Just like the overall health care system, the Medicare program is changing.

It's not just the shift to "managed care" and the health insurers' insistence that tests, procedures and even hospital admissions be authorized in advance. Medicare is also being affected by the Balanced Budget Act of 1997, which added new controls and restrictions on the program to save the federal government billions of dollars.

The legislation was initially criticized by some for making only minor changes to Medicare. Others claimed it would have little impact on individuals, with most changes felt only by hospitals, home health agencies and other providers of health care services. Both assessments were wrong. People who rely on Medicare are experiencing many changes, including these:

* Uncertainty about HMOs participating in Medicare + Choice.

Medicare beneficiaries who enroll in a health maintenance organization (HMO) get all their Medicare benefits from that plan. In turn, the government pays the plan a monthly premium, adjusted annually, for each beneficiary.

Research has indicated that HMOs have been paid more than necessary to cover the basic Medicare services. Consequently, many plans have offered extra benefits, such as prescription drug coverage at little or no additional cost, helping to attract new business. The budget act seeks to phase out this "overpayment" by restraining the rise in the federal contribution. The plans argue that they are not being overpaid. In fact, they say, they are not being paid enough to cover their costs.

Regardless of which side is correct, beneficiaries are affected. Some HMOs have pulled their Medicare operations out of areas of the country where they say they cannot make money, requiring beneficiaries to find new plans or return to the traditional Medicare program. In other cases, HMOs have announced that they will eliminate extra benefits such as prescription drugs or raise the premiums they charge for such benefits.

While it is tempting to blame the government for this turmoil, in actuality the medical marketplace is playing a strong role. Aside from the federal payment, HMOs must consider whether they can compete effectively and attract enough Medicare patients to be profitable. If their bottom line performance is not strong enough in a given area, they will adjust their benefits or pull out of the Medicare portion of the market entirely.

* Increased controls on home health services.

Another part of Medicare where the budget act sought to slow spending growth was for home health services, whose costs have been increasing rapidly over the past decade. Medicare is supposed to cover the medical needs of patients, including home health services used for skilled nursing care, rehabilitation and other urgent needs. Medicare also provides less-skilled benefits that help people with chronic problems remain in their homes. While these benefits are certainly valued by recipients, the 1997 law sought to save money by restricting home health care to skilled services.

But limits have been hard to impose because of the difficulty in defining exactly how many home health visits a person with a particular health condition needs. The interim payment system now in place sets a recommended ceiling on visits for each home health agency. These controls attempt to discourage agencies from making large numbers of visits for unskilled care, but some agencies are treating these rules as if they set an upper limit on visits for each individual beneficiary. As a result, some agencies have reduced benefits or even refused to serve potentially high-cost patients even when they need skilled services.

As with the HMO changes, not all of the blame for problems should be assigned to the budget act; agencies have often contributed to the problems of access to care. A more permanent system for payments is supposed to be put in place in October of 2000. That system is expected to include even tighter controls on spending, but it should also do a better job of ensuring that agencies are compensated for delivering appropriate care. Nonetheless, it may continue to be difficult to limit spending on home health without causing problems for beneficiaries who need this type of service.

* An increase in the Part B premium.

The most direct impact of the 1997 legislation on beneficiaries is through a higher premium to be phased in over time. A premium is not usually required for Part A, which covers inpatient hospital and other services. But the optional Part B, which covers physician services and outpatient hospital care, requires people to pay a portion of those Part B costs.

The budget act shifted some home health services out of Part A and into Part B, a change that will raise Part B premiums. With the cost of other Part B services continuing to grow rapidly, the premium is expected to double over the next nine years. Thus, the $45.50 monthly premium for 1999 will rise to about $95 in 2008.

In conclusion, some Medicare beneficiaries will be hurt by the combination of changes in the law and providers' response to those changes. While Congress may amend the legislation, it is likely that many of the changes will remain in place and continue to have a lasting impact on people enrolled in Medicare.