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[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1834 Introduced in Senate (IS)]

110th CONGRESS
  1st Session
                                S. 1834

 To improve the health of Americans through the gradual elimination of 
                           tobacco products.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             July 19, 2007

   Mr. Enzi introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To improve the health of Americans through the gradual elimination of 
                           tobacco products.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Help End Addiction 
to Lethal Tobacco Habits Act'' or the ``HEALTH Act''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
                 TITLE I--REQUIREMENTS ON MANUFACTURERS

Sec. 101. Reports.
Sec. 102. Tobacco testing.
Sec. 103. Warning labels.
                     TITLE II--TOBACCO USE SURVEYS

Sec. 201. Tobacco use survey.
          TITLE III--REDUCTION IN UNITED STATES TOBACCO USERS

Sec. 301. Amendment to the Public Health Service Act.
                      TITLE IV--REVENUE PROVISIONS

Sec. 401. Increase in excise tax rate on tobacco products based on 
                            relative health risk.
                   TITLE V--CESSATION AND PREVENTION

Sec. 501. Food and Drug Administration Tobacco Risk Classification 
                            Panel.
Sec. 502. Authority to prohibit nicotine.
Sec. 503. Counter-advertising.
Sec. 504. Medicare coverage of counseling for cessation of tobacco use.
Sec. 505. Medicare coverage of tobacco cessation pharmacotherapy.
Sec. 506. Tobacco cessation for Federal employee health benefits plans.
Sec. 507. Matching grants for States that use a significant portion of 
                            master settlement agreement funds for 
                            tobacco control and cessation.

                 TITLE I--REQUIREMENTS ON MANUFACTURERS

SEC. 101. REPORTS.

    (a) Federal Cigarette Labeling.--Section 7(a) of the Federal 
Cigarette Labeling and Advertising Act (15 U.S.C. 1335a(a)) is amended 
by striking ``which does not identify the company which uses the 
ingredients or the brand of cigarettes which contain the ingredients'' 
and inserting ``and a specification of the quantity of nicotine and tar 
contained in each such product''.
    (b) Smokeless Tobacco.--Section 7(a) of the Comprehensive Smokeless 
Tobacco Health Education Act of 1986 (15 U.S.C. 4403(a)(1)) is 
amended--
            (1) in subparagraph (A), by striking ``which does not 
        identify the company which uses the ingredients or the brand of 
        smokeless tobacco which contains the ingredients''; and
            (2) in subparagraph (B), by inserting ``and tar'' after 
        ``nicotine''.

SEC. 102. TOBACCO TESTING.

    (a) Federal Cigarette Labeling and Advertising Act.--Section 7 of 
the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1335a) is 
amended by adding at the end the following:
    ``(c) Tobacco Testing.--
            ``(1) Standards and practices for measuring and analyzing 
        tobacco constituents.--
                    ``(A) In general.--Not later than 18 months after 
                the date of enactment of the Help End Addiction to 
                Lethal Tobacco Habits Act, the Secretary of Commerce, 
                acting through the Director of the National Institute 
                of Standards and Technology and in consultation with 
                the Secretary of Health and Human Services, shall 
                develop and publish in the Federal Register standards 
                and best practices for--
                            ``(i) the sampling of tobacco and tobacco 
                        products for testing; and
                            ``(ii) accurate measurement and analysis of 
                        tobacco constituents, including--
                                    ``(I) nicotine;
                                    ``(II) tar;
                                    ``(III) carbon monoxide; and
                                    ``(IV) any other constituent as may 
                                be necessary.
                    ``(B) Components.--The standards and best practices 
                developed under subparagraph (A) shall address the need 
                for--
                            ``(i) standardized measurement and 
                        verification practices for tobacco constituent 
                        reports made by all persons under this section, 
                        taking into account--
                                    ``(I) protocols and standards 
                                currently in use by persons making such 
                                reports;
                                    ``(II) existing protocols and 
                                standards developed by members of the 
                                public health community;
                                    ``(III) the report required under 
                                subsection (b)(1)(B); and
                                    ``(IV) such other factors as the 
                                Secretary of Commerce and the Secretary 
                                of Health and Human Services determine 
                                to be appropriate;
                            ``(ii) measurement and verification of 
                        actions taken to reduce the harm or exposure 
                        from tobacco products; and
                            ``(iii) such other measurement and 
                        verification standards as the Secretary of 
                        Commerce and the Secretary of Health and Human 
                        Services determine to be appropriate.
                    ``(C) Options.--The standards and best practices 
                developed under subparagraph (A) may require the 
                measurement of the content, rather than the yield of 
                tobacco ingredients, components, or additives.
            ``(2) Applicable law.--To ensure that high quality 
        information is produced, the standards and best practices 
        developed under paragraph (1) shall conform to the guidelines 
        established under section 515 of the Treasury and General 
        Government Appropriations Act, 2001 (commonly known as the Data 
        Quality Act) (44 U.S.C. 3516 note; 114 Stat. 2763A-1543), as 
        enacted into law by section 1(a)(3) of Public Law 106-554.
            ``(3) Transitional measurement standards.--Until such time 
        as the standards and best practices developed under paragraph 
        (1) are available, persons reporting to Federal Trade 
        Commission under this section shall use--
                    ``(A) the conditions described in the International 
                Organization for Standardization standard ISO 3308;
                    ``(B) the International Organization for 
                Standardization standards 4387 to determine tar, 10315 
                to determine nicotine, and 8454 to determine carbon 
                monoxide; and
                    ``(C) the sampling specified in the International 
                Organization for Standardization standard ISO 8243.''.
    (b) Comprehensive Smokeless Tobacco Health Education Act of 1986.--
Section 4 of the Comprehensive Smokeless Tobacco Health Education Act 
of 1986 (15 U.S.C. 4403) is amended by adding at the end the following:
    ``(c) Tobacco Testing.--
            ``(1) Standards and practices for measuring and analyzing 
        smokeless tobacco constituents.--
                    ``(A) In general.--Not later than 18 months after 
                the date of enactment of the Help End Addiction to 
                Lethal Tobacco Habits Act, the Secretary of Commerce, 
                acting through the Director of the National Institute 
                of Standards and Technology and in consultation with 
                the Secretary of Health and Human Services, shall 
                develop and publish in the Federal Register standards 
                and best practices for--
                            ``(i) the sampling of smokeless tobacco and 
                        tobacco products for testing; and
                            ``(ii) accurate measurement and analysis of 
                        smokeless tobacco constituents, including--
                                    ``(I) nicotine;
                                    ``(II) tar;
                                    ``(III) nitrosamines; and
                                    ``(IV) any other constituent as may 
                                be necessary.
                    ``(B) Components.--The standards and best practices 
                developed under subparagraph (A) shall address the need 
                for--
                            ``(i) standardized measurement and 
                        verification practices for tobacco constituent 
                        reports made by all persons under this section, 
                        taking into account--
                                    ``(I) protocols and standards 
                                currently in use by persons making such 
                                reports;
                                    ``(II) existing protocols and 
                                standards developed by members of the 
                                public health community;
                                    ``(III) the report required under 
                                subsection (b)(1)(B); and
                                    ``(IV) such other factors as the 
                                Secretary of Commerce and the Secretary 
                                of Health and Human Services determine 
                                to be appropriate;
                            ``(ii) measurement and verification of 
                        actions taken to reduce the harm or exposure 
                        from smokeless tobacco products; and
                            ``(iii) such other measurement and 
                        verification standards as the Secretary of 
                        Commerce and the Secretary of Health and Human 
                        Services determine to be appropriate.
                    ``(C) Options.--The standards and best practices 
                developed under subparagraph (A) may require the 
                measurement of the content, rather than the yield of 
                tobacco ingredients, components, or additives.
            ``(2) Applicable law.--To ensure that high quality 
        information is produced, the standards and best practices 
        developed under paragraph (1) shall conform to the guidelines 
        established under section 515 of the Treasury and General 
        Government Appropriations Act, 2001 (commonly known as the Data 
        Quality Act) (44 U.S.C. 3516 note; 114 Stat. 2763A-1543), as 
        enacted into law by section 1(a)(3) of Public Law 106-554.
            ``(3) Transitional measurement standards.--Until such time 
        as the standards and best practices developed under paragraph 
        (1) are available, persons reporting to Federal Trade 
        Commission under this section shall use--
                    ``(A) the International Organization for 
                Standardization standards 15592-3 to determine tar and 
                15152 to determine nicotine; and
                    ``(B) the sampling specified in the International 
                Organization for Standardization standard ISO 4874.''.

SEC. 103. WARNING LABELS.

