789
‘‘(D) that include benefits for pre-
scription drug coverage for each en-
rollee who elects under part D to be 
provided qualified prescription drug 
coverage through the plan.
‘‘(2) DISAPPROVAL AUTHORITY.—The Ad-
ministrator shall not approve a plan of 
an EFFS organization if the Adminis-
trator determines (pursuant to the last 
sentence of section 1852(b)(1)(A)) that the 
benefits are designed to substantially dis-
courage enrollment by certain EFFS eli-
gible individuals with the organization. 
‘‘(d) OUTPATIENT PRESCRIPTION DRUG COV-
ERAGE.—For rules concerning the offering of 
prescription 
drug 
coverage 
under 
EFFS 
plans, see the amendment made by section 
102(b) of the Medicare Prescription Drug and 
Modernization Act of 2003. 
‘‘(e) OTHER ADDITIONAL PROVISIONS.—The 
provisions of section 1852 (other than sub-
section (a)(1)) shall apply under this part to 
EFFS plans. For the application of chronic 
care improvement provisions, see the amend-
ment made by section 722(b).
790
‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; 
PAYMENT OF PLANS 
‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—
‘‘(1) REQUIREMENT.—
‘‘(A) EFFS MONTHLY BID AMOUNT.—
For each year (beginning with 2006), 
an EFFS organization shall submit to 
the Administrator an EFFS monthly 
bid amount for each EFFS plan of-
fered in each region. Each such bid is 
referred to in this section as the 
‘EFFS monthly bid amount’. 
‘‘(B) FORM.—Such bid amounts 
shall be submitted for each such plan 
and region in a form and manner and 
time specified by the Administrator, 
and shall include information de-
scribed in paragraph (3)(A).
‘‘(2) 
UNIFORM
BID
AMOUNTS.—Each 
EFFS monthly bid amount submitted 
under paragraph (1) by an EFFS organi-
zation under this part for an EFFS plan 
in an EFFS region may not vary among 
EFFS eligible individuals residing in the 
EFFS region involved.
791
‘‘(3) SUBMISSION OF BID AMOUNT INFOR-
MATION BY EFFS ORGANIZATIONS.—
‘‘(A) 
INFORMATION
TO
BE
SUB-
MITTED.—The information described 
in this subparagraph is as follows: 
‘‘(i) The EFFS monthly bid 
amount for provision of all items 
and services under this part, 
which amount shall be based on 
average costs for a typical bene-
ficiary residing in the region, and 
the actuarial basis for deter-
mining such amount. 
‘‘(ii) The proportions of such 
bid amount that are attributable 
to—
‘‘(I) the provision of statu-
tory non-drug benefits (such 
portion referred to in this 
part as the ‘unadjusted EFFS 
statutory non-drug monthly 
bid amount’); 
‘‘(II) the provision of stat-
utory prescription drug bene-
fits; and
792
‘‘(III) the provision of non-
statutory benefits; 
and the actuarial basis for deter-
mining such proportions. 
‘‘(iii) Such additional informa-
tion as the Administrator may re-
quire to verify the actuarial bases 
described in clauses (i) and (ii). 
‘‘(B) 
STATUTORY
BENEFITS
DE-
FINED.—For purposes of this part: 
‘‘(i) The term ‘statutory non-
drug 
benefits’ 
means 
benefits 
under section 1852(a)(1). 
‘‘(ii) The term ‘statutory pre-
scription drug benefits’ means 
benefits under part D. 
‘‘(iii) The term ‘statutory ben-
efits’ means statutory prescrip-
tion drug benefits and statutory 
non-drug benefits.
‘‘(C) ACCEPTANCE AND NEGOTIATION 
OF
BID
AMOUNTS.—The Administrator 
has the authority to negotiate regard-
ing monthly bid amounts submitted 
under subparagraph (A) (and the pro-
793
portion described in subparagraph 
(A)(ii)), and for such purpose, the Ad-
ministrator has negotiation authority 
that the Director of the Office of Per-
sonnel Management has with respect 
to health benefits plans under chap-
ter 89 of title 5, United States Code. 
