Calendar No. 408

103D CONGRESS

2D SESSION S. 1996

A BILL

To amend title XVIII of the Social Security Act to

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

APRIL 11, 1994

Read the second time and placed on the calendar
II

Calendar No. 408

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

APRIL 11, 1994

Read the second time and placed on the calendar

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’’.
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1 SEC. 2. PURPOSE.

2 The purpose of this Act is to provide better health

3 care to medicare beneficiaries at less cost by giving such

4 beneficiaries meaningful choices among health plans com5 peting on the basis of price and quality.

6 SEC. 3. MEDICARE CHOICE.

7 (a) IN GENERAL.—Section 1876 of the Social Secu8 rity Act (42 U.S.C. 1395mm) is amended to read as

9 follows:

10 ‘‘MEDICARE CHOICE

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

12 MARKET AREAS.—The Secretary shall establish various

13 medicare market areas within the United States in such

14 manner as to—

15 ‘‘(1) ensure that each individual entitled to ben16 efits under part A and enrolled under part B, or en17 rolled under part B only, resides in a medicare mar18 ket area,

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

20 statistical area within one medicare market area,

21 and

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

23 who will have the opportunity for a meaningful

24 choice among competing medicare health plans

25 under contract with the Secretary under this section.

26 ‘‘(b) MEDICARE HEALTH PLANS.—
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1 ‘‘(1) CONTRACTS WITH MEDICARE HEALTH

2 PLANS.—The Secretary shall enter into a contract

3 with any medicare health plan desiring to do busi4 ness in a medicare market area and to receive pay5 ment under this section, but only if the Secretary

6 certifies that such plan meets the requirements of

7 paragraph (2).

8 ‘‘(2) CERTIFICATION REQUIREMENTS.—Each

9 medicare health plan must—

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

11 provide those services covered by this title

12 (hereafter in this section referred to as ‘medi13 care benefits’) when medically necessary for a

14 uniform monthly premium for a year;

15 ‘‘(B) not discriminate against beneficiaries

16 based on their health status, claims experience,

17 medical history, or other factors that are gen18 erally related with utilization of health care

19 services;

20 ‘‘(C) demonstrate the ability to provide

21 medicare benefits to all potential enrollees

22 throughout the medicare market area, unless

23 the Secretary determines it appropriate for such

24 plan to target unique community needs within

25 the medicare market area;
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1 ‘‘(D) demonstrate financial solvency;

2 ‘‘(E) have arrangements, established in ac3 cordance with regulations prescribed by the

4 Secretary, for an ongoing quality-assurance pro5 gram for the health care services such plan pro6 vides to such beneficiaries, which program—

7 ‘‘(i) stresses health outcomes, and

8 ‘‘(ii) provides review by physicians

9 and other health care professionals of the

10 process followed in the provision of such

11 health care services;

12 ‘‘(F) meet the requirement of section

13 1866(f) (relating to maintaining written policies

14 and procedures respecting advance directives);

15 ‘‘(G) not operate any compensation ar16 rangement between such plan and a physician

17 or physician group that may directly or indi18 rectly have the effect of reducing or limiting

19 services provided with respect to enrollees in

20 such plan (hereafter in this subparagraph such

21 arrangement shall be referred to as a ‘physician

22 incentive plan’), unless the following require23 ments are met:

24 ‘‘(i) No specific payment is made di25 rectly or indirectly under the physician in-
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1 centive plan to a physician or physician

2 group as an inducement to reduce or limit

3 medically necessary services provided with

4 respect to a specific enrollee in the medi5 care health plan.

6 ‘‘(ii) If the physician incentive plan

7 places a physician or physician group at

8 substantial financial risk (as determined by

9 the Secretary) for services not provided by

10 the physician or physician group, the medi11 care health plan—

12 ‘‘(I) provides stop-loss protection

13 for the physician or physician group

14 that is adequate and appropriate,

15 based on standards developed by the

16 Secretary that take into account the

17 number of physicians placed at such

18 substantial financial risk under the

19 physician incentive plan and the num20 ber of enrollees in the medicare health

21 plan who receive services from the

22 physician or the physician group, and

23 ‘‘(II) conducts periodic surveys of

24 both enrollees and former enrollees in

25 the medicare health plan to determine
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1 the degree of access of such enrollees

2 to services provided by the medicare

3 health plan and satisfaction with the

4 quality of such services;

5 ‘‘(H) collect and provide such standard in6 formation as the Secretary shall prescribe by

7 regulation as necessary to evaluate the perform8 ance and quality of such plan, including en9 rollee satisfaction, to compare such performance

10 and quality with competing plans, and to pre11 pare comparative materials for distribution to

12 beneficiaries;

13 ‘‘(I) demonstrate the ability to integrate

14 additional benefits into such plan for qualified

15 medicare beneficiaries; and

16 ‘‘(J) offer the supplementary coverage

17 plans established by the Secretary under sub18 section (g)(3)(B).