    (a) Cigarette Labeling and Advertising Warnings.--
            (1) In general.--Section 4(a) of the Federal Cigarette 
        Labeling and Advertising Act (15 U.S.C. 1333(a)) is amended--
                    (A) in paragraph (1) by striking ``section, one of 
                the following labels:'' and all that follows, and 
                inserting the following:
    ``section--
            ``(A) 1 of the following labels:
            ``SURGEON GENERAL'S WARNING: Smoking kills.
            ``SURGEON GENERAL'S WARNING: Smoking seriously harms you 
        and others around you.
            ``SURGEON GENERAL'S WARNING: Smokers die younger.
            ``SURGEON GENERAL'S WARNING: Smoking clogs the arteries and 
        causes heart attacks and strokes.
            ``SURGEON GENERAL'S WARNING: Cigarettes cause fatal lung 
        cancer.
            ``SURGEON GENERAL'S WARNING: Smoking when pregnant harms 
        your baby.
            ``SURGEON GENERAL'S WARNING: Protect children: don't make 
        them breathe your smoke.
            ``SURGEON GENERAL'S WARNING: Smoking is highly addictive, 
        don't start.
            ``SURGEON GENERAL'S WARNING: Stopping smoking reduces the 
        risk of fatal heart and lung diseases.
            ``SURGEON GENERAL'S WARNING: Smoking can cause a slow and 
        painful death.
            ``SURGEON GENERAL'S WARNING: Get help now to stop smoking: 
        (telephone/postal address/Internet address/consult your doctor/
        pharmacist).
            ``SURGEON GENERAL'S WARNING: Smoking may reduce the blood 
        flow and causes impotence.
            ``SURGEON GENERAL'S WARNING: Smoking causes aging of the 
        skin.
            ``SURGEON GENERAL'S WARNING: Smoking can damage the sperm 
        and decreases fertility.
            ``SURGEON GENERAL'S WARNING: Smoke contains the toxic 
        chemicals benzene, nitrosamines, formaldehyde, and hydrogen 
        cyanide.
            ``SURGEON GENERAL'S WARNING: Cigarettes are addictive; and
    ``(B) a label on 1 side of the package indicating the tar, 
nicotine, and carbon monoxide yields of the cigarettes so that at least 
10 percent of the corresponding surface is covered, such label to be 
accompanied by the following statements: `Nicotine is addictive.', and 
`Tar and Carbon Monoxide are harmful; there is no safe level.'.'';
                    (B) in paragraph (2) by striking ``section, one of 
                the following labels:'' and all that follows, and 
                inserting the following:
    ``section--
            ``(A) 1 of the following labels:
            ``SURGEON GENERAL'S WARNING: Smoking kills.
            ``SURGEON GENERAL'S WARNING: Smoking seriously harms you 
        and others around you.
            ``SURGEON GENERAL'S WARNING: Smokers die younger.
            ``SURGEON GENERAL'S WARNING: Smoking clogs the arteries and 
        causes heart attacks and strokes.
            ``SURGEON GENERAL'S WARNING: Cigarettes cause fatal lung 
        cancer.
            ``SURGEON GENERAL'S WARNING: Smoking when pregnant harms 
        your baby.
            ``SURGEON GENERAL'S WARNING: Protect children: don't make 
        them breathe your smoke.
            ``SURGEON GENERAL'S WARNING: Smoking is highly addictive, 
        don't start.
            ``SURGEON GENERAL'S WARNING: Stopping smoking reduces the 
        risk of fatal heart and lung diseases.
            ``SURGEON GENERAL'S WARNING: Smoking can cause a slow and 
        painful death.
            ``SURGEON GENERAL'S WARNING: Get help now to stop smoking: 
        (telephone/postal address/Internet address/consult your doctor/
        pharmacist).
            ``SURGEON GENERAL'S WARNING: Smoking may reduce the blood 
        flow and causes impotence.
            ``SURGEON GENERAL'S WARNING: Smoking causes aging of the 
        skin.
            ``SURGEON GENERAL'S WARNING: Smoking can damage the sperm 
        and decreases fertility.
            ``SURGEON GENERAL'S WARNING: Smoke contains the toxic 
        chemicals benzene, nitrosamines, formaldehyde, and hydrogen 
        cyanide.
            ``SURGEON GENERAL'S WARNING: Cigarettes are addictive; and
    ``(B) a label on the advertisement indicating the tar, nicotine, 
and carbon monoxide yields of the cigarettes so that at least 10 
percent of the surface is covered, such label to be accompanied by the 
following statements: `Nicotine is addictive.', and `Tar and Carbon 
Monoxide are harmful; there is no safe level.'.''; and
                    (C) in paragraph (3) by striking ``section, one of 
                the following labels:'' and all that follows, and 
                inserting the following:
    ``section--
            ``(A) 1 of the following labels:
            ``SURGEON GENERAL'S WARNING: Smoking kills.
            ``SURGEON GENERAL'S WARNING: Smoking seriously harms you 
        and others around you.
            ``SURGEON GENERAL'S WARNING: Smokers die younger.
            ``SURGEON GENERAL'S WARNING: Smoking clogs the arteries and 
        causes heart attacks and strokes.
            ``SURGEON GENERAL'S WARNING: Cigarettes cause fatal lung 
        cancer.
            ``SURGEON GENERAL'S WARNING: Smoking when pregnant harms 
        your baby.
            ``SURGEON GENERAL'S WARNING: Protect children: don't make 
        them breathe your smoke.
            ``SURGEON GENERAL'S WARNING: Smoking is highly addictive, 
        don't start.
            ``SURGEON GENERAL'S WARNING: Stopping smoking reduces the 
        risk of fatal heart and lung diseases.
            ``SURGEON GENERAL'S WARNING: Smoking can cause a slow and 
        painful death.
            ``SURGEON GENERAL'S WARNING: Get help now to stop smoking: 
        (telephone/postal address/Internet address/consult your doctor/
        pharmacist).
            ``SURGEON GENERAL'S WARNING: Smoking may reduce the blood 
        flow and causes impotence.
            ``SURGEON GENERAL'S WARNING: Smoking causes aging of the 
        skin.
            ``SURGEON GENERAL'S WARNING: Smoking can damage the sperm 
        and decreases fertility.
            ``SURGEON GENERAL'S WARNING: Smoke contains the toxic 
        chemicals benzene, nitrosamines, formaldehyde, and hydrogen 
        cyanide.
            ``SURGEON GENERAL'S WARNING: Cigarettes are addictive; and
    ``(B) a label on the advertisement indicating the tar, nicotine, 
and carbon monoxide yields of the cigarettes so that at least 10 
percent of the surface is covered, such label to be accompanied by the 
following statements: `Nicotine is addictive.', and `Tar and Carbon 
Monoxide are harmful; there is no safe level.'.''.
            (2) Location and graphics.--Section 4(b) of the Federal 
        Cigarette Labeling and Advertising Act (15 U.S.C. 1333(b)) is 
        amended--
                    (A) in paragraph (1), by striking ``shall be 
                located in the place label statements were'' and all 
                that follows through the end and inserting ``shall:
            ``(A) Occupy at least 50 percent of the front and rear 
        panels of the package on which it is displayed and printed 
        directly on the package underneath the cellophane or other 
        clear wrapping. All text of the warning described in such 
        paragraph (1) shall be in conspicuous and legible 17-point 
        type, unless the text of the label statement would occupy more 
        than 70 percent of such area, in which case the text may be in 
        a smaller conspicuous and legible type size. The text shall be 
        black on a white background, or white on a black background, in 
        a manner that contrasts, by typography, layout, or color, with 
        all other printed material on the package.
            ``(B) Be accompanied by color graphics depicting the 
        negative health consequences of smoking.'';
                    (B) in paragraph (2), by adding at the end the 
                following: ``Each label statement shall be accompanied 
                by color graphics depicting the negative health 
                consequences of smoking.''; and
                    (C) in paragraph (3), by adding at the end the 
                following: ``Each label statement shall be accompanied 
                by color graphics depicting the negative health 
                consequences of smoking.''.
            (3) Label rotation.--Section 4(c)(1) of the Federal 
        Cigarette Labeling and Advertising Act (15 U.S.C. 1333(c)(1)) 
        is amended--
                    (A) by striking ``quarterly''; and
                    (B) by inserting before the period at the end ``in 
                equal distribution and display.''.
    (b) Smokeless Tobacco Labels and Advertising Warnings.--Section 
3(a)(1) of the Comprehensive Smokeless Tobacco Health Education Act of 
1986 (15 U.S.C. 4402(a)(1)) is amended--
            (1) in subsection (a)(1), by striking ``Act, one of the 
        following labels:'' and all that follows, and inserting the 
        following:
    ``Act--
            ``(A) 1 of the following labels:
            ``WARNING: Smokeless tobacco is addictive.
            ``WARNING: This product causes mouth diseases.
            ``WARNING: Use of this product can cause cancer.
            ``WARNING: This tobacco product can damage your health and 
        is addictive.
            ``WARNING: This product contains cancer-causing agents.
            ``WARNING: Tobacco can kill.
            ``WARNING: Tobacco users die younger.
            ``WARNING: Tobacco use when pregnant harms your baby.
            ``WARNING: Tobacco is highly addictive, don't start.
            ``WARNING: Get help now to stop using tobacco: (telephone/
        postal address/Internet address/consult your doctor/
        pharmacist).
            ``WARNING: Tobacco contains the toxic chemicals benzene, 
        nitrosamines, formaldehyde, and hydrogen cyanide; and
    ``(B) a label on 1 side of the package indicating the tar, 
nicotine, and nitrosamines yields of the products so that at least 10 
percent of the corresponding surface is covered, such label to be 
accompanied by the following statements: `Nicotine is addictive.', and 
`Tar and Nitrosamines are harmful; there is no safe level.'.'';
            (2) by striking subsection (b) and inserting the following:
    ``(b) Label Format.--Each label statement required by paragraph (1) 
shall:
            ``(1) Be located on the 2 principal display panels of the 
        package, but not the bottom, and each label statement shall 
        comprise at least 40 percent of such panels of the package. All 
        of the text of the warning described in paragraph (1) shall 
        appear in 17 point conspicuous and legible type in a manner 
        that contrasts by typography, layout, or color, with all other 
        printed material on the package. The text of the label 
        statement shall be black on a white background, or white on a 
        black background, in an alternating fashion under the plan 
        submitted under subsection (d), except that if the text of a 
        label statement would occupy more than 70 percent of the area 
        specified by subparagraph (A), such text may appear in a 
        smaller type size.''; and
            (3) in subsection (c)(2)--
                    (A) by striking ``every 4 months''; and
                    (B) by inserting before the period at the end ``in 
                equal distribution and display''.

                     TITLE II--TOBACCO USE SURVEYS

SEC. 201. TOBACCO USE SURVEY.

