	Introduction

Medicare has a long-standing history of offering its beneficiaries managed care coveragethrough private plans as an alternative to the traditional fee-for-service (FFS) program, in which apayment is made for each Medicare-covered service provided to a beneficiary. Beginning in the1970s, private health plans were allowed to contract with Medicare on a cost-reimbursement basis. In 1982, Medicare's risk contract program was created, allowing private entities, mostly healthmaintenance organizations (HMOs), to contract with Medicare. Then, in 1997, Congress passed the Balanced Budget Act of 1997 (BBA, P.L. 105-33 ),replacing the risk contract program with the Medicare+Choice (M+C) program. (1) 
Most recently, Congress made substantial changes to the M+C program with the passage ofthe Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA, P.L.108-173 ). The act creates the Medicare Advantage (MA) program to replace the M+C program and introducesseveral enhancements intended to increase the availability of private plans to Medicare beneficiaries. In addition to the immediate payment increases to plans, beginning in 2006, the MA program willchange the payment structure for local plans and introduce regional plans that operate like PreferredProvider Organizations -- a popular option in the private health insurance market. The MA programprovides financial incentives for plans to participate in this new regional option. Additionally, in2006 beneficiaries will have access to a Medicare Part D prescription drug plan whether they are inFFS Medicare or enrolled in Medicare managed care. (2) Finally, beginning in 2010 a limited number of geographic areaswill be selected to examine enhanced competition among local MA plans and competition betweenthose private plans and FFS Medicare. Beginning in 2006, the MMA changes the payment structure for MA local plans byestablishing benchmarks. Effect of MMA. a. a. a.
Medicare has a long-standing history of offering its beneficiaries managed care coveragethrough private plans as an alternative to the traditional fee-for-service (FFS) program, in which apayment is made for each Medicare-covered service provided to a beneficiary. Beginning in the1970s, private health plans were allowed to contract with Medicare on a cost-reimbursement basis. In 1982, Medicare's risk contract program was created, allowing private entities, mostly healthmaintenance organizations (HMOs), to contract with Medicare. Then, in 1997, Congress passed theBalanced Budget Act of 1997 (BBA, P.L. 105-33 ), replacing the risk contract program with theMedicare+Choice (M+C) program. Most recently, Congress passed the Medicare Prescription Drug,Improvement and Modernization Act of 2003 (MMA, P.L.108-173 ) which included provisions tocreate the Medicare Advantage (MA) program offering a variety of managed care options forMedicare beneficiaries. The MA program replaces the M+C program.
The newly created MA program offers a new payment structure and provides more optionsthan its predecessor, the M+C program. In addition to the immediate payment increases to plans,beginning in 2006, the MA program will change the payment structure and introduce regional plansthat operate like Preferred Provider Organizations -- a popular option in the private health insurancemarket. The MA program provides financial incentives for plans to participate in this new regionaloption. Additionally, in 2006, beneficiaries will have access to a Medicare Part D prescription drugplan whether they are in fee-for-service Medicare or enrolled in Medicare managed care. Finally,beginning in 2010, for a six-year period, a limited number of geographic areas will be selected toexamine enhanced competition among local MA plans and competition between private plans andFFS Medicare.
This report focuses on MA payments. For a discussion on the effect of the MMA onMedicare managed care, see CRS Report RS21761 , Medicare Advantage: What Does It Mean forPrivate Plans Currently Serving Medicare Beneficiaries? This report will be updated as necessaryto reflect significant changes to the program.