19 ‘‘(3) COST-SHARING.—

20 ‘‘(A) ACTUARIALLY EQUIVALENT MEDI21 CARE BENEFITS.—Each medicare health plan

22 must offer either—

23 ‘‘(i) medicare benefits, including the

24 cost-sharing requirements otherwise pro25 vided in this title; or
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1 ‘‘(ii) actuarially equivalent medicare

2 benefits, as established by the Secretary in

3 regulations, which are medicare benefits,

4 but with cost sharing requirements that

5 are actuarially equivalent to the cost-shar6 ing requirements otherwise provided in this

7 title and consistent with common practices

8 among health maintenance organizations

9 and other managed care health plans.

10 In establishing actuarially equivalent medicare

11 benefits, the Secretary shall not include in the

12 calculation any charge in costs associated with

13 alternative forms of health care delivery, man14 agement, or utilization control.

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

16 Each medicare health plan may offer a point of

17 service option for which the plan may require

18 enrollees to pay higher cost-sharing for services

19 than is otherwise required by this title (or re20 quired in the actuarially equivalent alternative)

21 if—

22 ‘‘(i) the plan maintains relationships

23 with affiliated providers for all medicare

24 benefits that would not require higher cost25 sharing; and
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1 ‘‘(ii) the plan provides enrollees with

2 such information.

3 ‘‘(4) CAPACITY LIMITS.—Each medicare health

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

5 determined by the Secretary) and without restric6 tions (except as may be authorized by regulation)

7 beneficiaries that may enroll in the plan on a first8 come first-served basis, unless to do so would result

9 in the enrollment of enrollees substantially

10 nonrepresentative (as determined by regulation) of

11 the population in the medicare market area served

12 by such plan.

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

14 ‘‘(1) CRITERIA FOR CERTIFICATION.—The Sec15 retary shall prescribe, by regulation, criteria for cer16 tifying medicare health plans sponsored by employ17 ers which will be offered only to current or former

18 employees, including requirements that such health

19 plans—

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

21 those services covered by this title at a premium

22 for the enrollee that does not exceed the base

23 beneficiary premium (as defined pursuant to

24 subsection (f)); and
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1 ‘‘(B) are available to all eligible current

2 and former employees in the medicare market

3 area.

4 ‘‘(2) SECONDARY PAYER COVERAGE.—To be

5 certified under paragraph (1), employer-sponsored

6 health plans shall accept, at the option of individuals

7 eligible only for secondary coverage under this title

8 pursuant to section 1862(b), a fixed monthly pay9 ment from the Secretary to provide such individuals

10 coverage at least actuarially equivalent to the sec11 ondary coverage available to such individuals under

12 this title.

13 ‘‘(d) MANAGING MEDICARE CHOICE.—

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

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

16 each medicare health plan or employer-sponsored

17 health plan under contract pursuant to subsection

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

19 premium that such plan intends to charge in such

20 year.

21 ‘‘(2) ANNUAL OPEN ENROLLMENT.—

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

23 provide for an annual open enrollment period,

24 and may take into consideration existing em25 ployer enrollment periods, during which all indi-
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1 viduals entitled to benefits under part A and

2 enrolled under part B, or enrolled under part B

3 only, residing in a medicare market area—

4 ‘‘(i) shall choose enrollment for the

5 next calendar year in—

6 ‘‘(I) a medicare health plan in

7 such area,

8 ‘‘(II) an employer-sponsored

9 health plan, or

10 ‘‘(III) coverage otherwise pro11 vided under this title (hereafter in this

12 section referred to as ‘medicare fee13 for-service’), and

14 ‘‘(ii) may choose supplementary bene15 fits offered by such health plan or a medi16 care supplemental policy (certified under

17 section 1882).

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

19 are eligible for secondary coverage under this

20 title pursuant to section 1862(b), may not en21 roll in a medicare health plan but may enroll in

22 an employer-sponsored health plan, to which the

23 Secretary shall make a monthly payment, pur24 suant to subsection (e)(2)(C).

25 ‘‘(C) PERIOD OF ENROLLMENT.—
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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clauses (ii), (iii), and (iv), an indi3 vidual may not choose another enrollment

4 until the next annual period provided

5 under subparagraph (A).