    (a) Annual Survey.--Not later than January 1, 2008, and annually 
thereafter, the Secretary shall conduct a survey to support the 
calculation of allowances under title XXX of the Public Health Service 
Act (as added by section 301). Such survey shall--
            (1) determine--
                    (A) the percentage of all individuals who used a 
                tobacco product within the 30-day period prior to the 
                conduct of the survey; and
                    (B) the percentage of individuals identified under 
                paragraph (1) who identify each brand of each type of 
                tobacco product as the usual brand smoked or used 
                within such 30-day period;
            (2) be conducted in coordination with existing survey 
        activities;
            (3) be based on a nationally representative sample of at 
        least 200,000 completed interviews of individuals;
            (4) be a household-based in person survey; and
            (5) contain any other elements as may be necessary.
    (b) Existing Data Sources.--The Secretary may combine, replace or 
otherwise alter the following existing surveys to collect needed data 
in the most efficient and cost-effective manner:
            (1) The National Health Interview Survey.
            (2) The National Survey on Drug Use and Health under 
        section 505 of the Public Health Service Act (42 U.S.C. 290aa-
        4).
            (3) The Behavior Risk Factor Surveillance Survey.
            (4) The Monitoring the Future study.
            (5) The Youth Risk Behavior Surveillance System.
            (6) The current Population Survey Tobacco Use Supplement.

          TITLE III--REDUCTION IN UNITED STATES TOBACCO USERS

SEC. 301. AMENDMENT TO THE PUBLIC HEALTH SERVICE ACT.

    The Public Health Service Act (42 U.S.C. 201 et seq.) is amended by 
adding at the end the following:

         ``TITLE XXX--REDUCTION IN UNITED STATES TOBACCO USERS

``SEC. 3001. PURPOSE.

    ``It is the purpose of this title to--
            ``(1) reduce the adverse health effects of tobacco use 
        through reductions in the annual size of the tobacco market 
        from 2006 levels in the United States;
            ``(2) effectuate such reductions by requiring compliance by 
        tobacco manufacturers with prescribed user limitations by 
        specified deadlines, which limitations may be met through 
        alternative methods of compliance provided by a market share 
        allocation and transfer system; and
            ``(3) encourage tobacco control and prevention, and smoking 
        cessation.

``SEC. 3002. DEFINITIONS.

    ``In this title:
            ``(1) Actual 2006 tobacco users.--The term `actual 2006 
        tobacco users' for affected brands means the total number of 
        United States tobacco users in calendar year 2006 as determined 
        using data reported in surveys under title II of the Help End 
        Addiction to Lethal Tobacco Habits Act.
            ``(2) Affected brand.--The term `affected brand' means a 
        brand marketed by an affected manufacturer that is subject to 
        tobacco user reduction requirements or limitations under this 
        title.
            ``(3) Affected manufacturer.--The term `affected 
        manufacturer' means a manufacturer of tobacco products (as 
        defined in section 5702 of the Internal Revenue Code of 1986) 
        who applies for a permit under section 40.62 of title 26, Code 
        of Federal Regulations (or successor regulations).
            ``(4) Allowable 2006 tobacco users.--The term `allowable 
        2006 tobacco users' means a federally enforceable limitation on 
        the number of United States tobacco users applicable to the 
        brand.
            ``(5) Allowance.--The term `allowance' means an 
        authorization, allocated to an affected brand by the Secretary 
        under this title, to sell to, during or after a specified 
        calendar year, 1 United States tobacco user.
            ``(6) Baseline.--The term `baseline' means the number of 
        United States tobacco users of an affected brand, calculated as 
        follows:
                    ``(A) For each affected brand that was in 
                commercial operation as of January 1, 2007, the 
                baseline shall be the annual average number of United 
                States tobacco users of the brand during calendar years 
                2004, 2005, and 2006, as determined using data recorded 
                by the Department of Health and Human Services pursuant 
                to surveys under the following:
                            ``(i) The National Health Interview Survey.
                            ``(ii) The National Survey on Drug Use and 
                        Health under section 505 of the Public Health 
                        Service Act (42 U.S.C. 290aa-4).
                            ``(iii) The Behavior Risk Factor 
                        Surveillance Survey.
                            ``(iv) The Monitoring the Future study.
                            ``(v) The Youth Risk Behavior Surveillance 
                        System.
                            ``(vi) The current Population Survey 
                        Tobacco Use Supplement.
                    ``(B) For any affected brand for which such survey 
                data was not collected, the baseline shall be the 
                annual average number of tobacco users for those years, 
                as calculated pursuant to a method which the Secretary 
                shall prescribe by regulation not later than 9 months 
                after the date of enactment of this title.
                    ``(C) The Secretary may, upon application or on his 
                or her own motion, supplement data needed in support of 
                this title and correct any factual errors in data from 
                which baselines have been calculated. Corrected data 
                shall be used for purposes of issuing allowances under 
                the title. Such corrections shall not be subject to 
                judicial review, nor shall the failure of the Secretary 
                to correct an alleged factual error in such reports be 
                subject to judicial review.
            ``(7) Brand.--The term `brand' has the meaning given such 
        term in section 5702 of the Internal Revenue Code of 1986.
            ``(8) Compliance plan.--The term `compliance plan' means a 
        schedule and description of the method or methods for 
        compliance and certification by the owner or operator that the 
        manufacturer is in compliance with the requirements of this 
        title.
            ``(9) Designated representative.--The term `designated 
        representative' means a responsible person or official 
        authorized by the owner or operator of an affected brand to 
        represent the owner or operator in matters pertaining to the 
        holding, transfer, or disposition of allowances allocated to an 
        affected brand, and the submission of and compliance with 
        permits, permit applications, and compliance plans for the 
        affected brand.
            ``(10) Existing brand.--The term `existing brand' means a 
        brand of tobacco product that commenced commercial distribution 
        before the date of enactment of this title.
            ``(11) New brand.--The term `new brand' means a brand of 
        tobacco product that commences commercial distribution on or 
        after the date of enactment of this title.
            ``(12) Permitting authority.--The term `permitting 
        authority' means the Alcohol and Tobacco Tax and Trade Bureau.
            ``(13) United states tobacco user.--The term `United States 
        tobacco user' means a person in the United States who uses a 
        tobacco product (as defined in section 5702 of the Internal 
        Revenue Code of 1986) as determined using surveys described in 
        title II of the Help End Addiction to Lethal Tobacco Habits 
        Act.

``SEC. 3003. UNITED STATES TOBACCO USER ALLOWANCE PROGRAM FOR EXISTING 
              AND NEW BRANDS.