The Administrator may reject such a 
bid amount or proportion if the Ad-
ministrator 
determines 
that 
such 
amount or proportion is not sup-
ported by the actuarial bases pro-
vided under subparagraph (A). 
‘‘(D) CONTRACT
AUTHORITY.—The 
Administrator may, taking into ac-
count the unadjusted EFFS statutory 
non-drug monthly bid amounts ac-
cepted under subparagraph (C), enter 
into contracts for the offering of up 
to 3 EFFS plans in any region.
‘‘(b) PROVISION
OF BENEFICIARY SAVINGS 
FOR CERTAIN PLANS.—
‘‘(1) BENEFICIARY REBATE RULE.—
‘‘(A) 
REQUIREMENT.—The 
EFFS 
plan shall provide to the enrollee a
794
monthly rebate equal to 75 percent of 
the average per capita savings (if 
any) described in paragraph (2) appli-
cable to the plan and year involved. 
‘‘(B) FORM
OF
REBATE.—A rebate 
required under this paragraph shall 
be provided—
‘‘(i) through the crediting of 
the amount of the rebate towards 
the EFFS monthly prescription 
drug beneficiary premium (as de-
fined in section 1860E–4(a)(3)(B)) 
and the EFFS monthly supple-
mental beneficiary premium (as 
defined 
in 
section 
1860E–
4(a)(3)(C)); 
‘‘(ii) through a direct monthly 
payment 
(through 
electronic 
funds transfer or otherwise); or 
‘‘(iii) through other means ap-
proved by the Medicare Benefits 
Administrator, 
or any combination thereof. 
‘‘(2) COMPUTATION
OF
AVERAGE
PER 
CAPITA
MONTHLY
SAVINGS.—For purposes
796
which no EFFS plan was offered 
in the previous year, the Adminis-
trator shall estimate such aver-
age. In making such estimate, the 
Administrator may use average 
risk adjustment factors applied to 
comparable EFFS regions or ap-
plied on a national basis. 
‘‘(B) DETERMINATION
OF
RISK
AD-
JUSTED BENCHMARK AND RISK-ADJUSTED 
BID.—For each EFFS plan offered in 
an EFFS region, the Administrator 
shall—
‘‘(i) adjust the EFFS region-
specific non-drug monthly bench-
mark amount (as defined in para-
graph (3)) by the applicable aver-
age risk adjustment factor com-
puted under subparagraph (A); 
and 
‘‘(ii) adjust the unadjusted 
EFFS statutory non-drug monthly 
bid amount by such applicable av-
erage risk adjustment factor.
797
‘‘(C) DETERMINATION
OF
AVERAGE 
PER CAPITA MONTHLY SAVINGS.—The av-
erage per capita monthly savings de-
scribed in this subparagraph is equal 
to the amount (if any) by which—
‘‘(i) the risk-adjusted bench-
mark amount computed under 
subparagraph (B)(i), exceeds 
‘‘(ii) 
the 
risk-adjusted 
bid 
computed 
under 
subparagraph 
(B)(ii). 
‘‘(3) COMPUTATION OF EFFS REGION-SPE-
CIFIC
NON-DRUG
MONTHLY
BENCHMARK 
AMOUNT.—For purposes of this part, the 
term 
‘EFFS 
region-specific 
non-drug 
monthly benchmark amount’ means, with 
respect to an EFFS region for a month in 
a year, an amount equal to 1⁄12 of the av-
erage (weighted by number of EFFS eligi-
ble individuals in each payment area de-
scribed in section 1853(d)) of the annual 
capitation rate as calculated under sec-
tion 1853(c)(1) for that area. 
