Overview

Policymakers had great ambitions for the Medicare+Choice program, established by the Balanced Budget Act of 1997. At its inception, the program seemed to be a promising way to solve two of Medicare's most pressing problems: its ever-increasing expense to the federal government, and its inadequate and outdated benefit package, which exposed many beneficiaries to high out-of-pocket costs. Proponents also envisioned that the Medicare+Choice program would create a competitive marketplace, offering Medicare beneficiaries a meaningful choice among private health plans as an alternative to the original fee-for-service program. Medicare would provide beneficiaries with timely and accurate information about managed care options in this new market, and elderly and disabled consumers would respond by making informed choices. As enrollment in Medicare+Choice plans grew, private health plans would gradually relieve the federal government of its responsibility to regulate provider payment policies to hold down overall costs in the Medicare program.

Five years later, it is clear that Medicare+Choice has not become what program proponents had envisioned. While the Congressional Budget Office had originally forecast that program enrollment would rise to 34 percent of total Medicare enrollment by 2005, the enrollment has now fallen from its 1997 level of 14 percent to just 13 percent. The number of Medicare+Choice contracts that Medicare holds with private health plans dropped by more than half from 1998 to 2002; these four years of highly publicized plan withdrawals affected more than 2.2 million beneficiaries. The program has also failed to restrain federal spending on Medicare.