percent of the percentage otherwise payable 
(but for this subsection) by the State. 
‘‘(E) For expenditures attributable to costs 
incurred after 2010, the otherwise applicable 
Federal matching rate shall be increased to 100 
percent. 
‘‘(2) COORDINATION.—The State shall provide 
the Secretary with such information as may be nec-
essary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise 
be made for similar eligibility determinations.’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID 
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN GENERAL.—Section 1903(a)(1) of the 
Social Security Act (42 U.S.C. 1396b(a)(1)) is 
amended by inserting before the semicolon the fol-
lowing: ‘‘, reduced by the amount computed under 
section 1935(c)(1) for the State and the quarter’’. 
(2) AMOUNT
DESCRIBED.—Section 1935 of 
such Act, as inserted by subsection (a)(2), is amend-
ed by adding at the end the following new sub-
section:
‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section 
1903(a)(1), for a State that is one of the 50 States 
or the District of Columbia for a calendar quarter 
in a year (beginning with 2006) the amount com-
puted under this subsection is equal to the product 
of the following: 
‘‘(A) MEDICARE
SUBSIDIES.—The total 
amount of payments made in the quarter under 
section 1860G (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the 
State and are entitled to benefits with respect 
to prescribed drugs under the State plan under 
this title (including such a plan operating under 
a waiver under section 1115). 
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent 
the Federal medical assistance percentage (as 
defined in section 1905(b)) applicable to the 
State and the quarter.
‘‘(C) 
PHASE-OUT
PROPORTION.—The 
phase-out proportion (as defined in paragraph 
(2)) for the quarter. 
‘‘(2) PHASE-OUT PROPORTION.—For purposes 
of paragraph (1)(C), the ‘phase-out proportion’ for 
a calendar quarter in—
‘‘(A) 2006 is 80 percent; 
‘‘(B) 2007 is 60 percent; 
‘‘(C) 2008 is 40 percent; 
‘‘(D) 2009 is 20 percent; or 
‘‘(E) a year after 2009 is 0 percent.’’. 
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935 of such Act, as so inserted and 
amended, is further amended by adding at the end the 
following new subsection: 
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 
case of an individual dually entitled to qualified pre-
scription drug coverage under a prescription drug 
plan under part D of title XVIII (or under a 
Medicare+Choice plan under part C of such title) 
and medical assistance for prescribed drugs under 
this title, medical assistance shall continue to be pro-
vided under this title for prescribed drugs to the ex-
tent payment is not made under the prescription
drug plan or the Medicare+Choice plan selected by 
the individual. 
‘‘(2) CONDITION.—A State may require, as a 
condition for the receipt of medical assistance under 
this title with respect to prescription drug benefits 
for an individual eligible to obtain qualified prescrip-
tion drug coverage described in paragraph (1), that 
the individual elect qualified prescription drug cov-
erage under section 1860A.’’. 
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935 of such Act, as 
so inserted and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to 
subsection (e)’’ after ‘‘section 1903(a)’’; 
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 
(C) by adding at the end the following new 
subsection: 
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN
GENERAL.—In the case of a State, 
other than the 50 States and the District of Colum-
bia—
‘‘(A) the previous provisions of this section 
shall not apply to residents of such State; and
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical 
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the 
amount otherwise determined under section 
1108(f) (as increased under section 1108(g)) 
for the State shall be increased by the amount 
specified in paragraph (3). 
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient 
drugs (as defined in section 1860B(f)) to low-
income medicare beneficiaries; and 
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the 
operation of this subsection are used only for 
such assistance. 
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified 
in this paragraph for a State for a year is equal 
to the product of—
‘‘(i) the aggregate amount specified in 
subparagraph (B); and
‘‘(ii) the amount specified in section 
1108(g)(1) for that State, divided by the 
sum of the amounts specified in such sec-
tion for all such States. 
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph 
for—
‘‘(i) 2006, is equal to $20,000,000; or 
‘‘(ii) a subsequent year, is equal to the 
aggregate amount specified in this sub-
paragraph for the previous year increased 
by annual percentage increase specified in 
section 1860B(b)(5) for the year involved. 
‘‘(4) REPORT.—The Secretary shall submit to 
Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Secretary deems appropriate.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1108(f) of such Act is amended by inserting ‘‘and 
section 1935(e)(1)(B)’’ after ‘‘Subject to subsection 
(g)’’. 
SEC. 5. MEDIGAP TRANSITION PROVISIONS. 
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, no new medicare supplemental policy that pro-
vides coverage of expenses for prescription drugs may be
issued under section 1882 of the Social Security Act on 
or after January 1, 2006, to an individual unless it re-
places a medicare supplemental policy that was issued to 
that individual and that provided some coverage of ex-
penses for prescription drugs. 
(b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN 
PRESCRIPTION DRUG COVERAGE THROUGH MEDICARE.—
(1) IN
GENERAL.—The issuer of a medicare 
supplemental policy—
(A) may not deny or condition the issuance 
or effectiveness of a medicare supplemental pol-
icy that has a benefit package classified as ‘‘A’’, 
‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the 
standards established under subsection (p)(2) of 
section 1882 of the Social Security Act, 42 
U.S.C. 1395ss) and that is offered and is avail-
able for issuance to new enrollees by such 
issuer; 
(B) may not discriminate in the pricing of 
such policy, because of health status, claims ex-
perience, receipt of health care, or medical con-
dition; and 
(C) may not impose an exclusion of bene-
fits based on a pre-existing condition under 
such policy,
in the case of an individual described in paragraph 
(2) who seeks to enroll under the policy not later 
than 63 days after the date of the termination of en-
rollment described in such paragraph and who sub-
mits evidence of the date of termination or 
disenrollment along with the application for such 
medicare supplemental policy. 
(2) INDIVIDUAL COVERED.—An individual de-
scribed in this paragraph is an individual who—
(A) enrolls in a prescription drug plan 
under part D of title XVIII of the Social Secu-
rity Act; and 
(B) at the time of such enrollment was en-
rolled and terminates enrollment in a medicare 
supplemental policy which has a benefit pack-
age classified as ‘‘H’’, ‘‘I’’, or ‘‘J’’ under the 
standards referred to in paragraph (1)(A) or 
terminates enrollment in a policy to which such 
standards do not apply but which provides ben-
efits for prescription drugs. 
(3) ENFORCEMENT.—The provisions of para-
graph (1) shall be enforced as though they were in-
cluded in section 1882(s) of the Social Security Act 
(42 U.S.C. 1395ss(s)).
(4) DEFINITIONS.—For purposes of this sub-
section, the term ‘‘medicare supplemental policy’’ 
has the meaning given such term in section 1882(g) 
of the Social Security Act (42 U.S.C. 1395ss(g)).
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