6 ‘‘(ii) ENROLLMENT UPON ELIGI7 BILITY.—The Secretary shall provide an

8 enrollment period of 30 days to any indi9 vidual beginning 30 days before the date

10 such individual first becomes entitled to

11 benefits under part A or enrolled under

12 part B only. Such enrollment shall be ef13 fective on the date of such entitlement.

14 ‘‘(iii) TERMINATION OF PLAN.—If a

15 contract for a medicare health plan under

16 this section is terminated during any cal17 endar year, the Secretary shall provide for

18 an enrollment period of 30 days to any in19 dividual enrolled in such plan beginning on

20 the date of such termination.

21 ‘‘(iv) INDIVIDUAL NO LONGER IN

22 AREA.—An individual terminating resi23 dence in a medicare market area may ter24 minate enrollment with the medicare

25 health plan of such area as of the begin-
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1 ning of the first calendar month following

2 the date on which the request is made for

3 such termination, and the Secretary shall

4 provide for an open enrollment period of

5 30 days to such individual for enrollment

6 in the new medicare market area in which

7 such individual resides beginning on the

8 date of such termination. In the case of an

9 individual’s termination of enrollment, the

10 medicare health plan shall provide the indi11 vidual with a copy of the written request

12 for termination of enrollment and a written

13 explanation of the period (ending on the

14 effective date of the termination) during

15 which the individual continues to be en16 rolled with the plan and may not receive

17 medicare benefits other than through such

18 plan.

19 ‘‘(v) EFFECTIVE DATE OF NEW EN20 ROLLMENT.—Enrollment under clause (iii)

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

22 end of the enrollment period, or, if the

23 Secretary determines that such date is not

24 feasible, such other date as the Secretary

25 specifies.
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1 ‘‘(D) DEFAULT ENROLLMENT.—

2 ‘‘(i) IN GENERAL.—If an individual

3 does not choose an enrollment option dur4 ing an enrollment period under this para5 graph, such individual shall be automati6 cally enrolled in—

7 ‘‘(I) the same option into which

8 such individual enrolled in the preced9 ing enrollment period, or

10 ‘‘(II) if the individual was not en11 rolled in such preceding period, the

12 medicare fee-for-service.

13 ‘‘(ii) NO MEDICARE HEALTH PLANS IN

14 AREA.—If there are no medicare health

15 plans in the medicare market area in

16 which the individual resides, such individ17 ual shall be automatically enrolled in the

18 medicare fee-for-service.

19 ‘‘(3) INFORMATION REGARDING MEDICARE OP20 TIONS IN MARKET AREA.—

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

22 provide each individual making an enrollment

23 decision during any enrollment period described

24 in paragraph (2) with the following information,

25 in comparative form, regarding the medicare
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1 health plans and medicare fee-for-service avail2 able in the medicare market area in which such

3 individual resides:

4 ‘‘(i) The individual’s premiums,

5 deductibles, and copayments for medicare

6 benefits.

7 ‘‘(ii) The individual’s premiums,

8 deductibles, and copayments for any sup9 plementary benefits.

10 ‘‘(iii) Enrollee restrictions, including

11 provider limitations.

12 ‘‘(iv) Quality information, including

13 enrollee satisfaction and health outcomes.

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

15 ‘‘(vi) Coverage of emergency services

16 and urgently needed care.

17 ‘‘(vii) Appeal rights of enrollees.

18 ‘‘(viii) Any other necessary informa19 tion as determined by the Secretary.

20 ‘‘(B) MARKETING REQUIREMENTS.—The

21 Secretary shall prescribe the procedures and

22 conditions under which a medicare health plan

23 that has entered into a contract with the Sec24 retary under this section may inform individ25 uals eligible to enroll under this section with the
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1 plan about the plan. No brochures, application

2 forms, or other promotional or informational

3 material may be distributed by such plan to (or

4 for the use of) individuals eligible to enroll with

5 the plan under this section unless—

6 ‘‘(i) at least 45 days before its dis7 tribution, the plan has submitted the mate8 rial to the Secretary for review,

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

10 all individuals eligible to enroll in the medi11 care health plan in the medicare market

12 area, and

13 ‘‘(iii) the Secretary has not dis14 approved the distribution of the material.