    ``(a) Allocations of Annual Allowances for Existing and New 
Brands.--
            ``(1) In general.--For the United States tobacco user 
        limitation programs under this title, the Secretary shall 
        allocate annual allowances for the affected brand, to be held 
        or distributed by the designated representative of the owner or 
        operator of each affected brand of an affected manufacturer in 
        accordance with this title, in an amount that is equal to the 
        annual United States tobacco user limitation calculated under 
        this section and sections 3004, 3005, or 3007, except as 
        otherwise specifically provided elsewhere in this title.
            ``(2) Limitation.--
                    ``(A) In general.--Except as provided in section 
                3007, beginning on January 1, 2015, the Secretary shall 
                not allocate annual allowances pursuant to section 3005 
                in such an amount as would result in total annual 
                allowances in excess of 30,000,000. For purposes of the 
                preceding sentence, the Secretary shall not take into 
                account unused allowances carried forward by owners and 
                operators of affected brands or by other persons 
                holding such allowances, following the year for which 
                they were allocated.
                    ``(B) Pro rata reductions.--If determined necessary 
                to comply with the limitation imposed under 
                subparagraph (A), the Secretary shall reduce, on a pro 
                rata basis, the Phase II allowance allocations for each 
                affected brand, subject to the requirements of section 
                3005.
            ``(3) Annual allocation.--The Secretary shall allocate 
        allowances for each affected brand of an affected manufacturer 
        annually, as provided for in this section, section 3004, and 
        section 3005.
            ``(4) Removal of brands.--Except as provided for in section 
        3007, the removal of an existing affected brand or manufacturer 
        from commercial operation at any time after the date of the 
        enactment of this title shall not terminate or otherwise affect 
        the allocation of allowances pursuant to section 3004 or 3005 
        to which the brand is entitled. Allowances shall be allocated 
        by the Secretary without cost to the recipient.
            ``(5) Election.--Any person who may make an election 
        concerning the amount of allowances to be allocated to a brand 
        or brands shall make such election and so inform the Secretary 
        not later than March 31, 2015, in the case of an election under 
        section 3005. If such person fails to make such election, the 
        Secretary shall set forth for each brand owned or operated by 
        such person, the amount of allowances reflecting the election 
        that would, in the judgment of the Secretary, provide the 
        greatest benefit for the owner or operator of the brand.
    ``(b) Allowance Transfer System.--
            ``(1) In general.--Allowances allocated under this title 
        may be transferred among the designated representatives of the 
        owners or operators of affected manufacturers under this title 
        and any other person who holds such allowances, as provided for 
        by the allowance system regulations promulgated under paragraph 
        (2).
            ``(2) Regulations.--Not later than 18 months after the date 
        of enactment of this title, the Secretary shall promulgate 
        regulations for purposes of paragraph (1). Such regulations 
        shall--
                    ``(A) provide for the establishment of the 
                allowance system described in this section, including 
                requirements for the allocation, transfer, and use of 
                allowances under this title;
                    ``(B) prohibit the use of any allowance prior to 
                the calendar year for which the allowance was 
                allocated; and
                    ``(C) provide, consistent with the purposes of this 
                title, for the identification of unused allowances, and 
                for such unused allowances to be carried forward and 
                added to allowances allocated in subsequent years, 
                including allowances allocated to brands subject to 
                Phase I requirements (as described in section 3004) 
                which are applied to limitation requirements in Phase 
                II (as described in section 3005); and
                    ``(D) establish a system for issuing, recording, 
                and tracking allowances under this section, such 
                regulations to specify all necessary procedures and 
                requirements for an orderly and competitive functioning 
                of the allowance system, and all allowance allocations 
                and transfers shall, upon recordation by the Secretary, 
                be deemed a part of each brand's permit requirements 
                pursuant to section 3006, without any further permit 
                review and revision.
            ``(3) Certification.--Transfers of allowances under this 
        subsection shall not be effective until written certification 
        of the transfer, signed by a responsible official of each party 
        to the transfer, is received and recorded by the Secretary 
        within 30 days.
            ``(4) Preallocation transfers.--Regulations under this 
        subsection shall permit the transfer of allowances prior to the 
        issuance of such allowances under subsection (a). Recorded 
        preallocation transfers shall be deducted by the Secretary from 
        the number of allowances which would otherwise be allocated to 
        the transferor, and added to those allowances allocated to the 
        transferee. Preallocation transfers shall not affect the 
        prohibition contained in this subsection against the use of 
        allowances prior to the year for which they are allocated.
    ``(c) New Affected Brands.--
            ``(1) In general.--After January 1, 2009, it shall be 
        unlawful for a new affected brand to sell to a number of United 
        States tobacco users in excess of the number of allowances held 
        for the brand by the brand's owner or operator. Such new 
        affected brands shall not be eligible for an allocation of 
        United States tobacco user allowances under this section. New 
        affected brands may obtain allowances from any person, in 
        accordance with this section.
            ``(2) Enforcement.--The owner or operator of any new 
        affected brand in violation of this subsection shall be liable 
        for fulfilling the obligations specified in section 3008.
    ``(d) Nature of Allowances.--
            ``(1) In general.--An allowance allocated under this title 
        shall be a limited authorization to sell to 1 United States 
        tobacco user in accordance with the provisions of this title. 
        Such allowance shall not constitute a property right. 
        Allowances under this title, once allocated to a person by the 
        Secretary, may be received, held, and temporarily or 
        permanently transferred in accordance with this title (and the 
        regulations promulgated hereunder) without regard to whether or 
        not a permit is in effect under the permitting authority with 
        respect to the brand for which such allowance was originally 
        allocated and recorded.
            ``(2) Rules of construction.--Nothing in this title or in 
        any other provision of law shall be construed to limit the 
        authority of the United States to terminate or limit an 
        authorization under this title. Nothing in this section 
        relating to allowances shall be construed as affecting the 
        application of, or compliance with, any other provision of this 
        title to an affected brand or manufacturer. Nothing in this 
        section shall be construed as requiring a change of any kind in 
        any State law regulating excise tax rates or affecting any 
        State law regarding such State regulation or as limiting State 
        regulation under such a State law.
    ``(e) Prohibitions.--
            ``(1) In general.--It shall be unlawful--
                    ``(A) for any person to hold, use, or transfer any 
                allowance allocated under this title, except in 
                accordance with regulations promulgated by the 
                Secretary;
                    ``(B) for any affected brand to sell to United 
                States tobacco users in excess of the number of 
                allowances held for that brand for that year by the 
                owner or operator of the brand.
            ``(2) Effect of provision.--Upon the allocation of 
        allowances under this title, the prohibition contained in 
        paragraph (1)(B) shall supersede any other United States 
        tobacco user limitation applicable under this title to the 
        brands for which such allowances are allocated.
            ``(3) Limitation.--An allowance under this title may not be 
        used prior to the calendar year for which such allowance is 
        allocated.
            ``(4) Rule of construction.--Nothing in this section, or in 
        the allowance system regulations promulgated under this 
        section, shall be construed to relieve the Secretary of the 
        Treasury of permitting, monitoring, and enforcement obligations 
        under this title of under the Internal Revenue Code of 1986, 
        nor relieve affected manufacturers of their requirements and 
        liabilities under this title or such Code.
    ``(f) Applicability of the Antitrust Laws.--
            ``(1) In general.--Nothing in this section shall be 
        construed to effect--
                    ``(A) the applicability of the antitrust laws to 
                the transfer, use, or sale of allowances; or
                    ``(B) the authority of the Federal Trade Commission 
                under any provision of law relating to unfair methods 
                of competition or anticompetitive acts or practices.
            ``(2) Definition.--As used in this section, the term 
        `antitrust laws' means those Acts set forth in section 1 of the 
        Clayton Act (15 U.S.C. 12).

``SEC. 3004. PHASE I TOBACCO USER REQUIREMENTS.

    ``(a) United States Tobacco User Limitations.--
            ``(1) In general.--Not later than 9 months after the date 
        of enactment of this title, the Secretary shall publish in the 
        Federal Register a list of affected brands and their allowances 
        for the years 2009 through 2015. Such allowances for each such 
        brand for 2009 shall equal the product of--
                    ``(A) the average of--
                            ``(i) the baseline of the brand involved, 
                        divided by the total number of United States 
                        tobacco users as determined using survey data 
                        under section 201 of the Help End Addiction to 
                        Lethal Tobacco Habits Act; and
                            ``(ii) the production of that brand 
                        produced in that year for the domestic market 
                        (as determined by the Secretary of 
                        Agriculture), divided by the total production 
                        for the domestic market for that year (as 
                        determined by the Secretary of Agriculture); 
                        and
                    ``(B) the total number of United States tobacco 
                users (as determined using survey data under section 
                201 of the Help End Addiction to Lethal Tobacco Habits 
                Act).
            ``(2) Prohibition.--After January 1, 2009, it shall be 
        unlawful for any affected brand to sell to United States 
        tobacco users in excess of the limitation determined under 
        paragraph (1) for such brand (stated as a total number of 
        allowances in such list for phase I), unless--
                    ``(A) the user limitations applicable to such brand 
                have been achieved pursuant to this section and section 
                3005; or
                    ``(B) the owner or operator of such brand holds 
                allowances to sell to not less than the brand's total 
                annual users;
        except that, after January 1, 2015, the user limitations 
        established in this section shall be superseded by those 
        established under section 3005. The owner or operator of any 
        brand in violation of this section shall be fully liable for 
        such violation including liability for fulfilling the 
        obligations specified in section 3008.
    ``(b) Substitutions.--The owner or operator of an affected brand 
under subsection (a) may include in its section 3006 permit application 
and proposed compliance plan, a proposal to reassign, in whole or in 
part, the affected brand's tobacco user reduction requirements to any 
other brand or brands under the control of such owner or operator. Such 
proposal shall specify--
            ``(1) the designation of the substitute brand or brands to 
        which any part of the reduction obligations of subsection (a) 
        shall be required, in addition to, or in lieu of, any original 
        affected brands designated under such subsection;
            ``(2) the original affected brand's baseline, the actual 
        and allowable 2006 tobacco users, and the authorized annual 
        allowance allocation stated in the list in subsection (a)(1);
            ``(3) the calculation of the annual average United States 
        tobacco users for calendar years 2004, 2005, and 2006, sold to 
        by the substitute brand or brands, based on the baseline for 
        each brand;
            ``(4) the user limitations that would be applicable to the 
        original and substitute affected brands under the substitution 
        proposal;
            ``(5) documentation, to the satisfaction of the Secretary, 
        that the reassigned user limitations will, in total, achieve 
        the same or greater user reduction than would have been 
        achieved by the original affected brand and the substitute 
        brand or brands without such substitution; and
            ``(6) such other information as the Secretary may require.
    ``(c) Secretary's Action on Substitution Proposals.--
            ``(1) Final action.--
                    ``(A) In general.--The Secretary shall take final 
                action on a substitution proposal under subsection (b) 
                in accordance with section 3006 if the substitution 
                proposal complies with the requirements of this 
                subsection.
                    ``(B) Approval.--The Secretary may approve a 
                substitution proposal under subsection (b) in whole or 
                in part and with such modifications or conditions as 
                may be consistent with the orderly functioning of the 
                allowance system under this title and which will ensure 
                the user reductions contemplated by this title.
                    ``(C) Disapproval.--If a substitution proposal does 
                not meet the requirements of subsection (b), the 
                Secretary shall disapprove it.
                    ``(D) Limitation.--The owner or operator of a brand 
                on the list in subsection (a) shall not substitute 
                another brand or brands without the prior approval of 
                the Secretary.
            ``(2) Actions upon approval.--
                    ``(A) In general.--Upon the approval of a 
                substitution proposal under this subsection, each 
                substitute brand, and each manufacturer with such 
                brand, shall be deemed to be affected under this title, 
                and the Secretary of the Treasury shall revise any 
                permits to the original and substitute affected 
                manufacturer and brand in accordance with the approved 
                substitution plan and section 3006.
                    ``(B) Revised allocation.--The Secretary shall 
                allocate allowances for the original and substitute 
                affected brands in accordance with the approved 
                substitution proposal pursuant to section 3003.
                    ``(C) Limitation.--It shall be unlawful for any 
                manufacturer or brand that is allocated allowances 
                pursuant to this section to sell to United States 
                tobacco users in excess of the limitation provided for 
                in the approved substitution plan unless the owner or 
                operator of each brand governed by the permit and 
                approved substitution plan holds allowances to sell to 
                not less than the brand's total annual users. The owner 
                or operator of any original or substitute affected 
                brand operated in violation of this subsection shall be 
                fully liable for such violation, including liability 
                for fulfilling the obligations specified in section 
                3008.
            ``(3) Disapproval.--If a substitution proposal is 
        disapproved, the Secretary shall allocate allowances to the 
        original affected brand or brands in accordance with subsection 
        (a).
            ``(4) Rule of construction.--Nothing in this subsection 
        shall be construed as an event of force majeur or a commercial 
        impractibility or in any other way as a basis for excused 
        nonperformance by a manufacturer.

``SEC. 3005. PHASE II TOBACCO USER REQUIREMENTS.

