially inac16 curate or misleading or otherwise makes a ma17 terial misrepresentation.

18 ‘‘(4) RISK ADJUSTMENTS.—

19 ‘‘(A) IN GENERAL.—The Secretary shall

20 adjust the payments made to medicare health

21 plans and employer-sponsored health plans

22 under this title to reflect the relative health

23 risks of classes of beneficiaries enrolled in such

24 plans in the medicare market area. The Sec25 retary shall, at a minimum, define appropriate
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1 classes of beneficiaries, based on age, sex, dis2 ability status, eligibility under title XIX, and

3 such other factors as the Secretary determines

4 to be appropriate, so as to ensure actuarial

5 equivalence and the efficient delivery of health

6 care. The Secretary may add to, modify, or sub7 stitute for such classes, if such changes will im8 prove the determination of actuarial equiva9 lence. The Secretary may enter into risk shar10 ing arrangements in a medicare market area, if

11 the Secretary determines it to be appropriate.

12 ‘‘(B) PENALTIES FOR DISCRIMINATION.—

13 The Secretary shall prescribe the procedures

14 and conditions under which the Secretary shall

15 impose financial penalties on medicare health

16 plans or employer-sponsored health plans that

17 knowingly violate the prohibition against dis18 crimination against potential enrollees based on

19 their health status, claims experience, medical

20 history, or other factors that are generally re21 lated with utilization of health care services.

22 ‘‘(5) PAYMENTS TO PLANS.—

23 ‘‘(A) IN GENERAL.—The Secretary shall

24 forward to each medicare health plan or em25 ployer-sponsored health plan the medicare per
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1 capita rate for the medicare market area, as de2 termined under subsection (e), for every bene3 ficiary enrolled in such plan for that month, ex4 cluding any beneficiary premium but reflecting

5 any adjustments required pursuant to para6 graph (4)(A).

7 ‘‘(B) COLLECTION OF BENEFICIARY PRE8 MIUMS AND REBATES.—

9 ‘‘(i) PREMIUMS.—Each medicare

10 health plan or employer-sponsored plan

11 shall be responsible for collecting pre12 miums owed by beneficiaries for enrolling

13 in such plan, including premiums for medi14 care benefits and any supplementary bene15 fits.

16 ‘‘(ii) REBATES.—Any medicare health

17 plan or employer-sponsored plan which

18 charges a monthly premium which is less

19 than the medicare per capita rate for an

20 enrollee shall be responsible for paying to

21 such enrollee a rebate equal to the excess

22 medicare per capita rate or may use such

23 rebate to offset any premium owed by the

24 enrollee for any supplementary benefits se25 lected by the enrollee.
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1 ‘‘(C) SOURCE OF PAYMENT.—The amounts

2 paid to medicare health plans and employer3 sponsored health plans shall be made from the

4 Federal Hospital Insurance Trust Fund and

5 the Supplementary Insurance Trust Fund

6 based on an allocation determined by the

7 Secretary.

8 ‘‘(e) MEDICARE PER CAPITA RATE.—

9 ‘‘(1) ANNOUNCEMENT.—With respect to each

10 medicare market area, the Secretary shall announce,

11 not later than October 1 (beginning with 1995) the

12 per capita rate that will apply to such market area

13 beginning with the enrollment year (which coincides

14 with the next calendar year).

15 ‘‘(2) PER CAPITA RATE.—

16 ‘‘(A) IN GENERAL.—Except as provided in

17 subparagraphs (B), (C), and (D), the per capita

18 rate for a medicare market area shall be equal

19 to the lesser of—

20 ‘‘(i) the excess of—

21 ‘‘(I) the benchmark premium for

22 such area, over

23 ‘‘(II) the base beneficiary pre24 mium for such area; or

25 ‘‘(ii) the maximum per capita rate.
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1 ‘‘(B) EXCEPTION.—For individuals eligible

2 for medicare benefits prior to January 1, 1999,

3 the per capita rate for a medicare market area

4 shall be equal to the lesser of the maximum per

5 capita rate or the sum of—

6 ‘‘(i) the excess of—

7 ‘‘(I) the benchmark premium for

8 such area, over

9 ‘‘(II) the base beneficiary pre10 mium for such area, and

11 ‘‘(ii) the applicable percentage of the

12 excess of—

13 ‘‘(I) the fee-for-service per capita

14 costs (hereafter in this section re15 ferred to as ‘FFSPCC’) for such area,

16 over—

17 ‘‘(II) such benchmark premium.

