In response to a request by Senator John Melcher of the United States Senate Special Committee on Aging, the General Accounting Office (GAO) reviewed legislative proposals designed to protect Medicare enrollees from the financial hardships that often accompany catastrophic illness. The GAO originally examined six legislative proposals introduced into the first session of the 100th Congress, then eventually focused on H.R. 2470 and S. 1127, two bills expected to form the basic structure for the Medicare coverage that the full Congress will consider. The GAO also looked at the aspects of long-term care in S. 454. Following the review, the GAO concluded that H.R. 2470 and S. 1127 would add to the benefits available to the elderly, but that some of the elderly would still be at risk for substantial out-of-pocket health care expenses, especially for long-term care, even if the bills are enacted. This report contains: (1) a statement of the GAO objectives, scope, and methodology used in the review; (2) a review and comparison of H.R. 2470 and S. 1127 against the current Medicare program with respect to benefits to enrollees, their costs, and the program's financing mechanisms; (3) a discussion of important issues that may still need attention; and (4) a synthesis of the lessons learned from the operation of state-financed insurance programs for catastrophic illness that the Congress might consider in the development of a federal program. Fifteen tables are included. (NB)