    ``(a) Applicability.--Beginning on January 1, 2015, each existing 
affected brand shall be subject to the limitations or requirements of 
this section.
    ``(b) Affected Brands and Manufacturers.--
            ``(1) Affected brands.--Each brand that is subject to an 
        annual tobacco user limitation under this section shall be 
        deemed to be an affected brand under this title.
            ``(2) Affected manufacturers.--Each manufacturer that 
        includes one or more affected brands is an affected 
        manufacturer.
            ``(3) Brands not in operation in 2008.--In the case of a 
        brand that was not in operation during calendar year 2008, the 
        United States tobacco users for a calendar year after 2008, as 
        determined by the Secretary, shall be used in lieu of the 2008 
        rate.
            ``(4) Publication of list.--
                    ``(A) Proposed list.--Not later than December 31, 
                2013, the Secretary shall publish a proposed list of 
                the annual Phase II allowance allocations for the years 
                2016 through 2027.
                    ``(B) Final list.--After notice and opportunity for 
                public comment, but not later than November 30, 2014, 
                the Secretary shall publish a final list of the annual 
                Phase II allocations, subject to the provisions of 
                section 3005.
    ``(c) Liability.--The owner or operator of any brand operated in 
violation of this section shall be liable under this Act for fulfilling 
the obligations specified in section 3008.
    ``(d) Unlawful Acts.--It shall be unlawful for a brand--
            ``(1) beginning on January 1, 2015, to exceed an annual 
        United States tobacco user limitation equal to the product of 
        the brand's baseline multiplied by \2/3\, unless the owner or 
        operator of such brand holds allowances to sell to not less 
        than the brand's total annual users; and
            ``(2) beginning on January 1, 2027, to exceed an annual 
        United States tobacco user limitation equal to the product of 
        its baseline multiplied by 0.1, unless the owner or operator 
        holds allowances to sell to not less than the brand's total 
        annual United States tobacco users.

``SEC. 3006. PERMITS AND COMPLIANCE PLANS.

    ``(a) Permit Program.--The provisions of this title shall be 
implemented, subject to section 3003, through the modification of, or 
an addition to, a permit issued to a brand that is subject to this 
title and issued and enforced in accordance with the provisions of 
section 5713 of the Internal Revenue Code of 1986. Any such permit 
issued by the Secretary of the Treasury shall prohibit--
            ``(1) annual sales to United States tobacco users in excess 
        of the number of allowances the owner or operator, or the 
        designated representative of the owners or operators, of the 
        brand hold for the brand under this title;
            ``(2) the brand from exceeding applicable United States 
        tobacco user levels;
            ``(3) the use of any allowance prior to the year for which 
        it was allocated; and
            ``(4) noncompliance with any other provision of the permit.
No permit shall be issued under this section that is inconsistent with 
the requirements of this title, and section 5713 of the Internal 
Revenue Code of 1986, as applicable.
    ``(b) Compliance Plan.--
            ``(1) In general.--An application for a permit under this 
        section shall contain a compliance plan with respect to 
        compliance by the manufacturer with the requirements of this 
        title. The Secretary may require that the owner or operator of 
        2 or more affected manufacturers submit an integrated 
        compliance plan providing an overall plan for achieving 
        compliance by the affected manufacturers.
            ``(2) Coverage of all brands.--Where an affected 
        manufacturer consists of more than 1 affected brand, the 
        compliance plan shall cover all such brands.
            ``(3) Statement that brand will meet requirements.--Except 
        as provided under section 3004(c)(1)(B), the submission of a 
        statement by the owner or operator, or the designated 
        representative of the owner or operator, of a brand that is 
        subject to the limitation requirements of sections 3004 and 
        3005, that the brand will meet the applicable limitation 
        requirements of such sections in a timely manner and that the 
        owners and operators will hold allowances to sell to not less 
        than the total annual United States tobacco users of the brand, 
        shall be deemed to meet the proposed and approved compliance 
        planning requirements of this section and section 5713 of the 
        Internal Revenue Code of 1986.
            ``(4) Automatic amending of permits and plans.--The 
        recording by the Secretary of a transfer of allowances under 
        this title shall be deemed to automatically amend all 
        applicable proposed or approved permit applications, compliance 
        plans, and permits under this section.
            ``(5) Rule of construction.--Nothing in this section shall 
        be construed as affecting allowances under this title.
    ``(c) Regulations; Issuance of Permits.--
            ``(1) Regulations.--Not later than 9 months after the date 
        of the enactment of this title, the Secretary of the Treasury 
        shall promulgate regulations, in consultation with the 
        Secretary of Health and Human Services, in accordance with 
        sections 5712 and 5713 of the Internal Revenue Code of 1986, to 
        modify the permit program for affected manufacturers under this 
        title.
            ``(2) Issuance of permits.--
                    ``(A) In general.--Following the promulgation of 
                regulations under paragraph (1), the Secretary of the 
                Treasury shall issue modified permits to implement the 
                requirements of sections 3004 and 3005 and the 
                allowances provided for under section 3003 to the owner 
                or operator of each affected manufacturer under 
                sections 3004 and 3005. The permit issued in accordance 
                with this subsection for an affected manufacturer shall 
                provide that the affected brands of the affected 
                manufacturer may not sell to an annual number of United 
                States tobacco users that is in excess of the number of 
                allowances the owner or operator or designated 
                representative hold for the brand.
                    ``(B) First phase permits.--
                            ``(i) In general.--The Secretary of the 
                        Treasury shall issue permits to affected 
                        manufacturers under section 5713 of the 
                        Internal Revenue Code of 1986.
                            ``(ii) Permit application and compliance 
                        plan.--
                                    ``(I) In general.--Not later than 
                                12 months after the date of the 
                                enactment of this title, the designated 
                                representative of the owner or 
                                operator, or the owner and operator, of 
                                each affected manufacturer shall submit 
                                a permit application and compliance 
                                plan for that manufacturer in 
                                accordance with regulations promulgated 
                                and issued by the Secretary of the 
                                Treasury under clause (i). The permit 
                                application and the compliance plan 
                                shall be binding on the owner or 
                                operator or the designated 
                                representative of owners and operators 
                                for purposes of this title, and shall 
                                be enforceable in lieu of a permit 
                                until a permit is issued by the 
                                Secretary of the Treasury for the 
                                manufacturer.
                                    ``(II) Action on compliance 
                                plans.--The Secretary shall review each 
                                proposed compliance plan to determine 
                                whether it satisfies the requirements 
                                of this title, and shall communicate 
                                such review to the Secretary of the 
                                Treasury, who shall approve or 
                                disapprove such plan within 6 months 
                                after the receipt of a complete 
                                submission. If a plan is disapproved, 
                                it may be resubmitted for approval with 
                                such changes as the Secretary of the 
                                Treasury shall require consistent with 
                                the requirements of this title and 
                                within such period as the Secretary 
                                prescribes as part of such disapproval.
                    ``(C) Second phase permits.--
                            ``(i) In general.--The Secretary of the 
                        Treasury shall issue permits to affected 
                        manufacturers under section 5713 of the 
                        Internal Revenue Code of 1986.
                            ``(ii) Permit application and compliance 
                        plan.--Annually beginning in January 1, 2014, 
                        the designated representative of the owner or 
                        operator, or the owner and operator, of each 
                        affected manufacturer shall submit a permit 
                        application and compliance plan for that 
                        manufacturer in accordance with regulations 
                        issued by the Secretary of the Treasury under 
                        clause (i). The permit application and the 
                        compliance plan shall be binding on the owner 
                        or operator or the designated representative of 
                        owners and operators for purposes of this 
                        title, and shall be enforceable in lieu of a 
                        permit until a permit is issued by the 
                        Secretary of the Treasury for the manufacturer.
                    ``(D) New brands.--The owner or operator of each 
                manufacturer that includes a new brand shall submit a 
                permit application and compliance plan to the Secretary 
                of the Treasury not later than the date on which the 
                brand commences operation. The Secretary of the 
                Treasury shall issue a permit to the owner or operator 
                of the brand, or the designated representative thereof, 
                if the brand satisfies the requirements of sections 
                5712 and 5713 of the Internal Revenue Code of 1986 and 
                this title.
    ``(d) Amendment of Permit Application and Compliance Plan.--At any 
time after the submission of a permit application and compliance plan 
under this section, the applicant may submit a revised application and 
compliance plan, in accordance with the requirements of this section 
and the Internal Revenue Code of 1986.
    ``(e) Prohibition.--It shall be unlawful--
            ``(1) for an owner or operator, or designated 
        representative, required to submit a permit application or 
        compliance plan under this title to fail to submit such 
        application or plan in accordance with the regulations 
        promulgated under this section or to otherwise fail to comply 
        with regulations implementing this section; and
            ``(2) for any person to operate any manufacturer subject to 
        this title except in compliance with the terms and requirements 
        of a permit application and compliance plan (including 
        amendments thereto) or permit issued by the Secretary of the 
        Treasury.
For purposes of this subsection, compliance with a permit issued under 
section 5713 of the Internal Revenue Code of 1986 which complies with 
this title for manufacturers subject to this title shall be deemed to 
be in compliance with this subsection.
    ``(f) Certificate of Representation and Multiple Owners.--
            ``(1) Certificate.--No permit shall be issued under this 
        section to an affected brand until the designated 
        representative of the owners or operators has filed a 
        certificate of representation with regard to matters under this 
        title, including the holding and distribution of allowances and 
        the proceeds of transactions involving allowances. Except as 
        otherwise provided for in this subsection, where all legal or 
        equitable title to or interest in an affected brand is held by 
        a single person, the certification shall state that all 
        allowances received by the brand are deemed to be held for that 
        person.
            ``(2) Multiple owners.--If there are multiple holders of a 
        legal or equitable title to, or a leasehold interest in, such a 
        brand, the certificate under paragraph (1) shall state--
                    ``(A) that allowances and the proceeds of 
                transactions involving allowances will be deemed to be 
                held or distributed in proportion to each holder's 
                legal, equitable, leasehold, or contractual reservation 
                or entitlement; or
                    ``(B) if such multiple holders have expressly 
                provided for a different distribution of allowances by 
                contract, that allowances and the proceeds of 
                transactions involving allowances will be deemed to be 
                held or distributed in accordance with the contract.
            ``(3) Leaseholder agreements.--A passive lessor, or a 
        person who has an equitable interest through such lessor, whose 
        rental payments are not based, either directly or indirectly, 
        upon the revenues or income from the affected brand shall not 
        be deemed to be a holder of a legal, equitable, leasehold, or 
        contractual interest for the purpose of holding or distributing 
        allowances as provided in this subsection, during either the 
        term of such leasehold or thereafter, unless expressly provided 
        for in the leasehold agreement.

