The Bush administration is finalizing a proposal that would fundamentally redefine Medicare, creating a prescription drug benefit and offering it to patients who are willing to join a new version of the program that relies on managed care, sources said yesterday.

The plan, the centerpiece of the president's domestic agenda this year along with a new round of tax cuts, is aimed at slowing the growth of Medicare costs over the coming decades by attracting patients into what administration officials hope will be a less expensive system dominated by health maintenance organizations and other private health plans.

The proposal would not compel any older American to leave traditional fee-for-service Medicare and join a private plan. But it would include a variety of popular features -- including the drug coverage and a new provision to cover catastrophic medical costs -- that are intended as powerful inducements for patients to switch.

According to sources inside and outside the administration, the plan would be phased in over a period of years and would, perhaps, take effect at different times in various parts of the country, depending on how successful the government is at persuading private health plans to take part. In the meantime, President Bush intends to recommend an interim drug benefit that would focus, in particular, on assistance for elderly people with low incomes.

The administration is still trying to calculate how much the proposal would cost, but recent estimates have hovered at perhaps $350 billion over the next decade. That would be far more than the $190 billion the president has allotted to Medicare revisions in his past budgets -- but less than what some members of Congress in both political parties believe is needed for the drug benefits alone.

The proposal embraces many of the most far-reaching -- and controversial -- ideas of a faction of Republicans and a tiny core of Democrats who have argued for several years that the private marketplace is the best and most economical place in which the health care of the nation's elderly population can be handled.

But administration officials, sources said, believe that their ideas may prove more politically palatable than similar proposals, because their plan would not force into managed care patients who are in Medicare now or who will soon turn 65, the age at which people become eligible for benefits under the federal health insurance program for the elderly. The change in the program's financial structure would not be as extensive as the revamp recommended by Rep. Bill Thomas (R-Calif.) and Sen. John Breaux (D-La.), the leaders of a bitterly divided commission that examined Medicare's long-term future a few years ago.

Still, the proposal is likely to face fierce opposition in Congress -- which must approve the change -- because it goes far beyond the proposals put forward over the past few years by Democrats and some Republicans who believe the main improvement the program needs is a prescription drug benefit. Since it began in the mid-1960s, Medicare has paid for the medicines patients take in the hospital, but not for the ones prescribed for use at home.

In each of the past two years, the GOP-led House has approved a Medicare bill that would have added the drug coverage and would have created small experiments with additional market competition among private health plans. But the bills would not have created an entirely new part of the program, as envisioned by the White House. Last summer, the Senate killed several Medicare proposals before giving up.

"I'm paid to be optimistic . . . but this is kind of a heavy lift," one senior GOP congressional aide said.

Even as Bush prepares to promote his ideas for Medicare prominently in his State of the Union address Tuesday night and in a speech in the Midwest the following day, senior health, budget and legislative aides continue to hone the details. Some important aspects may not be decided for perhaps another month. The public attention Bush will place on the issue next week does not mean the entire plan has been defined, one source said. "There are lots of moving parts still."

Key questions that have not been resolved include whether a separate drug benefit should be available for people unwilling to enter the new part of the program -- and whether joining that part would be voluntary permanently or only in the short term.

Even in a White House with a penchant for secrecy, the new Medicare plan has been guarded uncommonly closely, and few of its details have been vetted with the administration's allies in the policy community or with key members of Congress, who will have influence on its final form.

Several sources, however, confirmed the proposal's essential contours.

Preparing the proposal is not the first time that Bush has sought to promote changes in Medicare. He said during the 2000 presidential campaign that he favored a larger role for the private sector, and he set forth in the summer of 2001 principles for the program's modernization. The new plan will provide those ideas with far more details.

The program's new version, for instance, would combine the yearly deductibles that Medicare patients now pay up front before their coverage begins for doctors' visits and hospital stays.

The small group of aides, which has worked intensely for less than two months to develop the proposal, has debated whether it would be strategically wiser for Bush to lay out relatively general ideas or a detailed policy statement that resembles actual legislation. The question remains under debate, although the final version is likely to fall somewhere between the two.

According to sources, some aides have argued that too much detail could antagonize various factions in Congress, while others have contended that only a well-articulated proposal could provide enough momentum to break through the legislative divisions that have blocked efforts to change Medicare -- one of the nation's most popular and most expensive programs.

The tilt toward competition among private health plans comes as the administration has been attempting to surmount widespread difficulties with another part of Medicare, known as Medicare+Choice, which was created in 1997 to encourage patients to join managed care. Enrollment -- currently about 5 million of Medicare's approximately 40 million patients -- has grown far more slowly than expected, in part because HMOs have dropped out, complaining that Medicare wasn't paying them enough.

The president's new proposal will try to make Medicare more popular with such plans, although it remains unclear exactly what strategy will be employed.