In a White House briefing on June 29, President Clinton laid out his proposal to assure the solvency of Medicare - the primary source of medical care for 39 million elderly and disabled Americans - for the next thirty years, assist the elderly in buying prescription drugs, and change the way private health plans compete for elderly patients.

Under a key part of the initiative, the government would try to foster new price competition among health maintenance organizations (HMOs). Under the President's proposal, Medicare patients would for the first time be able to pocket cost savings if they chose plans that can offer services for less money.

Clinton's plan also attempts to enhance the role of the HMOs - which enroll a small but growing share of Medicare patients - and to bolster the traditional "fee-for-service" version of the program, in which patients choose their own doctors and visit them whenever they want. Under the plan, for instance, patients in traditional Medicare no longer would have to pay part of the cost of preventive services, such as tests for cancer or side-effects from diabetes.

However, Clinton at the same time recommended increasing patients' costs for certain services, such as medical laboratory tests. Additionally, the amount of money an individual must pay annually before the program begins covering their medical bills - which has long remained static, at $100 - would begin to increase annually to keep pace with inflation.

Included in the president's plan is a widely popular new prescription drug benefit - estimated to cost $118 billion in its first decade and to escalate sharply after that. The President's plan would offer drug coverage to all elderly patients, including those who already have it through employers' retiree health benefits or from private policies that some patients buy to supplement Medicare. Under the administration's approach, patients who took advantage of the drug benefit would pay $24 per month when the program begins in 2002; enrollee costs would increase to $44 per month by 2008. In exchange, the government would pay half the cost of their drugs up to a limit, initially capped at $1,000 per year and eventually rising to $2,500 annually.

In response to concerns that the new federal benefit would prompt employers to drop drug coverage for retirees, the White House is proposing to begin giving those employers an as-yet unspecified subsidy if they preserve that benefit. The government also would begin subsidizing HMOs for their drug benefits.

Similarly, in response to loud complaints lately from health plans, hospitals and nursing homes, which argue that the 1997 budget agreement unfairly limited their Medicare payments, Clinton is calling for $7.5 billion worth of relief over the next 10 years. Lobbyists for several health care trade groups said, however, that they need far more money.

Administration officials estimate that their plan would reduce Medicare spending by $72 billion over the coming decade, enough to pay for about three-fifths of what the prescription drug benefit would cost during that time.

The proposal calls for the remaining $45.5 billion to come from future budget surpluses. All told, under the Clinton plan, Medicare would get a major infusion of cash from those expected surpluses -- a total of $794 billion over the next 15 years.

As the country began yesterday to look at the President's plan in greater detail, leaders on Capitol Hill reacted cautiously to the President's proposal. Administration officials have said they are heartened by Congressional response and believe that it might still be possible to push through reforms this year - despite a number of hurdles, including the short time left in the congressional season, and other issues (including a number of appropriations bills) competing for attention.

Medicare Proposal Highlights

Savings from choosing lower-cost plans would be passed on to beneficiaries at a rate of 75 cents for every dollar.

Savings: $8 billion over 10 years, starting in 2003.

Prescription Drug Benefit

• Costs $24 per month in 2002; $44 per month by 2008.
• Matches prescription drug payments up to $1,000 in 2002; $2,500 by 2008.
• Offers financial incentives for employers to provide a drug benefit to retirees at least equivalent to the new Medicare benefit.
• Excludes premiums and co-payments for individuals earning less than $11,000 or couples earning less than $17,000.
• Cost: $118 billion over 10 years, starting in 2002.

Deductibles and co-payments

• Clinical laboratory services would require a 20 percent co-payment.
• Deductible for doctor visits and other outpatient services, now $100 annually, would be indexed for inflation.
• Savings: $11 billion over 10 years.
• Preventive services offered by Medicare, such as pelvic exams and prostate cancer screenings, would no longer have co-payments or deductibles.
• Cost: $3 billion over 10 years (with health education campaign).
• Buy-in plan would allow those aged 62-65 to purchase Medicare benefits for $300 per month.
• Cost: $1.4 billion.

Dedicating $794 billion in budget surpluses over 15 years would extend the life of the trust fund until at least 2027.