Reforming Medicare: impacts on federal spending and choice of health plans.

The rising cost of Medicare and well-documented problems plaguing Medicare+Choice (M+C) have increased interest in "reforming" the program. To improve efficiency, most reform proposals would rely on competitive bidding to establish payments to M+C plans. At the same time, beneficiaries would be given financial incentives to select low-cost M+C plans. A major unknown is the extent to which Medicare reforms would generate federal budgetary savings. To examine this issue, we develop three illustrative Medicare reform options that differ greatly in how Medicare would establish its payments to plans. Our results highlight the fact that Medicare should expect modest savings from reforming the program. However, other goals of reform, such as establishing more efficient payments to plans, would be achieved.