18 For purposes of the preceding sentence, the ap19 plicable percentage shall be determined by the

20 following table:

Applicable

‘‘Enrollment year: Percentage:

1996 ........................................................... 90

1997 ........................................................... 80

1998 ........................................................... 70

1999 ........................................................... 60

2000 and thereafter ................................... 50.

21 ‘‘(C) SECONDARY PAYER PER CAPITA

22 RATE.—For individuals who are eligible for sec-
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1 ondary coverage under this title pursuant to

2 section 1862(b) and elect to enroll in an em3 ployer-sponsored health plan, the Secretary

4 shall determine a per capita rate for each medi5 care market area equal to the costs of providing

6 secondary coverage to all individuals in such

7 market area divided by the number of individ8 uals eligible for such coverage in such market

9 area.

10 ‘‘(D) RURAL ENROLLEES.—

11 ‘‘(i) FIVE-YEAR BONUS.—For enroll12 ment periods beginning in 1996 through

13 2000, the per capita rate in each medicare

14 market area (otherwise determined under

15 this paragraph) shall be increased by 10

16 percent with respect to each individual en17 rolling in a medicare health plan or em18 ployer-sponsored health plan who resides in

19 an underserved rural area within such

20 market area, as determined by the Sec21 retary.

22 ‘‘(ii) IMPROVE ACCESS.—The bonus

23 amount paid under this subparagraph shall

24 be used by such health plans to improve

25 access and coordinated service delivery in
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1 the underserved rural area in which the

2 enrollee resides. The bonus amount shall

3 not reduce the premiums owed by the en4 rollee for medicare benefits or any supple5 mentary coverage.

6 ‘‘(iii) STUDY AND RECOMMENDA7 TIONS.—The Secretary shall report to the

8 Congress at the end of the 5-year period

9 described in clause (ii) on the status of

10 health care access in underserved rural

11 areas and shall make recommendations re12 garding continuation of bonus per capita

13 payments.

14 ‘‘(E) CALCULATION REQUIREMENTS.—The

15 FFSPCC shall be calculated directly to accu16 rately reflect the costs of providing care in the

17 fee-for-service system. The FFSPCC shall not

18 be derived from the removal of medicare health

19 plan payments and enrollees from total pay20 ments and enrollees.

21 ‘‘(3) MAXIMUM PER CAPITA RATE.—

22 ‘‘(A) IN GENERAL.—Except as provided in

23 subparagraph (E), the maximum per capita

24 rate in any medicare market area shall be the

25 excess of—
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1 ‘‘(i) the product of—

2 ‘‘(I) FFSPCC in all medicare

3 market areas, and

4 ‘‘(II) an adjustment factor for

5 such market area, over

6 ‘‘(ii) the base beneficiary premium in

7 such market area.

8 ‘‘(B) ADJUSTMENT FACTOR.—For pur9 poses of subparagraph (A)(i)(II), and except as

10 provided in subparagraph (D):

11 ‘‘(i) FFSPCC RATIO LESS THAN .8.—

12 For medicare market areas with a

13 FFSPCC ratio less than or equal to .8, the

14 adjustment factor shall be .8.

15 ‘‘(ii) FFSPCC RATIO BETWEEN .8

16 AND .95.—For medicare market areas with

17 a FFSPCC ratio less than .95 but greater

18 than .8, the adjustment factor shall be the

19 sum of .85, plus—

20 ‘‘(I) .1, multiplied by

21 ‘‘(II) the ratio of the excess of

22 the FFSPCC ratio over .8, to .15.

23 ‘‘(iii) FFSPCC RATIO BETWEEN .95

24 AND 1.05.—For medicare market areas

25 with a FFSPCC ratio of at least .95 but
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1 less than 1.05, the adjustment factor shall

2 be the FFSPCC ratio.

3 ‘‘(iv) FFSPCC RATIO BETWEEN 1.05

4 AND 1.2.—For medicare market areas with

5 a FFSPCC ratio of at least 1.05 but less

6 than 1.2, the adjustment factor shall be

7 the sum of 1.05, plus—

8 ‘‘(I) .1, multiplied by

9 ‘‘(II) the ratio of the excess of

10 the FFSPCC ratio over 1.05, to .15.