15 The Secretary shall review all such material

16 submitted and shall disapprove such material if

17 the Secretary determines, in the Secretary’s dis18 cretion, that the material is materially inac19 curate or misleading or otherwise makes a ma20 terial misrepresentation.

21 ‘‘(4) RISK ADJUSTMENTS.—

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

23 adjust the payments made to medicare health

24 plans and employer-sponsored health plans

25 under this title to reflect the relative health
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1 risks of classes of beneficiaries enrolled in such

2 plans in the medicare market area. The Sec3 retary shall, at a minimum, define appropriate

4 classes of beneficiaries, based on age, sex, dis5 ability status, eligibility under title XIX, and

6 such other factors as the Secretary determines

7 to be appropriate, so as to ensure actuarial

8 equivalence and the efficient delivery of health

9 care. The Secretary may add to, modify, or sub10 stitute for such classes, if such changes will im11 prove the determination of actuarial equiva12 lence. The Secretary may enter into risk shar13 ing arrangements in a medicare market area, if

14 the Secretary determines it to be appropriate.

15 ‘‘(B) PENALTIES FOR DISCRIMINATION.—

16 The Secretary shall prescribe the procedures

17 and conditions under which the Secretary shall

18 impose financial penalties on medicare health

19 plans or employer-sponsored health plans that

20 knowingly violate the prohibition against dis21 crimination against potential enrollees based on

22 their health status, claims experience, medical

23 history, or other factors that are generally re24 lated with utilization of health care services.

25 ‘‘(5) PAYMENTS TO PLANS.—
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1 ‘‘(A) IN GENERAL.—The Secretary shall

2 forward to each medicare health plan or em3 ployer-sponsored health plan the medicare per

4 capita rate for the medicare market area, as de5 termined under subsection (e), for every bene6 ficiary enrolled in such plan for that month, ex7 cluding any beneficiary premium but reflecting

8 any adjustments required pursuant to para9 graph (4)(A).

10 ‘‘(B) COLLECTION OF BENEFICIARY PRE11 MIUMS AND REBATES.—

12 ‘‘(i) PREMIUMS.—Each medicare

13 health plan or employer-sponsored plan

14 shall be responsible for collecting pre15 miums owed by beneficiaries for enrolling

16 in such plan, including premiums for medi17 care benefits and any supplementary bene18 fits.

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

20 plan or employer-sponsored plan which

21 charges a monthly premium which is less

22 than the medicare per capita rate for an

23 enrollee shall be responsible for paying to

24 such enrollee a rebate equal to the excess

25 medicare per capita rate or may use such
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1 rebate to offset any premium owed by the

2 enrollee for any supplementary benefits se3 lected by the enrollee.

4 ‘‘(C) SOURCE OF PAYMENT.—The amounts

5 paid to medicare health plans and employer6 sponsored health plans shall be made from the

7 Federal Hospital Insurance Trust Fund and

8 the Supplementary Insurance Trust Fund

9 based on an allocation determined by the

10 Secretary.

11 ‘‘(e) MEDICARE PER CAPITA RATE.—

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

13 medicare market area, the Secretary shall announce,

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

15 per capita rate that will apply to such market area

16 beginning with the enrollment year (which coincides

17 with the next calendar year).

18 ‘‘(2) PER CAPITA RATE.—

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

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

21 rate for a medicare market area shall be equal

22 to the lesser of—

23 ‘‘(i) the excess of—

24 ‘‘(I) the benchmark premium for

25 such area, over
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1 ‘‘(II) the base beneficiary pre2 mium for such area; or

3 ‘‘(ii) the maximum per capita rate.

4 ‘‘(B) EXCEPTION.—For individuals eligible

5 for medicare benefits prior to January 1, 1999,

6 the per capita rate for a medicare market area

7 shall be equal to the lesser of the maximum per

8 capita rate or the sum of—

9 ‘‘(i) the excess of—

10 ‘‘(I) the benchmark premium for

11 such area, over

12 ‘‘(II) the base beneficiary pre13 mium for such area, and

14 ‘‘(ii) the applicable percentage of the

15 excess of—

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

17 costs (hereafter in this section re18 ferred to as ‘FFSPCC’) for such area,

19 over—

20 ‘‘(II) such benchmark premium.

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

23 following table:

Applicable

‘‘Enrollment year: Percentage:

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

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

1998 ........................................................... 70
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1999 ........................................................... 60

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

1 ‘‘(C) SECONDARY PAYER PER CAPITA

2 RATE.—For individuals who are eligible for sec3 ondary coverage under this title pursuant to

4 section 1862(b) and elect to enroll in an em5 ployer-sponsored health plan, the Secretary

6 shall determine a per capita rate for each medi7 care market area equal to the costs of providing

8 secondary coverage to all individuals in such

9 market area divided by the number of individ10 uals eligible for such coverage in such market

11 area.