``SEC. 3007. EXCESS USERS PENALTY.

    ``(a) Excess Users Penalty.--
            ``(1) In general.--The owner or operator of any brand or 
        manufacturer subject to the requirements of section 3003, 3004 
        or 3005, that sells to United States tobacco users for any 
        calendar year an amount in excess of the brand's user 
        limitation requirement or of the allowances the owner or 
        operator holds for use for the brand for that calendar year 
        shall be liable for the payment of an excess users penalty.
            ``(2) Determination of penalty.--The penalty under 
        paragraph (1) shall be an amount that equals the product of--
                    ``(A) the number of users in excess of the brand's 
                user limitation requirement or of the allowances the 
                operator holds for use for the brand for that year, as 
                applicable; and
                    ``(B) $3,500.
            ``(3) Payment.--A penalty under this subsection shall be 
        due and payable without demand to the Secretary of the 
        Treasury. Any such payment shall be deposited in the United 
        States Treasury pursuant to the Miscellaneous Receipts Act. Any 
        penalty due and payable under this section shall not diminish 
        the liability of the brand's owner or operator for any fine, 
        penalty, or assessment against the brand for the same violation 
        under any other section of this title.
            ``(4) Regulations.--Not later than 12 months after the date 
        of enactment of this title, the Secretary shall promulgate 
        regulations with respect to the payment of penalties under this 
        subsection.
    ``(b) Excess Users Offset.--
            ``(1) In general.--The owner or operator of any affected 
        manufacturer that sells to United States tobacco users during 
        any calendar year in excess of the brand's limitation 
        requirement or of the allowances held for the brand for the 
        calendar year, shall be liable to offset the excess users by an 
        equal amount in the following calendar year, or such longer 
        period as the Secretary of the Treasury may prescribe.
            ``(2) Plan.--Not later than 60 days after the end of the 
        year in which the excess users occurred, the owner or operator 
        of the manufacturer shall submit to the Secretary a proposed 
        plan to achieve the offsets required under paragraph (1). Upon 
        approval of the proposed plan by the Secretary, as submitted, 
        modified, or conditioned, the plan shall be deemed to be a 
        condition of the operating permit under section 3006 for the 
        brand without further review or revision of the permit.
            ``(3) Deduction of allowances.--The Secretary shall deduct 
        allowances equal to the excess from those allocated for the 
        manufacturer for the calendar year, or succeeding years during 
        which offsets are required under this section, following the 
        year in which the excess users occurred.
    ``(c) Penalty Adjustment.--The Secretary of the Treasury shall, by 
regulation, adjust the penalty amount specified in subsection (a)(2)(B) 
to account for the excess health costs per tobacco user and inflation, 
based on the change in Medical Inflation (as reported annually by the 
Council of Economic Advisors), on the date of enactment and annually 
thereafter.
    ``(d) Prohibition.--It shall be unlawful for the owner or operator 
of any manufacturer liable for a penalty and offset under this section 
to fail--
            ``(1) to pay the penalty under subsection (a);
            ``(2) to provide, and thereafter comply with, a compliance 
        plan as required under subsection (b); or
            ``(3) to offset excess users as required under subsection 
        (b).

``SEC. 3008. INVENTORIES; REPORTS; RECORDS.

    ``(a) Inventories.--Every manufacturer or importer of tobacco 
products shall make a true and accurate inventory at the time of 
commencing business, at the time of concluding business, and at such 
other times, in such manner and form, and to include such items, as the 
Secretary of the Treasury shall by regulation prescribe. Such 
inventories shall be subject to verification by any internal revenue 
officer. The Secretary, in consultation with the Secretary of the 
Treasury, shall develop and implement processes to verify allowances 
issued under section 3003 against information in records of compliance.
    ``(b) Reports.--Every manufacturer or importer of tobacco products 
shall make a report for each month and for any portion of a month 
during which such manufacturer or importer engages in such business. 
Such report shall be made regardless of whether any operations or 
transactions occurred during the month or portion of a month covered 
therein. The report for a month or portion of a month in which business 
is commenced or is concluded shall be conspicuously marked `Commencing 
Report' or `Concluding Report', respectively. The original of the 
report shall be submitted to the appropriate Alcohol and Tobacco Tax 
and Trade Bureau officer not later than the 20th day of the month 
succeeding the month covered therein. Each report shall show, for the 
period covered, the total quantity of tobacco products--
            ``(1) manufactured;
            ``(2) received in bond;
            ``(3) received by return to bond;
            ``(4) disclosed by inventory as an overage;
            ``(5) removed subject to tax;
            ``(6) removed in bond;
            ``(7) otherwise disposed of without determination of tax;
            ``(8) disclosed by inventory as a shortage; and
            ``(9) on hand, in bond, at the beginning of and end of the 
        month.
    ``(c) Records.--Every affected manufacturer shall keep records in 
accordance with section 40.183 of title 27, Code of Federal Regulations 
(or successor regulations). Affected manufacturers shall retain any 
issued permit, compliance plan, if applicable, and any amendments 
thereto, and documentation relating to allowances under section 3003 
received, held and temporarily or permanently transferred, including 
certification of such transfer together with the copy of the 
application and supporting documents.''.

                      TITLE IV--REVENUE PROVISIONS

SEC. 401. INCREASE IN EXCISE TAX RATE ON TOBACCO PRODUCTS BASED ON 
              RELATIVE HEALTH RISK.

    (a) Cigarettes.--Section 5701(b) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``$19.50 per thousand ($17 per thousand on 
        cigarettes removed during 2000 or 2001)'' in paragraph (1) and 
        inserting ``$19.50 plus the applicable risk amount per 
        thousand'', and
            (2) by striking ``$40.95 per thousand ($35.70 per thousand 
        on cigarettes removed during 2000 or 2001)'' in paragraph (2) 
        and inserting ``$40.95 plus the applicable risk amount per 
        thousand''.
    (b) Cigars.--Section 5701(a) of the Internal Revenue Code of 1986 
is amended--
            (1) by striking ``$1.828 cents per thousand ($1.594 cents 
        per thousand on cigars removed during 2000 or 2001)'' in 
        paragraph (1) and inserting ``$1.828 cents plus the applicable 
        risk amount per thousand'',
            (2) by striking ``20.719 percent (18.063 percent on cigars 
        removed during 2000 or 2001)'' in paragraph (2) and inserting 
        ``20.719 percent plus the applicable risk percentage'', and
            (3) by striking ``$48.75 per thousand ($42.50 per thousand 
        on cigars removed during 2000 or 2001)'' in paragraph (2) and 
        inserting ``$48.75 plus the applicable risk amount per 
        thousand''.
    (c) Smokeless Tobacco.--Section 5701(e) of the Internal Revenue 
Code of 1986 is amended--
            (1) by striking ``58.5 cents (51 cents on snuff removed 
        during 2000 or 2001)'' in paragraph (1) and inserting ``58.5 
        cents plus the applicable risk amount'', and
            (2) by striking ``19.5 cents (17 cents on chewing tobacco 
        removed during 2000 or 2001)'' in paragraph (2) and inserting 
        ``19.5 cents plus the applicable risk amount''.
    (d) Applicable Risk Amount.--Section 5701 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
subsection:
    ``(p) Applicable Risk Amount.--With respect to each tobacco product 
or group of products classified by the Tobacco Risk Classification 
Panel under the Food and Drug Administration, the following applicable 
risk amounts or percentages shall apply:
            ``(1) Small cigarettes: Class I--$10; Class II--$20; and 
        Class III--$30.
            ``(2) Large cigarettes: Class I--$20; Class II--$40; and 
        Class III--$60.
            ``(3) Small cigars: Class I--$0.914; Class II--$1.828; and 
        Class III--$2.742.
            ``(4) Large cigars: Class I--5 percent; Class II--10 
        percent; and Class III--15 percent, but not more than $73.12.
            ``(5) Smokeless (snuff): Class I--29.25 cents; Class II--
        58.5 cents; and Class III--87.75 cents.
            ``(6) Smokeless (chewing): Class I--10 cents; Class II--20 
        cents; and Class III--30 cents.''.
    (e) Floor Stocks Taxes.--
            (1) Imposition of tax.--On tobacco products and cigarette 
        papers and tubes manufactured in or imported into the United 
        States which are removed before January 1, 2008, and held on 
        such date for sale by any person, there is hereby imposed a tax 
        in an amount equal to the excess of--
                    (A) the tax which would be imposed under section 
                5701 of the Internal Revenue Code of 1986 on the 
                article if the article had been removed on such date, 
                over
                    (B) the prior tax (if any) imposed under section 
                5701 of such Code on such article.
            (2) Credit against tax.--Each person shall be allowed as a 
        credit against the taxes imposed by paragraph (1) an amount 
        equal to $500. Such credit shall not exceed the amount of taxes 
        imposed by paragraph (1) on January 1, 2008, for which such 
        person is liable.
            (3) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding cigarettes 
                on January 1, 2008, to which any tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe by regulations.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before April 1, 2008.
            (4) Articles in foreign trade zones.--Notwithstanding the 
        Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any 
        other provision of law, any article which is located in a 
        foreign trade zone on January 1, 2004, shall be subject to the 
        tax imposed by paragraph (1) if--
                    (A) internal revenue taxes have been determined, or 
                customs duties liquidated, with respect to such article 
                before such date pursuant to a request made under the 
                1st proviso of section 3(a) of such Act, or
                    (B) such article is held on such date under the 
                supervision of a customs officer pursuant to the 2d 
                proviso of such section 3(a).
            (5) Definitions.--For purposes of this subsection--
                    (A) In general.--Terms used in this subsection 
                which are also used in section 5702 of the Internal 
                Revenue Code of 1986 shall have the respective meanings 
                such terms have in such section.
                    (B) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or the Secretary's delegate.
            (6) Controlled groups.--Rules similar to the rules of 
        section 5061(e)(3) of such Code shall apply for purposes of 
        this subsection.
            (7) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 5701 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply to the floor stocks taxes imposed by 
        paragraph (1), to the same extent as if such taxes were imposed 
        by such section 5701. The Secretary may treat any person who 
        bore the ultimate burden of the tax imposed by paragraph (1) as 
        the person to whom a credit or refund under such provisions may 
        be allowed or made.
    (f) Effective Date.--The amendments made by this section shall 
apply to articles removed (as defined in section 5702(k) of the 
Internal Revenue Code of 1986) after December 31, 2007.
    (g) Use of Amounts.--With respect to any increase in revenues to 
the Treasury resulting from the provisions of and amendments made by 
this section, without further appropriation--
            (1) 50 percent of such increase shall be transferred to the 
        Federal Hospital Insurance Trust Fund established under section 
        1817 of the Social Security Act (42 U.S.C. 1395i),
            (2) 25 percent of such increase shall be transferred to the 
        States through the medicaid program under title XIX of the 
        Social Security Act (42 U.S.C. 1396 et seq.), and
            (3) 25 percent of such increase shall be provided to the 
        States through matching grants for the development and 
        administration of programs to restrict youth access to tobacco 
        products as provided for in regulations promulgated by the 
        Secretary of Health and Human Services, including grants under 
        section 3009 of the Public Health Service Act, and for counter-
        advertising under section 506C of the Public Health Service 
        Act.