11 ‘‘(v) FFSPCC RATIO GREATER THAN

12 1.2.—For medicare market areas with a

13 FFSPCC ratio greater than or equal to

14 1.2, the adjustment factor shall be 1.2.

15 ‘‘(C) FFSPCC RATIO.—For purposes of

16 subparagraph (B), for each medicare market

17 area, the Secretary shall determine a FFSPCC

18 ratio by dividing FFSPCC in such market area

19 by FFSPCC for all medicare market areas.

20 ‘‘(D) BUDGET NEUTRALITY.—The Sec21 retary shall change the adjustment factors as

22 necessary to ensure that total spending under

23 this title shall not exceed the level of spending

24 that would occur if the maximum per capita
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1 rate in each medicare market area were equal

2 to the FFSPCC in each such market area.

3 ‘‘(E) ALTERNATIVE FORMULA.—The Sec4 retary may substitute an alternative formula for

5 determining the maximum rate in each medi6 care market area. Such an alternative formula

7 shall generally conform to the pattern of adjust8 ment factors specified in subparagraph (B), ex9 cept that such formula shall maintain a consist10 ent mathematical relationship between the ad11 justment factor and the FFSPCC ratio in each

12 such market area in a manner that achieves

13 budget neutrality.

14 ‘‘(F) STUDY AND RECOMMENDATIONS.—

15 The Secretary and the Physician Payment Re16 view Commission shall report to the Congress

17 every 2 years (beginning in 1997) on the meth18 od for determining the maximum per capita

19 rate and the experience of each medicare mar20 ket area with the formula. The Secretary and

21 the Physician Payment Review Commission

22 shall make recommendations regarding the ap23 propriateness of basing the maximum per cap24 ita rate formula on fee-for-service per capita

25 costs. The Secretary and the Physician Pay-
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1 ment Review Commission shall also examine the

2 appropriateness of implementing urban and

3 rural adjusters to the maximum per capita rate

4 formula.

5 ‘‘(4) DEFINITIONS.—For purposes of this sub6 section:

7 ‘‘(A) BENCHMARK PREMIUM.—The bench8 mark premium for a medicare market area shall

9 be equal to the sum of—

10 ‘‘(i) the lowest health plan monthly

11 premium submitted by a medicare health

12 plan in such area for the enrollment year,

13 and

14 ‘‘(ii) the applicable percentage of the

15 excess of—

16 ‘‘(I) the average of all medicare

17 health plan premiums submitted in

18 such area, over

19 ‘‘(II) the lowest health plan pre20 mium in such area.

21 For purposes of the preceding sentence, the ap22 plicable percentage shall be determined by the

23 following table:

Applicable

‘‘Enrollment year: Percentage:

1996 ........................................................... 80

1997 ........................................................... 60

1998 ........................................................... 40
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1999 and thereafter ................................... 20.

1 ‘‘(B) FEE-FOR-SERVICE PER CAPITA

2 COSTS.—The Secretary shall determine

3 FFSPCC for a medicare market area by divid4 ing—

5 ‘‘(i) the total spending for medicare

6 benefits (not including beneficiary cost

7 sharing) for individuals who reside in such

8 area, who are not enrolled in a medicare

9 health plan or employer-sponsored health

10 plan, and who are not in secondary payer

11 status, by

12 ‘‘(ii) the number of such individuals.

13 The Secretary shall make such other adjust14 ments as may be necessary to allow an accurate

15 comparison of FFSPCC for the medicare mar16 ket area with premiums charged by medicare

17 health plans in such area.

18 ‘‘(f) BENEFICIARY PREMIUMS.—For purposes of this

19 section:

20 ‘‘(1) BASE BENEFICIARY PREMIUM.—The base

21 beneficiary premium for each medicare market area

22 shall be equal to the product of—

23 ‘‘(A) the premium determined under sec24 tion 1839, and
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1 ‘‘(B) the FFSPCC for such area divided

2 by the average national FFSPCC, as deter3 mined by the Secretary.

4 ‘‘(2) MONTHLY PREMIUMS.—

5 ‘‘(A) IN GENERAL.—To be enrolled for

6 coverage in a medicare health plan or medicare

7 fee-for-service during an enrollment year for

8 medicare benefits, each beneficiary shall pay a

9 monthly premium equal to the excess of—

10 ‘‘(i) the premium charged by the plan

11 (determined under subsection (d)(1)) or

12 the fee-for-service (determined under sub13 paragraph (B)), over

14 ‘‘(ii) the medicare per capita rate in

15 the medicare market area in which the

16 beneficiary resides.