‘‘(c) PAYMENT
OF
PLANS
BASED
ON
BID 
AMOUNTS.—
798
‘‘(1) 
NON-DRUG
BENEFITS.—Under 
a 
contract under section 1860E–4(c) and 
subject to section 1853(g) (as made appli-
cable under subsection (d)), the Adminis-
trator shall make monthly payments 
under this subsection in advance to each 
EFFS organization, with respect to cov-
erage of an individual under this part in 
an EFFS region for a month, in an 
amount determined as follows: 
‘‘(A) 
PLANS
WITH
BIDS
BELOW 
BENCHMARK.—In the case of a plan for 
which there are average per capita 
monthly savings described in sub-
section (b)(2)(C), the payment under 
this 
subsection 
is 
equal 
to 
the 
unadjusted EFFS statutory non-drug 
monthly bid amount, adjusted under 
paragraphs (3) and (4), plus the 
amount of the monthly rebate com-
puted under subsection (b)(1)(A) for 
that plan and year. 
‘‘(B) PLANS WITH BIDS AT OR ABOVE 
BENCHMARK.—In the case of a plan for 
which there are no average per cap-
799
ita monthly savings described in sub-
section (b)(2)(C), the payment amount 
under this subsection is equal to the 
EFFS 
region-specific 
non-drug 
monthly benchmark amount, adjusted 
under paragraphs (3) and (4). 
‘‘(2) FOR FEDERAL DRUG SUBSIDIES.—In 
the case in which an enrollee who elects 
under part D to be provided qualified 
prescription drug coverage through the 
plan, the EFFS organization offering 
such plan also is entitled—
‘‘(A) to direct subsidy payment 
under section 1860D–8(a)(1); 
‘‘(B) to reinsurance subsidy pay-
ments under section 1860D–8(a)(2); 
and 
‘‘(C) to reimbursement for pre-
mium and cost-sharing reductions for 
low-income individuals under section 
1860D–7(c)(3). 
‘‘(3) DEMOGRAPHIC
RISK
ADJUSTMENT, 
INCLUDING
ADJUSTMENT
FOR
HEALTH
STA-
TUS.—The 
Administrator 
shall 
adjust 
under paragraph (1)(A) the unadjusted
800
EFFS statutory non-drug monthly bid 
amount and under paragraph (1)(B) the 
EFFS region-specific non-drug monthly 
benchmark amount for such risk factors 
as age, disability status, gender, institu-
tional status, and such other factors as 
the Administrator determines to be ap-
propriate, 
including 
adjustment 
for 
health status under section 1853(a)(3) (as 
applied under subsection (d)), so as to en-
sure actuarial equivalence. The Adminis-
trator may add to, modify, or substitute 
for such adjustment factors if such 
changes will improve the determination 
of actuarial equivalence. 
‘‘(4) ADJUSTMENT
FOR
INTRA-REGIONAL 
GEOGRAPHIC
VARIATIONS.—The 
Adminis-
trator shall also adjust such amounts in a 
manner to take into account variations in 
payments rates under part C among the 
different payment areas under such part 
included in each EFFS region. 
‘‘(d) APPLICATION OF ADDITIONAL PAYMENT 
RULES.—The provisions of section 1853 (other 
than subsections (a)(1)(A), (d), and (e)) shall
801
apply to an EFFS plan under this part, except 
as otherwise provided in this section. 
‘‘PREMIUMS; ORGANIZATIONAL AND FINANCIAL RE-
QUIREMENTS; 
ESTABLISHMENT
OF
STAND-
ARDS; CONTRACTS WITH EFFS ORGANIZATIONS 
‘‘SEC. 1860E–4. (a) PREMIUMS.—
‘‘(1) IN
GENERAL.—The provisions of 
section 1854 (other than subsections 
(a)(6)(C) and (h)), including subsection 
(b)(5) relating to the consolidation of 
drug and non-drug beneficiary premiums 
and subsection (c) relating to uniform 
bids and premiums, shall apply to an 
EFFS plan under this part, subject to 
paragraph (2). 
