Medicare Part C started in 1997, when Congress created the Medicare+Choice program through the Balanced Budget Act. The program was renamed Medicare Advantage in 2003 and has since grown into the way most Medicare beneficiaries get their coverage, with just over 35 million people enrolled as of February 2026.
Private Plans in Medicare Before Part C Existed
The groundwork was laid fifteen years before Part C had a name. The Tax Equity and Fiscal Responsibility Act of 1982 amended Section 1876 of the Social Security Act to make risk-based contracts between Medicare and Health Maintenance Organizations attractive to private insurers.1Centers for Medicare & Medicaid Services. Medicare Risk Contracting: Determinants of Market Entry Under those contracts, HMOs received a fixed monthly payment per enrollee set at 95 percent of what Medicare estimated it would otherwise spend on that person in the traditional program.2Social Security Administration. Social Security Act Section 1876 If the HMO delivered care for less, it kept the savings. If costs ran higher, it absorbed the loss.
Enrollment under these early risk contracts grew steadily, reaching about 4.2 million beneficiaries by 1997, roughly 14 percent of the Medicare population. But the arrangement had no formal statutory home within the structure of the Medicare program. That is what changed in 1997.
1997: Medicare+Choice and the Birth of Part C
The Balanced Budget Act of 1997 created the Medicare+Choice program, giving private-plan participation in Medicare its own statutory framework for the first time.3Centers for Medicare & Medicaid Services. Legislative Summary: Balanced Budget Act of 1997 Medicare and Medicaid Provisions This was the official start of what is now called Part C. Congress wanted to expand choices beyond HMOs while reining in Medicare spending, so the law authorized several new plan types:
- Preferred Provider Organizations, networks that let enrollees see out-of-network doctors at a higher cost
- Provider-Sponsored Organizations, plans run directly by hospitals and physician groups
- Private Fee-for-Service plans, which reimbursed providers per service without restricting which providers enrollees could see
- Medical Savings Account plans, high-deductible plans paired with a savings account, capped at 390,000 enrollees under a demonstration program
The cost-control side of the law hit private plans hard. The BBA reworked the payment formula and slowed its growth, leaving many insurers with payments they considered unsustainable. Between 1999 and 2003, the total number of participating plans dropped from 407 to 285, and enrollment fell by nearly 30 percent. Insurers cut supplemental benefits or pulled out of entire counties, and beneficiaries scrambled back to traditional Medicare. The Medicare+Choice years were widely viewed as a failure, and Congress soon tried a very different financial approach.
2003: The Rename to Medicare Advantage
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 overhauled the struggling program and renamed it Medicare Advantage.4Social Security Administration. Medicare Modernization Act Privacy Impact Assessment Where the BBA had squeezed plan payments, the MMA opened the tap. The law set county-level payment benchmarks at 100 percent of traditional Medicare spending or higher, and locked in annual increases that matched or exceeded the national growth rate of fee-for-service costs.5MedPAC. Rebalancing Medicare Advantage Benchmark Policy
The payment boost was substantial. Weighted by enrollment, plan payments rose about 10.9 percent over 2003 levels in the first year alone. The MMA also introduced a competitive bidding mechanism. Plans that could deliver Part A and Part B benefits for less than the benchmark kept 75 percent of the difference to fund extra benefits for enrollees, like vision or dental coverage. Plans bidding above the benchmark had to charge enrollees a premium to cover the gap.
The law also expanded the menu of plan types. It created Regional PPOs, designed to operate across multi-state areas, and Special Needs Plans tailored to specific populations such as people eligible for both Medicare and Medicaid, people with certain chronic conditions, and people living in institutional settings. Enrollment responded quickly. From a low of about 5 million in 2003, the program grew to over 11 million enrollees by 2010.
2010: The Affordable Care Act Restructures Payments
By the late 2000s, Medicare Advantage plans were being paid an average of 14 percent more per beneficiary than what traditional Medicare spent on comparable enrollees. The Affordable Care Act of 2010 targeted that gap. It restructured benchmarks and capped them so they could not exceed pre-ACA levels, gradually bringing payments closer to traditional Medicare spending.
Rather than cutting payments across the board, the ACA linked financial incentives to plan quality. Under the quality bonus payment program, plans achieving at least four stars on a five-star rating scale receive higher benchmarks, with an increase of five percentage points in most counties and ten percentage points in qualifying high-cost areas.6Centers for Medicare & Medicaid Services. Quality Bonus Payment Determinations By 2025, roughly 75 percent of Medicare Advantage enrollees were in plans receiving bonus payments.
Many industry observers predicted the ACA payment cuts would trigger another wave of plan withdrawals, like the one under Medicare+Choice. That didn’t happen. Enrollment kept climbing through the 2010s, partly because plans found efficiencies and partly because the quality bonuses cushioned the reductions for higher-performing plans.
2022: The Inflation Reduction Act Adds Drug Cost Caps
The Inflation Reduction Act of 2022 brought the most significant changes to prescription drug costs in Medicare’s history, and those changes apply to Medicare Advantage enrollees with drug coverage. Starting in 2025, out-of-pocket spending on Part D prescription drugs is capped at $2,000 per year, with the cap indexed to rise with per-capita Part D spending in later years. The law also caps insulin costs at $35 per month and eliminates cost-sharing for recommended vaccines. CMS now negotiates prices directly with manufacturers for certain high-cost drugs covered under Part D, with negotiated prices for the first batch of drugs taking effect in 2026.
How Enrollment Has Grown Since 1997
The enrollment arc tells the legislative story more clearly than anything else. Under the original risk contracts of the 1980s, enrollment grew slowly to about 4.2 million by 1997. The Medicare+Choice era saw that number drop sharply as plans fled underfunded markets. After the MMA’s payment increases in 2003, growth accelerated: 8 million enrollees (19 percent of beneficiaries) by 2007, 11.1 million (24 percent) by 2010, and 33 percent of all beneficiaries by 2017.
The growth hasn’t slowed. As of February 2026, just over 35 million people are enrolled in Medicare Advantage. In 2025, 54 percent of eligible beneficiaries chose a Medicare Advantage plan over traditional Medicare. What began in 1997 as a struggling reorganization of Medicare’s private-plan option is now the majority choice, a shift that would have been hard to imagine during the Medicare+Choice years.