                   TITLE V--CESSATION AND PREVENTION

SEC. 501. FOOD AND DRUG ADMINISTRATION TOBACCO RISK CLASSIFICATION 
              PANEL.

    Chapter VII of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
371 et seq.) is amended by adding at the end the following:

             ``Subchapter I--Provisions Relating to Tobacco

``SEC. 765. TOBACCO RISK CLASSIFICATION PANEL.

    ``(a) Tobacco Product Classes.--
            ``(1) In general.--There are established the following 
        classes of tobacco products:
                    ``(A) Class i--general risk.--A tobacco product or 
                group of products with typical health risks shall be 
                referred to as a `Class I product'.
                    ``(B) Class ii--special risk.--A tobacco product or 
                group of products that cannot be classified as a Class 
                I tobacco product because it is--
                            ``(i) of greater risk than a Class I 
                        product; or
                            ``(ii) there is insufficient evidence to 
                        classify such product or group of products as 
                        Class I products;
                shall be referred to as a `Class II product'.
                    ``(C) Class iii--enhanced risk.--A tobacco product 
                or group of products that--
                            ``(i) is of greater risk than a Class II 
                        product;
                            ``(ii) there is insufficient evidence to 
                        classify such product or group of products as 
                        Class II products; or
                            ``(iii) presents a potentially unreasonable 
                        risk of illness or injury;
                shall be referred to as a `Class III product'.
            ``(2) Determinations.--For purposes of this section, the 
        classification of a tobacco product or group of products is to 
        be determined considering--
                    ``(A) the impact on youth tobacco use and health;
                    ``(B) data supporting actual levels of risk, 
                exposure or harm due to the product; and
                    ``(C) any implied reduction in levels of risk, 
                exposure or harm due to the product or its labeling.
    ``(b) Establishment of Panel.--
            ``(1) In general.--For the purpose of securing 
        recommendations with respect to the classification of tobacco 
        products or groups of products, the Secretary shall establish a 
        panel of experts to be known as the Tobacco Risk Classification 
        Panel (referred to in this section as the `panel').
            ``(2) Members.--The Secretary shall appoint to the panel 
        individuals who are qualified by training and experience to 
        evaluate the risk and relative risk of tobacco products and 
        who, to the extent feasible, possess skill in the study of the 
        health effects of tobacco products, or experience in tobacco 
        cessation, control and prevention. The Secretary shall 
        designate one of the members of such panel to serve as the 
        chairperson.
            ``(3) Administrative provisions.--
                    ``(A) Compensation and expenses.--Members of the 
                panel (other than officers or employees of the United 
                States), while attending meetings or conferences of the 
                panel or otherwise engaged in its business, shall be 
                entitled to receive compensation at rates to be fixed 
                by the Secretary, but not at rates exceeding the daily 
                equivalent of the rate in effect for grade GS-18 of the 
                General Schedule, for each day so engaged, including 
                travel time, and while so serving away from their homes 
                or regular places of business each member may be 
                allowed travel expenses (including per diem in lieu of 
                subsistence) as authorized by section 5703 of title 5, 
                United States Code, for persons in the Government 
                service employed intermittently.
                    ``(B) Staff and assistance.--The Secretary shall 
                furnish the panel with adequate clerical and other 
                necessary assistance.
                    ``(C) Meetings.--The panel shall meet at such times 
                as may be appropriate to enable the Secretary to meet 
                applicable statutory deadlines.
                    ``(D) Limitations.--The panel shall not be subject 
                to the annual chartering and annual report requirements 
                of the Federal Advisory Committee Act. Section 14 of 
                such Act shall not apply to the duration of the panel.
            ``(4) Duties.--The panel shall make recommendations to the 
        Secretary concerning the classification of tobacco products.
    ``(c) Classification.--
            ``(1) In general.--Not later than 15 months after the date 
        of enactment of this section, and as necessary thereafter for 
        new products, the Secretary, based on the recommendations of 
        the panel, shall classify all tobacco products into the classes 
        established under subsection (a). Such classification may be 
        made for a group of similar or related products.
            ``(2) Actions of panel.--
                    ``(A) In general.--Upon the completion of the 
                panel's review of a tobacco product or group of 
                products referred to it under paragraph (1), the panel 
                shall submit to the Secretary its recommendation for 
                the classification of the tobacco product or group of 
                products. Any such recommendation shall contain--
                            ``(i) a summary of the reasons for the 
                        recommendation;
                            ``(ii) a summary of the data upon which the 
                        recommendation is based; and
                            ``(iii) an identification of the risks to 
                        health presented by the tobacco product or 
                        group of products with respect to which the 
                        recommendation is made.
                    ``(B) Review and final determination by 
                secretary.--After receiving the conclusions and 
                recommendations of the panel on a matter that the panel 
                has reviewed under this section, the Secretary shall 
                review the conclusions and recommendations, shall make 
                a final decision on the matter, and shall notify the 
                affected persons of the decision in writing and, if the 
                decision differs from the conclusions and 
                recommendations of the panel, shall include the reasons 
                for the difference.
                    ``(C) Submission of recommendations.--Not later 
                than 1 year after the date of enactment of this 
                section, the panel shall submit to the Secretary 
                recommendations concerning all tobacco products or 
                groups of products introduced or delivered for 
                introduction into interstate commerce for commercial 
                distribution before the date of the enactment of this 
                section.
            ``(3) Publication.--Upon receipt of a recommendation from a 
        panel under paragraph (2)(C), the Secretary shall publish in 
        the Federal Register the panel's recommendation and a proposed 
        regulation classifying such tobacco product or group of 
        products under subsection (a).
            ``(4) Existing products.--In the case of a tobacco product 
        or group of products which has been introduced or delivered for 
        introduction into interstate commerce for commercial 
        distribution before the date of enactment of this section, the 
        panel shall recommend to the Secretary that the tobacco product 
        or group of products be classified as a Class III product 
        unless the panel determines that classification of the tobacco 
        product or group of products in such class is not necessary. If 
        a panel does not recommend that such a tobacco product or group 
        of products be classified as a Class III product, it shall in 
        its recommendation to the Secretary for the classification of 
        the tobacco product or group of products set forth the reasons 
        for not recommending classification of the tobacco product in 
        such class.
            ``(5) New products.--
                    ``(A) In general.--Any tobacco product or group of 
                products which was not introduced or delivered for 
                introduction into interstate commerce for commercial 
                distribution before the date of the enactment of this 
                section shall be classified as a Class III product 
                unless the Secretary in response to a recommendation of 
                the panel has classified such tobacco product or group 
                of products as a Class I or Class II product.
                    ``(B) Limitation.--A tobacco product or group of 
                products classified as a Class III product under this 
                subsection shall be classified in that class until the 
                effective date of an order of the Secretary classifying 
                the tobacco product or group of products as a Class I 
                or Class II product.
            ``(6) Access to data.--Any person whose tobacco product is 
        specifically the subject of review by the panel shall have--
                    ``(A) the same access to data and information 
                submitted to the panel (except for data and information 
                that are not available for public disclosure under 
                section 552 of title 5, United States Code) as the 
                Secretary; and
                    ``(B) the opportunity to submit, for review by the 
                panel, additional information, which shall be submitted 
                to the Secretary for prompt transmittal to the panel.
            ``(7) Meetings.--Any meetings of the panel shall provide 
        adequate time for initial presentations and for response to any 
        differing views by persons whose tobacco products are 
        specifically the subject of panel review, and shall encourage 
        free and open participation by all interested persons.
    ``(d) Classification Changes.--
            ``(1) In general.--Based on new information concerning a 
        tobacco product or group of products, the Secretary may by 
        regulation change the classification of such tobacco product or 
        group of products. In promulgating a regulation regarding a 
        change in the classification of a tobacco product or group of 
        products, the Secretary may secure from the panel a 
        recommendation concerning the proposed change in the 
        classification of the tobacco product or group of products and 
        shall publish in the Federal Register any recommendation 
        submitted to the Secretary by the panel with respect to such 
        change.
            ``(2) Class changes.--By regulation promulgated under 
        paragraph (1), the Secretary may change the classification of a 
        tobacco product from Class III to Class II or Class I only if 
        the appropriate relative risk determination has been made.''.