‘‘(2) CROSS-WALK.—In applying para-
graph 
(1), 
any 
reference 
in 
section 
1854(b)(1)(A) or 1854(d) to—
‘‘(A) 
a 
Medicare 
Advantage 
monthly basic beneficiary premium is 
deemed a reference to the EFFS 
monthly basic beneficiary premium 
(as defined in paragraph (3)(A)); 
‘‘(B) 
a 
Medicare 
Advantage 
monthly 
prescription 
drug 
bene-
ficiary premium is deemed a ref-
803
benchmark amount (as defined in 
section 1860E–3(b)(3)). 
‘‘(B) EFFS MONTHLY PRESCRIPTION 
DRUG
BENEFICIARY
PREMIUM.—The 
term 
‘EFFS 
monthly 
prescription 
drug beneficiary premium’ means, 
with respect to an EFFS plan, the 
portion of the aggregate monthly bid 
amount submitted under clause (i) of 
section 1860E–3(a)(3)(A) for the year 
that is attributable under such sec-
tion to the provision of statutory pre-
scription drug benefits. 
‘‘(C) EFFS MONTHLY SUPPLEMENTAL 
BENEFICIARY
PREMIUM.—The 
term 
‘EFFS monthly supplemental bene-
ficiary premium’ means, with respect 
to an EFFS plan, the portion of the 
aggregate monthly bid amount sub-
mitted under clause (i) of section 
1860E–3(a)(3)(A) for the year that is 
attributable under such section to the 
provision of nonstatutory benefits.
‘‘(b) ORGANIZATIONAL
AND FINANCIAL RE-
QUIREMENTS.—The provisions of section 1855
804
shall apply to an EFFS plan offered by an 
EFFS organization under this part. 
‘‘(c) CONTRACTS
WITH
EFFS ORGANIZA-
TIONS.—The provisions of section 1857 shall 
apply to an EFFS plan offered by an EFFS or-
ganization under this part, except that any 
reference in such section to part C is deemed 
a reference to this part.’’. 
(b) PROHIBITION
ON
COVERAGE
UNDER 
MEDIGAP
PLANS
OF
DEDUCTIBLE
IMPOSED 
UNDER EFFS PLANS.—Section 1882 (42 U.S.C. 
1395ss), as amended by section 104(a), is 
amended by adding at the end the following 
new subsection: 
‘‘(w) PROHIBITION ON COVERAGE OF DEDUCT-
IBLE
AND
CERTAIN
COST-SHARING
IMPOSED 
UNDER
EFFS PLANS.—Notwithstanding any 
other provision of law, no medicare supple-
mental policy (other than the 2 benefit pack-
ages described in subsection (v)(3)) may pro-
vide for coverage of the single deductible or 
more than 50 percent of other cost-sharing 
imposed under an EFFS plan under part E.’’. 
(c) CONFORMING PROVISIONS.—Section 1882 
of the Social Security Act (42 U.S.C. 1395ss)
805
shall be administered as if any reference to a 
Medicare+Choice 
organization 
offering 
a 
Medicare+Choice plan under part C of title 
XVIII of such Act were a reference both to a 
Medicare Advantage organization offering a 
Medicare Advantage plan under such part 
and an EFFS organization offering an EFFS 
plan under part E of such title. 
Subtitle B—Medicare Advantage 
Program 
CHAPTER 1—IMPLEMENTATION OF 
PROGRAM 
SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE 
PROGRAM. 
(a) IN GENERAL.—There is hereby estab-
lished the Medicare Advantage program. The 
Medicare Advantage program shall consist of 
the program under part C of title XVIII of the 
Social Security Act, as amended by this title. 
(b) REFERENCES.—Any reference to the 
program under part C of title XVIII of the So-
cial Security Act shall be deemed a reference 
to the Medicare Advantage program and, with 
respect to such part, any reference to
806
‘‘Medicare+Choice’’ is deemed a reference to 
‘‘Medicare Advantage’’. 
SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS. 