12 ‘‘(D) RURAL ENROLLEES.—

13 ‘‘(i) FIVE-YEAR BONUS.—For enroll14 ment periods beginning in 1996 through

15 2000, the per capita rate in each medicare

16 market area (otherwise determined under

17 this paragraph) shall be increased by 10

18 percent with respect to each individual en19 rolling in a medicare health plan or em20 ployer-sponsored health plan who resides in

21 an underserved rural area within such

22 market area, as determined by the Sec23 retary.
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1 ‘‘(ii) IMPROVE ACCESS.—The bonus

2 amount paid under this subparagraph shall

3 be used by such health plans to improve

4 access and coordinated service delivery in

5 the underserved rural area in which the

6 enrollee resides. The bonus amount shall

7 not reduce the premiums owed by the en8 rollee for medicare benefits or any supple9 mentary coverage.

10 ‘‘(iii) STUDY AND RECOMMENDA11 TIONS.—The Secretary shall report to the

12 Congress at the end of the 5-year period

13 described in clause (ii) on the status of

14 health care access in underserved rural

15 areas and shall make recommendations re16 garding continuation of bonus per capita

17 payments.

18 ‘‘(E) CALCULATION REQUIREMENTS.—The

19 FFSPCC shall be calculated directly to accu20 rately reflect the costs of providing care in the

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

22 be derived from the removal of medicare health

23 plan payments and enrollees from total pay24 ments and enrollees.

25 ‘‘(3) MAXIMUM PER CAPITA RATE.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (E), the maximum per capita

3 rate in any medicare market area shall be the

4 excess of—

5 ‘‘(i) the product of—

6 ‘‘(I) FFSPCC in all medicare

7 market areas, and

8 ‘‘(II) an adjustment factor for

9 such market area, over

10 ‘‘(ii) the base beneficiary premium in

11 such market area.

12 ‘‘(B) ADJUSTMENT FACTOR.—For pur13 poses of subparagraph (A)(i)(II), and except as

14 provided in subparagraph (D):

15 ‘‘(i) FFSPCC RATIO LESS THAN .8.—

16 For medicare market areas with a

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

18 adjustment factor shall be .8.

19 ‘‘(ii) FFSPCC RATIO BETWEEN .8

20 AND .95.—For medicare market areas with

21 a FFSPCC ratio less than .95 but greater

22 than .8, the adjustment factor shall be the

23 sum of .85, plus—

24 ‘‘(I) .1, multiplied by
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1 ‘‘(II) the ratio of the excess of

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

3 ‘‘(iii) FFSPCC RATIO BETWEEN .95

4 AND 1.05.—For medicare market areas

5 with a FFSPCC ratio of at least .95 but

6 less than 1.05, the adjustment factor shall

7 be the FFSPCC ratio.

8 ‘‘(iv) FFSPCC RATIO BETWEEN 1.05

9 AND 1.2.—For medicare market areas with

10 a FFSPCC ratio of at least 1.05 but less

11 than 1.2, the adjustment factor shall be

12 the sum of 1.05, plus—

13 ‘‘(I) .1, multiplied by

14 ‘‘(II) the ratio of the excess of

15 the FFSPCC ratio over 1.05, to .15.

16 ‘‘(v) FFSPCC RATIO GREATER THAN

17 1.2.—For medicare market areas with a

18 FFSPCC ratio greater than or equal to

19 1.2, the adjustment factor shall be 1.2.

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

21 subparagraph (B), for each medicare market

22 area, the Secretary shall determine a FFSPCC

23 ratio by dividing FFSPCC in such market area

24 by FFSPCC for all medicare market areas.
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1 ‘‘(D) BUDGET NEUTRALITY.—The Sec2 retary shall change the adjustment factors as

3 necessary to ensure that total spending under

4 this title shall not exceed the level of spending

5 that would occur if the maximum per capita

6 rate in each medicare market area were equal

7 to the FFSPCC in each such market area.

8 ‘‘(E) ALTERNATIVE FORMULA.—The Sec9 retary may substitute an alternative formula for

10 determining the maximum rate in each medi11 care market area. Such an alternative formula

12 shall generally conform to the pattern of adjust13 ment factors specified in subparagraph (B), ex14 cept that such formula shall maintain a consist15 ent mathematical relationship between the ad16 justment factor and the FFSPCC ratio in each

17 such market area in a manner that achieves

18 budget neutrality.