17 ‘‘(B) FEE-FOR-SERVICE BENEFICIARY PRE18 MIUM.—

19 ‘‘(i) IN GENERAL.—For beneficiaries

20 selecting medicare fee-for-service in a med21 icare market area, the monthly premium

22 shall be equal to the excess of—

23 ‘‘(I) the FFSPCC for such area,

24 over
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1 ‘‘(II) the medicare per capita

2 rate for such area.

3 ‘‘(ii) EXCEPTION.—For individuals el4 igible for medicare benefits prior to Janu5 ary 1, 1999, who select medicare fee-for6 service for coverage, the beneficiary pre7 mium shall equal—

8 ‘‘(I) the base beneficiary pre9 mium, plus

10 ‘‘(II) any additional premium re11 quired pursuant to section 1893.

12 ‘‘(g) SUPPLEMENTARY COVERAGE PLANS.—

13 ‘‘(1) IN GENERAL.—The Secretary shall ensure

14 that all supplementary coverage plans meet the re15 quirements of this subsection, in addition to any re16 quirements that may be applicable under section

17 1882.

18 ‘‘(2) COORDINATION WITH MEDICARE

19 CHOICE.—Supplementary coverage plans may only

20 be offered to beneficiaries during the same annual

21 open enrollment period during which beneficiaries

22 select medicare coverage and must be offered to all

23 beneficiaries in the same medicare market area for

24 the same, uniform monthly premium during the

25 enrollment period.
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1 ‘‘(3) STANDARD BENEFITS.—

2 ‘‘(A) IN GENERAL.—Medicare health plans

3 may only offer standardized supplementary cov4 erage plans as the Secretary shall prescribe by

5 regulation.

6 ‘‘(B) REQUIRED OPTIONS.—Among the

7 standardized plans, the Secretary shall include

8 a plan—

9 ‘‘(i) covering only outpatient prescrip10 tion drugs, and

11 ‘‘(ii) which, together with medicare

12 benefits, would resemble coverage typically

13 offered by health maintenance organiza14 tions to employer groups, including an an15 nual out-of-pocket maximum beneficiary li16 ability (covering coinsurance, copayments,

17 and deductibles).

18 ‘‘(4) ONE SPONSOR.—A sponsor of supple19 mentary coverage may not offer such coverage to a

20 beneficiary selecting a medicare health plan from a

21 different sponsor, except that sponsors of supple22 mentary coverage may offer such coverage to any in23 dividual selecting medicare fee-for-service.

24 ‘‘(5) SURCHARGE ON CERTAIN PLANS.—Not25 withstanding any other provision of this section, if
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•S 1996 IS

1 an individual chooses to purchase a medicare supple2 mental policy certified pursuant to section 1882 and

3 the coverage under such policy results in increased

4 costs to the program under this title, the monthly

5 premium otherwise applicable under this section

6 shall be increased by a surcharge actuarially equiva7 lent to such increased costs.

8 ‘‘(6) DEFINITIONS.—The term ‘supplementary

9 coverage plan’ means any health insurance coverage

10 offered by a medicare health plan or medicare sup11 plemental policy (as defined in section 1882) that

12 covers health care costs not covered under as medi13 care benefits and for which the enrollee must pay a

14 premium.’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 1882(c) of the Social Security Act

17 (42 U.S.C. 1395ss(c)) is amended—

18 (A) by striking ‘‘with respect to paragraph

19 (3)’’ and inserting ‘‘with respect to paragraphs

20 (3) and (6)’’,

21 (B) by striking ‘‘and’’ at the end of para22 graph (4),

23 (C) by striking the period at the end of

24 paragraph (5) and inserting ‘‘; and’’, and
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1 (D) by adding at the end the following new

2 paragraph:

3 ‘‘(6) agrees—

4 ‘‘(A) to offer such policy during the annual

5 open enrollment period specified in section

6 1876(c)(2) at a uniform monthly premium to

7 all beneficiaries in a medicare market area es8 tablished under section 1876(a); and

9 ‘‘(B) not to discriminate against bene10 ficiaries based on their health status, claims ex11 perience, medical history, or other factors that

12 are generally related with utilization of health

13 care services.’’.