SEC. 502. AUTHORITY TO PROHIBIT NICOTINE.

    Subchapter I of chapter VII of the Federal Food, Drug, and Cosmetic 
Act (as amended by section 501) is further amended by adding at the end 
the following:

``SEC. 766. AUTHORITY TO PROHIBIT NICOTINE.

    ``The Secretary may prohibit the introduction or delivery for 
introduction into interstate commerce of any product that contains 
nicotine if such product has no health benefit.''.

SEC. 503. COUNTER-ADVERTISING.

    Part A of title V of the Public Health Service Act (42 U.S.C. 290aa 
et seq.) is amended by adding at the end the following:

``SEC. 506C. TOBACCO USE COUNTER-ADVERTISING.

    ``The Secretary, acting through the Administrator of the Substance 
Abuse and Mental Health Services Administration, shall carry out a 
campaign of counter-advertising with respect to tobacco use. The 
campaign shall consist of the placement of pro-health advertisements 
regarding tobacco use on television, on radio, in print, on billboards, 
on movie trailers, on the Internet, and in other media.''.

SEC. 504. MEDICARE COVERAGE OF COUNSELING FOR CESSATION OF TOBACCO USE.

    (a) Coverage.--Section 1861(s)(2) of the Social Security Act (42 
U.S.C. 1395x(s)(2)) is amended--
            (1) in subparagraph (Z), by striking ``and'' at the end;
            (2) in subparagraph (AA), by inserting ``and'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
            ``(BB) counseling for cessation of tobacco use (as defined 
        in subsection (ccc));''.
    (b) Services Described.--Section 1861 of the Social Security Act 
(42 U.S.C. 1395x) is amended by adding at the end the following new 
subsection:
    ``(ccc) Counseling for Cessation of Tobacco Use.--(1)(A) Subject to 
subparagraph (B), the term `counseling for cessation of tobacco use' 
means diagnostic, therapy, and counseling services for cessation of 
tobacco use for individuals who use tobacco products or who are being 
treated for tobacco use which are furnished--
            ``(i) by or under the supervision of a physician;
            ``(ii) by a practitioner described in clause (i), (iii), 
        (iv), (v) or (vi) of section 1842(b)(18)(C); or
            ``(iii) by a licensed tobacco cessation counselor (as 
        defined in paragraph (2)).
    ``(B) Such term is limited to--
            ``(i) services recommended in `Treating Tobacco Use and 
        Dependence: A Clinical Practice Guideline', published by the 
        Public Health Service in June 2000, or any subsequent 
        modification of such Guideline; and
            ``(ii) such other services that the Secretary recognizes to 
        be effective.
    ``(2) In this subsection, the term `licensed tobacco cessation 
counselor' means a tobacco cessation counselor who--
            ``(A) is licensed as such by the State (or in a State which 
        does not license tobacco cessation counselors as such, is 
        legally authorized to perform the services of a tobacco 
        cessation counselor in the jurisdiction in which the counselor 
        performs such services); and
            ``(B) meets uniform minimum standards relating to basic 
        knowledge, qualification training, continuing education, and 
        documentation that are established by the Secretary for 
        purposes of this subsection.''.
    (c) Payment and Elimination of Cost-Sharing for Counseling for 
Cessation of Tobacco Use.--
            (1) Payment and elimination of coinsurance.--Section 
        1833(a)(1) of the Social Security Act (42 U.S.C. 1395l(a)(1)) 
        is amended--
                    (A) by striking ``and'' before ``(V)''; and
                    (B) by inserting before the semicolon at the end 
                the following: ``, and (W) with respect to counseling 
                for cessation of tobacco use (as defined in section 
                1861(ccc)), the amount paid shall be 100 percent of the 
                lesser of the actual charge for the service or the 
                amount determined by a fee schedule established by the 
                Secretary for purposes of this subparagraph''.
            (2) Elimination of coinsurance in outpatient hospital 
        settings.--
                    (A) Exclusion from opd fee schedule.--Section 
                1833(t)(1)(B)(iv) of the Social Security Act (42 U.S.C. 
                1395l(t)(1)(B)(iv)) is amended by striking ``and 
                diagnostic mammography'' and inserting ``, diagnostic 
                mammography, or counseling for cessation of tobacco use 
                (as defined in section 1861(ccc))''.
                    (B) Conforming amendments.--Section 1833(a)(2) of 
                the Social Security Act (42 U.S.C. 1395l(a)(2)) is 
                amended--
                            (i) in subparagraph (F), by striking 
                        ``and'' after the semicolon at the end;
                            (ii) in subparagraph (G)(ii), by striking 
                        the comma at the end and inserting ``; and''; 
                        and
                            (iii) by inserting after subparagraph 
                        (G)(ii) the following new subparagraph:
                    ``(H) with respect to counseling for cessation of 
                tobacco use (as defined in section 1861(ccc)) furnished 
                by an outpatient department of a hospital, the amount 
                determined under paragraph (1)(W),''.
            (3) Elimination of deductible.--The first sentence of 
        section 1833(b) of the Social Security Act (42 U.S.C. 1395l(b)) 
        is amended--
                    (A) by striking ``and'' before ``(8)''; and
                    (B) by inserting before the period the following: 
                ``, and (9) such deductible shall not apply with 
                respect to counseling for cessation of tobacco use (as 
                defined in section 1861(ccc))''.
    (d) Application of Limits on Billing.--Section 1842(b)(18)(C) of 
the Social Security Act (42 U.S.C. 1395u(b)(18)(C)) is amended by 
adding at the end the following new clause:
            ``(vii) A licensed tobacco cessation counselor (as defined 
        in section 1861(ccc)(2)).''.
    (e) Inclusion as Part of Initial Preventive Physical Examination.--
Section 1861(ww)(2) of the Social Security Act (42 U.S.C. 1395x(ww)(2)) 
is amended by adding at the end the following new subparagraph:
            ``(M) Counseling for cessation of tobacco use (as defined 
        in subsection (ccc)).''.
    (f) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after the date that is 1 year after 
the date of enactment of this Act.

SEC. 505. MEDICARE COVERAGE OF TOBACCO CESSATION PHARMACOTHERAPY.

    Section 1860D-2(e)(1) of the Social Security Act (42 U.S.C. 1395w-
102(e)(1)) is amended--
            (1) in subparagraph (A), by striking ``or'' after the 
        semicolon at the end;
            (2) in subparagraph (B), by striking the comma at the end 
        and inserting ``; or''; and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) any agent approved by the Food and Drug 
                Administration for purposes of promoting, and when used 
                to promote, tobacco cessation that may be dispensed 
                without a prescription (commonly referred to as an 
                `over-the-counter' drug), but only if such an agent is 
                prescribed by a physician (or other person authorized 
                to prescribe under State law),''.

SEC. 506. TOBACCO CESSATION FOR FEDERAL EMPLOYEE HEALTH BENEFITS PLANS.

    (a) Contract Requirement.--Section 8902 of title 5, United States 
Code, is amended by adding at the end the following:
    ``(p) Each contract under this chapter shall require the carrier to 
provide for the establishment and maintenance of a tobacco cessation 
program.''.
    (b) Effective Date and Application.--The amendment made by this 
section shall take effect on the date of enactment of this Act and 
apply with respect to contracts for health benefits plans under chapter 
89 of title 5, United States Code, which take effect on and after 
January of the first calendar year following 1 year after the date of 
enactment of this Act.

SEC. 507. MATCHING GRANTS FOR STATES THAT USE A SIGNIFICANT PORTION OF 
              MASTER SETTLEMENT AGREEMENT FUNDS FOR TOBACCO CONTROL AND 
              CESSATION.

    Title XXX of the Public Health Service Act, as added by section 
301, is amended by adding at the end the following:

``SEC. 3009. MATCHING GRANTS FOR STATES THAT USE A SIGNIFICANT PORTION 
              OF MASTER SETTLEMENT AGREEMENT FUNDS FOR TOBACCO CONTROL 
              AND CESSATION.

    ``(a) In General.--The Secretary may award matching grants to 
eligible States to enable such States to carry out additional tobacco 
control and cessation activities.
    ``(b) Eligibility.--To be eligible to receive a grant under 
subsection (a), a State shall--
            ``(1) demonstrate to the satisfaction of the Secretary 
        that, with respect to the calendar year preceding the year in 
        which the State is applying for such a grant, the State 
        expended in excess of 25 percent of the funds paid to the State 
        for such year as part of the comprehensive settlement of 
        November 1998 referred to in section 1903(d)(3)(B)(i) of the 
        Social Security Act on tobacco control and cessation 
        activities; and
            ``(2) submit to the Secretary an application at such time, 
        in such manner, and containing such information as the 
        Secretary may require.
    ``(c) Amount of Grant.--With respect to a grant under this section, 
an eligible State may receive not to exceed an amount equal to 50 
percent of the amount expended by the State in excess of the 25 percent 
of funds described in subsection (b)(1) for the year involved.
    ``(d) Funding.--The Secretary shall use amounts made available in 
each fiscal year under section 401(g)(3) of the Help End Addiction to 
Lethal Tobacco Habits Act to carry out this section.''.
                                 <all>
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