19 ‘‘(F) STUDY AND RECOMMENDATIONS.—

20 The Secretary and the Physician Payment Re21 view Commission shall report to the Congress

22 every 2 years (beginning in 1997) on the meth23 od for determining the maximum per capita

24 rate and the experience of each medicare mar25 ket area with the formula. The Secretary and
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1 the Physician Payment Review Commission

2 shall make recommendations regarding the ap3 propriateness of basing the maximum per cap4 ita rate formula on fee-for-service per capita

5 costs. The Secretary and the Physician Pay6 ment Review Commission shall also examine the

7 appropriateness of implementing urban and

8 rural adjusters to the maximum per capita rate

9 formula.

10 ‘‘(4) DEFINITIONS.—For purposes of this sub11 section:

12 ‘‘(A) BENCHMARK PREMIUM.—The bench13 mark premium for a medicare market area shall

14 be equal to the sum of—

15 ‘‘(i) the lowest health plan monthly

16 premium submitted by a medicare health

17 plan in such area for the enrollment year,

18 and

19 ‘‘(ii) the applicable percentage of the

20 excess of—

21 ‘‘(I) the average of all medicare

22 health plan premiums submitted in

23 such area, over

24 ‘‘(II) the lowest health plan pre25 mium in such area.
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1 For purposes of the preceding sentence, the ap2 plicable percentage shall be determined by the

3 following table:

Applicable

‘‘Enrollment year: Percentage:

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

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

1998 ........................................................... 40

1999 and thereafter ................................... 20.

4 ‘‘(B) FEE-FOR-SERVICE PER CAPITA

5 COSTS.—The Secretary shall determine

6 FFSPCC for a medicare market area by divid7 ing—

8 ‘‘(i) the total spending for medicare

9 benefits (not including beneficiary cost

10 sharing) for individuals who reside in such

11 area, who are not enrolled in a medicare

12 health plan or employer-sponsored health

13 plan, and who are not in secondary payer

14 status, by

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

16 The Secretary shall make such other adjust17 ments as may be necessary to allow an accurate

18 comparison of FFSPCC for the medicare mar19 ket area with premiums charged by medicare

20 health plans in such area.

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

22 section:
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1 ‘‘(1) BASE BENEFICIARY PREMIUM.—The base

2 beneficiary premium for each medicare market area

3 shall be equal to the product of—

4 ‘‘(A) the premium determined under sec5 tion 1839, and

6 ‘‘(B) the FFSPCC for such area divided

7 by the average national FFSPCC, as deter8 mined by the Secretary.

9 ‘‘(2) MONTHLY PREMIUMS.—

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

11 coverage in a medicare health plan or medicare

12 fee-for-service during an enrollment year for

13 medicare benefits, each beneficiary shall pay a

14 monthly premium equal to the excess of—

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

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

17 the fee-for-service (determined under sub18 paragraph (B)), over

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

20 the medicare market area in which the

21 beneficiary resides.

22 ‘‘(B) FEE-FOR-SERVICE BENEFICIARY PRE23 MIUM.—

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

25 selecting medicare fee-for-service in a med-
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1 icare market area, the monthly premium

2 shall be equal to the excess of—

3 ‘‘(I) the FFSPCC for such area,

4 over

5 ‘‘(II) the medicare per capita

6 rate for such area.

7 ‘‘(ii) EXCEPTION.—For individuals el8 igible for medicare benefits prior to Janu9 ary 1, 1999, who select medicare fee-for10 service for coverage, the beneficiary pre11 mium shall equal—

12 ‘‘(I) the base beneficiary pre13 mium, plus

14 ‘‘(II) any additional premium re15 quired pursuant to section 1893.

16 ‘‘(g) SUPPLEMENTARY COVERAGE PLANS.—

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

18 that all supplementary coverage plans meet the re19 quirements of this subsection, in addition to any re20 quirements that may be applicable under section

21 1882.

22 ‘‘(2) COORDINATION WITH MEDICARE

23 CHOICE.—Supplementary coverage plans may only

24 be offered to beneficiaries during the same annual

25 open enrollment period during which beneficiaries
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1 select medicare coverage and must be offered to all

2 beneficiaries in the same medicare market area for

3 the same, uniform monthly premium during the

4 enrollment period.