14 (2) Section 1882(s) of such Act (42 U.S.C.

15 1395ss(s)) is amended—

16 (A) by striking paragraph (2),

17 (B) by striking ‘‘paragraphs (1) and (2)’’

18 in paragraph (3) and inserting ‘‘paragraph

19 (1)’’, and

20 (C) by redesignating paragraph (3) as

21 paragraph (2).

22 (3) Section 1839(e) of such Act (42 U.S.C.

23 1395r(e)) is amended to read as follows:
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•S 1996 IS

1 ‘‘(e) Notwithstanding the provisions of subsection (a),

2 the monthly premium for each individual enrolled under

3 this part for each month—

4 ‘‘(1) in 1994 shall be $41.10,

5 ‘‘(2) in 1995 shall be $46.10, and

6 ‘‘(3) after December 1995 shall be an amount

7 equal to 25 percent of the monthly actuarial rate for

8 enrollees age 65 and over, as determined under sub9 section (a)(1) and applicable to such month.’’.

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to contracts entered into with re12 spect to calendar years beginning after December 31,

13 1995.

14 SEC. 4. FEE-FOR-SERVICE COST CONTAINMENT.

15 (a) IN GENERAL.—Part C of title XVIII of the Social

16 Security Act (42 U.S.C. 1395x et seq.) is amended by add17 ing at the end thereof the following new section:

18 ‘‘FEE-FOR-SERVICE COST CONTAINMENT

19 ‘‘SEC. 1893. (a) IN GENERAL.—Unless Congress oth20 erwise provides, notwithstanding any other provision of

21 this title, payment for services provided to individuals enti22 tled to benefits under part A and enrolled under part B,

23 or enrolled under part B only (other than to individuals

24 enrolled in medicare health plans or employer-sponsored

25 health plans) (hereafter in this section referred to as ‘serv26 ice payments’) shall be subject to an aggregate fee-for-
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•S 1996 IS

1 service spending limit in each market area for each cal2 endar year, beginning with 1997.

3 ‘‘(b) SETTING AGGREGATE FEE-FOR-SERVICE

4 SPENDING LIMITS.—

5 ‘‘(1) LIMITS FOR EACH MARKET AREA.—By not

6 later than October 1 of each year (beginning with

7 1996), and subject to paragraph (2), the Secretary

8 shall determine and publish in the Federal Register,

9 the fee-for-service spending limits for each medicare

10 market area for the succeeding calendar year.

11 ‘‘(2) FORMULA FOR DETERMINING LIMITS.—

12 The Secretary shall calculate such limits by allowing

13 aggregate fee-for-service spending in each medicare

14 market area to increase for—

15 ‘‘(A) inflation, as measured by the

16 consumer price index,

17 ‘‘(B) changes in the numbers of enrollees

18 described in subsection (a), and

19 ‘‘(C) an additional growth allowance of—

20 ‘‘(i) 4.0 percent in 1997,

21 ‘‘(ii) 3.5 percent in 1998,

22 ‘‘(iii) 3.0 percent in 1999, and

23 ‘‘(iv) 2.5 percent in 2000 and there24 after.

25 ‘‘(c) DETERMINING EXCESS SPENDING.—
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•S 1996 IS

1 ‘‘(1) IN GENERAL.—The Secretary shall deter2 mine the amount of excess spending (if any) for

3 each medicare market area by subtracting the limit

4 determined by the Secretary for such market area

5 under subsection (b) from baseline spending for such

6 market area.

7 ‘‘(2) BASELINE SPENDING.—The Secretary

8 shall measure baseline spending for each medicare

9 market area as the aggregate amount of service pay10 ments that would be made in such a market area on

11 behalf of individuals in fee-for-service (as defined in

12 subsection (a)) under the provisions of this title

13 without regard to this section.

14 ‘‘(3) LOOK BACK.—In determining excess

15 spending for a medicare market area—

16 ‘‘(A) the Secretary shall reduce the amount

17 of excess spending for the succeeding year by

18 the amounts in the current or prior years by

19 which aggregate spending fell below the aggre20 gate spending limit for the medicare market

21 area, and

22 ‘‘(B) the Secretary shall increase the

23 amount of excess spending for the succeeding

24 year by the amounts in the current or prior

25 years by which aggregate spending exceeded the
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•S 1996 IS

1 aggregate spending limit for the medicare mar2 ket area.

