NEW YORK (CNN/Money) - The sweeping economic proposals are in -- next up on President Bush's agenda may well be Medicare reform.

During the State of the Union address Jan. 28, Bush is expected to outline his plans to improve Medicare and deliver a long-awaited prescription-drug benefit to the 40 million Americans who rely on the program.

The details of Bush's plan are fuzzy but are likely to resemble those he has proposed in the past. What's different is that this year, he'll be making his case to a Republican Congress led by one of the most vocal proponents of Medicare reform, heart surgeon-turned-Tennessee's U.S. Sen. (and Majority Leader) Bill Frist.

For the tens of millions of Americans who will be enrolling in Medicare in the coming decades, the program is likely to be very different than what it is today. Under the current system, the government is the gatekeeper of medical bills for people 65 and older or permanently disabled.

But down the road, the government may be paying private health insurance companies to fill this role. The result may be not unlike what we've seen with deregulation of other industries, including phone, energy and airlines.

At the same time that Medicare's program costs are spiraling higher, those enrolled in the program are exposed to large out-of-pocket expenses. Traditional Medicare costs $58.70 a month, does not allow for prescription drugs, excludes many preventative services, and has high deductibles and co-payments on hospital stays and long-term nursing. For this reason, enrollees often supplement their Medicare by paying for additional insurance.

Both Bush and Frist believe that the solution to rising costs is to give private health plans more incentive to compete with traditional Medicare. The private plans, they believe, will be able to operate more efficiently than Medicare.

When all is said and done, what we could see is an expansion of the Medicare + Choice program that's already in place.

The Medicare + Choice program allows Medicare participants to choose between traditional Medicare and a variety of private plans. (Because health management organizations are the primary alternative, Medicare + Choice plans are often referred to as Medicare HMOs.) In 2002, only 13 percent of the 40 million Americans with Medicare were enrolled in these plans.

If you choose a Medicare + Choice plan, you continue to pay the $58.70 premium, and Medicare, in turn, pays out a portion to the private insurer. Some of the private insurers also charge an additional premium to the enrollee. Because many of these plans offer prescription drug benefits and other benefits not covered by traditional Medicare, you may save money by not having to pay for supplemental insurance.

For now, only 61 percent of Medicare beneficiaries currently have the option of enrolling in a Medicare + Choice plan, down from 72 percent in 1999. Only 5 percent of rural residents currently have such an option.

The history of Medicare + Choice, however, shows that private insurers also have a tough time coping with rising costs and aren't necessarily a cure-all.

According to Judith Stein, executive director of the Center for Medicare Advocacy, Medicare began offering private plans in the 1980s, and they were initially a pretty good deal, with low premiums and exceptional benefits. "But over the course of the last three years, managed care plans have pulled out because it's no longer as profitable," she said.

In 1998, 346 Medicare HMOs were contracted with Medicare. In 2002, that number was less than half.

The private plans that have continued doing business with Medicare have raised their premiums and cut their benefits, according to a paper published by the Kaiser Family Foundation. In 1999, the average premium for such plans was about $32, with 80 percent of enrollees paying no premium. In 2002, the average premium was $54, and only 40 percent of enrollees paid no premium.

Prescription drug benefits from these plans have also become less generous. Currently, 51 percent of Medicare HMOs with drug benefits cover only generic drugs, and four in 10 enrollees in such plans face an annual prescription drug benefit cap of $750 or less.

"A person who's relatively well and doesn't need name-brand drugs might be able to save some money with the plans, but they aren't necessarily the best choice for someone who's very sick," said Stein.

Because these plans are private, they can drop out of the program, raise rates and change benefits on an annual basis if they see fit. "There are lots of stories of seniors and people with disabilities being left high and dry when the plans pulled out," said Tricia Neuman, a vice president for the Kaiser Family Foundation who specializes in Medicare. "There is nothing requiring private plans to maintain their commitment."

In order to entice more private companies to do business with Medicare, Bush would need to significantly increase Medicare's payments to these plans. Even then, the government currently has no way of forcing a plan into a certain region, let alone keeping it there.

Although it's unclear what will become of traditional Medicare, Bush has said that seniors who are happy with the current system would have the option of keeping the coverage they have with no changes. This option may also be available to people eligible for Medicare in the next five-to-10 years.