5 ‘‘(3) STANDARD BENEFITS.—

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

7 may only offer standardized supplementary cov8 erage plans as the Secretary shall prescribe by

9 regulation.

10 ‘‘(B) REQUIRED OPTIONS.—Among the

11 standardized plans, the Secretary shall include

12 a plan—

13 ‘‘(i) covering only outpatient prescrip14 tion drugs, and

15 ‘‘(ii) which, together with medicare

16 benefits, would resemble coverage typically

17 offered by health maintenance organiza18 tions to employer groups, including an an19 nual out-of-pocket maximum beneficiary li20 ability (covering coinsurance, copayments,

21 and deductibles).

22 ‘‘(4) ONE SPONSOR.—A sponsor of supple23 mentary coverage may not offer such coverage to a

24 beneficiary selecting a medicare health plan from a

25 different sponsor, except that sponsors of supple-
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1 mentary coverage may offer such coverage to any in2 dividual selecting medicare fee-for-service.

3 ‘‘(5) SURCHARGE ON CERTAIN PLANS.—Not4 withstanding any other provision of this section, if

5 an individual chooses to purchase a medicare supple6 mental policy certified pursuant to section 1882 and

7 the coverage under such policy results in increased

8 costs to the program under this title, the monthly

9 premium otherwise applicable under this section

10 shall be increased by a surcharge actuarially equiva11 lent to such increased costs.

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

13 coverage plan’ means any health insurance coverage

14 offered by a medicare health plan or medicare sup15 plemental policy (as defined in section 1882) that

16 covers health care costs not covered under as medi17 care benefits and for which the enrollee must pay a

18 premium.’’.

19 (b) CONFORMING AMENDMENTS.—

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

21 (42 U.S.C. 1395ss(c)) is amended—

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

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

24 (3) and (6)’’,
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1 (B) by striking ‘‘and’’ at the end of para2 graph (4),

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

4 paragraph (5) and inserting ‘‘; and’’, and

5 (D) by adding at the end the following new

6 paragraph:

7 ‘‘(6) agrees—

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

9 open enrollment period specified in section

10 1876(c)(2) at a uniform monthly premium to

11 all beneficiaries in a medicare market area es12 tablished under section 1876(a); and

13 ‘‘(B) not to discriminate against bene14 ficiaries based on their health status, claims ex15 perience, medical history, or other factors that

16 are generally related with utilization of health

17 care services.’’.

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

19 1395ss(s)) is amended—

20 (A) by striking paragraph (2),

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

22 in paragraph (3) and inserting ‘‘paragraph

23 (1)’’, and

24 (C) by redesignating paragraph (3) as

25 paragraph (2).
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1 (3) Section 1839(e) of such Act (42 U.S.C.

2 1395r(e)) is amended to read as follows:

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

4 the monthly premium for each individual enrolled under

5 this part for each month—

6 ‘‘(1) in 1994 shall be $41.10,

7 ‘‘(2) in 1995 shall be $46.10, and

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

9 equal to 25 percent of the monthly actuarial rate for

10 enrollees age 65 and over, as determined under sub11 section (a)(1) and applicable to such month.’’.

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

13 this section shall apply to contracts entered into with re14 spect to calendar years beginning after December 31,

15 1995.

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

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

18 Security Act (42 U.S.C. 1395x et seq.) is amended by add19 ing at the end thereof the following new section:

20 ‘‘FEE-FOR-SERVICE COST CONTAINMENT

21 ‘‘SEC. 1893. (a) IN GENERAL.—Unless Congress oth22 erwise provides, notwithstanding any other provision of

23 this title, payment for services provided to individuals enti24 tled to benefits under part A and enrolled under part B,

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

26 enrolled in medicare health plans or employer-sponsored
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1 health plans) (hereafter in this section referred to as ‘serv2 ice payments’) shall be subject to an aggregate fee-for3 service spending limit in each market area for each cal4 endar year, beginning with 1997.

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

6 SPENDING LIMITS.—

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

8 later than October 1 of each year (beginning with

9 1996), and subject to paragraph (2), the Secretary

10 shall determine and publish in the Federal Register,

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

12 market area for the succeeding calendar year.

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

14 The Secretary shall calculate such limits by allowing

15 aggregate fee-for-service spending in each medicare

16 market area to increase for—

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

18 consumer price index,

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

20 described in subsection (a), and

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

22 ‘‘(i) 4.0 percent in 1997,

23 ‘‘(ii) 3.5 percent in 1998,

24 ‘‘(iii) 3.0 percent in 1999, and
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1 ‘‘(iv) 2.5 percent in 2000 and there2 after.

