Medicare Prescription Drug, Improvement, and Modernization Act of 2003

On December 8, 2003, the President signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, P.L. 108-173. On November 22, 2003, the House of Representatives voted 220 to 215 to approve H.R. 1, the Medicare prescription drug and modernization conference agreement. The Senate voted 54 to 44 to approve the conference agreement on November 25.

The Act creates a prescription drug benefit for Medicare beneficiaries and establishes a new Medicare Advantage program to replace the current Medicare+Choice program. The prescription drug benefit, which begins in 2006, is voluntary and beneficiaries would pay a monthly premium after enrolling. Until that time, beneficiaries have access to a drug discount card to obtain discounts on their drug purchases.

Medicare Advantage establishes payments based on a system of bids and benchmarks. One area of major difference during the conference was the so-called “premium support” provisions of H.R. 1 whereby the original Medicare fee-for-service program would be required to compete against the new Medicare Advantage program. The Act creates a six-year Comparative Cost Adjustment program in which the concept of premium support would be applied in a limited number of Metropolitan Statistical Areas (MSAs). The Act also provides a stabilization fund to create incentives for plans to enter into and remain in the Medicare Advantage program.

The Act includes a measure that would require congressional consideration of legislation if general revenue funding for the entire Medicare program exceeds 45%. In addition, beginning in 2007, the Medicare Part B premium will be increased for high-income beneficiaries; it will be phased-in over five years. The Part B deductible increases to $110 in 2005 and will be indexed beginning in 2006. The Act contains numerous provisions that generally increase fee-for-service Medicare payments, especially for rural health care providers, and modify numerous regulatory and administrative practices. The Act also makes changes to the Medicaid program and authorizes new tax-advantaged accounts for medical expenses called health savings accounts.

Under Congress’s FY2004 budget resolution, $400 billion was reserved for Medicare modernization, creation of a prescription drug benefit, and, in the Senate, to promote geographic equity payment. The Congressional Budget Office (CBO) estimated that the conference agreement for H.R. 1 would increase direct (or mandatory) spending by $394.3 billion from FY2004 through FY2013. Prescription drug spending is estimated at $409.8 billion over the 10-year period and Medicare Advantage spending at $14.2 billion. The fee-for-service provisions are estimated to save $21.5 billion over the 10-year period and the cost containment measures are estimated to save $13.3 billion over the period.

Source: Congressional Research Service, Overview of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

Text of Act: Medicare Prescription Drug, Improvement, and Modernization Act of 2003