3 ‘‘(d) ENFORCING MARKET AREA AGGREGATE

4 SPENDING LIMITS.—

5 ‘‘(1) IN GENERAL.—By not later than October

6 1 of each year (beginning with 1996), the Secretary

7 shall determine and publish in the Federal Register

8 adjustments (if any) in service payment rates and

9 beneficiary premiums that are required to eliminate

10 excess spending in the succeeding calendar year in

11 each medicare market area.

12 ‘‘(2) SERVICE PAYMENT RATES.—The Secretary

13 shall reduce service payments that would otherwise

14 apply under this title by the percentage that is nec15 essary to reduce aggregate service payments in the

16 medicare market area by an amount equal to one17 half of the estimated excess spending in the succeed18 ing calendar year.

19 ‘‘(3) PREMIUM ADD-ON.—The Secretary shall

20 increase the monthly part B premium that would

21 otherwise apply under this title for the succeeding

22 calendar year by an amount that is sufficient to in23 crease aggregate part B premium payments from in24 dividuals (as defined in subsection (a)) by an
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•S 1996 IS

1 amount equal to one-half of the estimated excess

2 spending in the succeeding calendar year.

3 ‘‘(e) EXEMPTING LOW-COST AREAS.—

4 ‘‘(1) IN GENERAL.—Any medicare market area

5 in which fee-for-service spending per individual is

6 below 90 percent of the national average shall be ex7 empt from enforcement of the aggregate spending

8 limit for such market area.

9 ‘‘(2) BUDGET NEUTRALITY.—The Secretary

10 shall increase the amount of excessive spending in

11 medicare market areas with fee-for-service spending

12 per individual to ensure the application of paragraph

13 (1) does not increase total spending under this title.

14 ‘‘(3) HIGH FEE-FOR-SERVICE SPENDING.—Med15 icare market areas with high fee-for-service spending

16 per individual are those areas where spending per in17 dividual is higher than 120 percent of all other med18 icare market areas.’’.

19 (b) EFFECTIVE DATE.—The amendment made by

20 subsection (a) shall apply with respect to payments under

21 title XVIII of the Social Security Act in calendar years

22 beginning after December 31, 1995.

23 SEC. 5. MEDICARE ADMINISTRATIVE SIMPLIFICATION.

24 (a) CONSOLIDATION OF PARTS A AND B.—By not

25 later than October 1, 1995, the Secretary shall submit to
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•S 1996 IS

1 the Congress a proposal to consolidate entitlement for part

2 A of the title XVIII of the Social Security Act and enroll3 ment in part B of such title into eligibility or enrollment

4 into the entire medicare program under such title. In pre5 paring such a proposal, the Secretary shall consider phas6 ing in such a consolidation, and shall ensure that no bene7 ficiary shall pay higher premiums for coverage under such

8 program than under such program as of the date of the

9 enactment of this Act.

10 (b) CONSOLIDATION OF FEE-FOR-SERVICE ADMINIS11 TRATION.—

12 (1) IN GENERAL.—The Secretary shall take

13 such steps as may be necessary to consolidate the

14 administration (including processing systems) of

15 parts A and B of the medicare program (under title

16 XVIII of the Social Security Act), including medi17 care supplemental policies, over a 5-year period.

18 (2) COMBINATION OF INTERMEDIARY AND CAR19 RIER FUNCTIONS.—In taking such steps, the Sec20 retary may contract with a single entity that com21 bines the fiscal intermediary and carrier functions in

22 an area. No medicare market area (established

23 under section 1876(a)) may be subject to more than

24 1 entity.
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•S 1996 IS

1 (3) STREAMLINED PROCESSING SYSTEMS.—In

2 carrying out this subsection, the Secretary may en3 sure—

4 (A) a streamlined, standardized, and

5 paperless process for handling all fee-for-service

6 claims, and

7 (B) that payments under title XVIII of the

8 Social Security Act are made first by the medi9 care program and medicare supplemental poli10 cies before providers can bill beneficiaries for

11 services using standardized forms.

12 (4) SUPERSEDING CONFLICTING REQUIRE13 MENTS.—The provisions of sections 1816 and 1842

14 of the Social Security Act (including provider nomi15 nating provisions in such section 1816) are super16 seded to the extent required to carry out this sub17 section.

Æ

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