3 ‘‘(c) DETERMINING EXCESS SPENDING.—

4 ‘‘(1) IN GENERAL.—The Secretary shall deter5 mine the amount of excess spending (if any) for

6 each medicare market area by subtracting the limit

7 determined by the Secretary for such market area

8 under subsection (b) from baseline spending for such

9 market area.

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

11 shall measure baseline spending for each medicare

12 market area as the aggregate amount of service pay13 ments that would be made in such a market area on

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

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

16 without regard to this section.

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

18 spending for a medicare market area—

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

20 of excess spending for the succeeding year by

21 the amounts in the current or prior years by

22 which aggregate spending fell below the aggre23 gate spending limit for the medicare market

24 area, and
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1 ‘‘(B) the Secretary shall increase the

2 amount of excess spending for the succeeding

3 year by the amounts in the current or prior

4 years by which aggregate spending exceeded the

5 aggregate spending limit for the medicare mar6 ket area.

7 ‘‘(d) ENFORCING MARKET AREA AGGREGATE

8 SPENDING LIMITS.—

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

10 1 of each year (beginning with 1996), the Secretary

11 shall determine and publish in the Federal Register

12 adjustments (if any) in service payment rates and

13 beneficiary premiums that are required to eliminate

14 excess spending in the succeeding calendar year in

15 each medicare market area.

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

17 shall reduce service payments that would otherwise

18 apply under this title by the percentage that is nec19 essary to reduce aggregate service payments in the

20 medicare market area by an amount equal to one21 half of the estimated excess spending in the succeed22 ing calendar year.

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

24 increase the monthly part B premium that would

25 otherwise apply under this title for the succeeding
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1 calendar year by an amount that is sufficient to in2 crease aggregate part B premium payments from in3 dividuals (as defined in subsection (a)) by an

4 amount equal to one-half of the estimated excess

5 spending in the succeeding calendar year.

6 ‘‘(e) EXEMPTING LOW-COST AREAS.—

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

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

9 below 90 percent of the national average shall be ex10 empt from enforcement of the aggregate spending

11 limit for such market area.

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

13 shall increase the amount of excessive spending in

14 medicare market areas with fee-for-service spending

15 per individual to ensure the application of paragraph

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

17 ‘‘(3) HIGH FEE-FOR-SERVICE SPENDING.—Med18 icare market areas with high fee-for-service spending

19 per individual are those areas where spending per in20 dividual is higher than 120 percent of all other med21 icare market areas.’’.

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

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

24 title XVIII of the Social Security Act in calendar years

25 beginning after December 31, 1995.
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1 SEC. 5. MEDICARE ADMINISTRATIVE SIMPLIFICATION.

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

3 later than October 1, 1995, the Secretary shall submit to

4 the Congress a proposal to consolidate entitlement for part

5 A of the title XVIII of the Social Security Act and enroll6 ment in part B of such title into eligibility or enrollment

7 into the entire medicare program under such title. In pre8 paring such a proposal, the Secretary shall consider phas9 ing in such a consolidation, and shall ensure that no bene10 ficiary shall pay higher premiums for coverage under such

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

12 enactment of this Act.

13 (b) CONSOLIDATION OF FEE-FOR-SERVICE ADMINIS14 TRATION.—

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

16 such steps as may be necessary to consolidate the

17 administration (including processing systems) of

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

19 XVIII of the Social Security Act), including medi20 care supplemental policies, over a 5-year period.

21 (2) COMBINATION OF INTERMEDIARY AND CAR22 RIER FUNCTIONS.—In taking such steps, the Sec23 retary may contract with a single entity that com24 bines the fiscal intermediary and carrier functions in

25 an area. No medicare market area (established
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1 under section 1876(a)) may be subject to more than

2 1 entity.

3 (3) STREAMLINED PROCESSING SYSTEMS.—In

4 carrying out this subsection, the Secretary may en5 sure—

6 (A) a streamlined, standardized, and

7 paperless process for handling all fee-for-service

8 claims, and

9 (B) that payments under title XVIII of the

10 Social Security Act are made first by the medi11 care program and medicare supplemental poli12 cies before providers can bill beneficiaries for

13 services using standardized forms.

14 (4) SUPERSEDING CONFLICTING REQUIRE15 MENTS.—The provisions of sections 1816 and 1842

16 of the Social Security Act (including provider nomi17 nating provisions in such section 1816) are super18 seded to the extent required to carry out this sub19 section.

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