(a) EQUALIZING PAYMENTS WITH FEE-FOR-
SERVICE.—
(1) IN GENERAL.—Section 1853(c)(1) (42 
U.S.C. 1395w–23(c)(1)) is amended by add-
ing at the end the following: 
‘‘(D) BASED ON 100 PERCENT OF FEE-
FOR-SERVICE COSTS.—
‘‘(i) IN GENERAL.—For 2004, the 
adjusted average per capita cost 
for the year involved, determined 
under section 1876(a)(4) for the 
Medicare 
Advantage 
payment 
area for services covered under 
parts A and B for individuals enti-
tled to benefits under part A and 
enrolled under part B who are 
not enrolled in a Medicare Advan-
tage under this part for the year, 
but adjusted to exclude costs at-
tributable to payments under sec-
tion 1886(h).
807
‘‘(ii) INCLUSION OF COSTS OF VA 
AND
DOD
MILITARY
FACILITY
SERV-
ICES
TO
MEDICARE-ELIGIBLE
BENE-
FICIARIES.—In determining the ad-
justed average per capita cost 
under clause (i) for a year, such 
cost shall be adjusted to include 
the Secretary’s estimate, on a per 
capita basis, of the amount of ad-
ditional 
payments 
that 
would 
have been made in the area in-
volved under this title if individ-
uals entitled to benefits under 
this title had not received serv-
ices from facilities of the Depart-
ment of Veterans Affairs or the 
Department of Defense.’’.
(2) 
CONFORMING
AMENDMENT.—Such 
section is further amended, in the matter 
before subparagraph (A), by striking ‘‘or 
(C)’’ and inserting ‘‘(C), or (D)’’. 
(b) CHANGE
IN BUDGET NEUTRALITY
FOR 
BLEND.—Section 1853(c) (42 U.S.C. 1395w–
23(c)) is amended—
808
(1) in paragraph (1)(A), by inserting 
‘‘(for a year other than 2004)’’ after ‘‘mul-
tiplied’’; and 
(2) in paragraph (5), by inserting 
‘‘(other than 2004)’’ after ‘‘for each year’’.
(c) INCREASING MINIMUM PERCENTAGE IN-
CREASE TO NATIONAL GROWTH RATE.—
(1) IN GENERAL.—Section 1853(c)(1) (42 
U.S.C. 1395w–23(c)(1)) is amended—
(A) in subparagraph (B)(iv), by 
striking ‘‘and each succeeding year’’ 
and inserting ‘‘, 2003, and 2004’’; 
(B) in subparagraph (C)(iv), by 
striking ‘‘and each succeeding year’’ 
and inserting ‘‘and 2003’’; and 
(C) by adding at the end of sub-
paragraph (C) the following new 
clause: 
‘‘(v) For 2004 and each suc-
ceeding year, the greater of—
‘‘(I) 102 percent of the an-
nual 
Medicare 
Advantage 
capitation 
rate 
under 
this 
paragraph for the area for the 
previous year; or
809
‘‘(II) the annual Medicare 
Advantage 
capitation 
rate 
under this paragraph for the 
area for the previous year in-
creased by the national per 
capita 
Medicare 
Advantage 
growth percentage, described 
in paragraph (6) for that suc-
ceeding year, but not taking 
into account any adjustment 
under paragraph (6)(C) for a 
year before 2004.’’. 
(2) CONFORMING AMENDMENT.—Section 
1853(c)(6)(C) (42 U.S.C. 1395w–23(c)(6)(C)) 
is amended by inserting before the period 
at the end the following: ‘‘, except that for 
purposes of paragraph (1)(C)(v)(II), no 
such adjustment shall be made for a year 
before 2004’’.
(d) INCLUSION OF COSTS OF DOD AND VA 
MILITARY FACILITY SERVICES TO MEDICARE-ELI-
GIBLE
BENEFICIARIES
IN
CALCULATION
OF 
MEDICARE+CHOICE
PAYMENT
RATES.—Section 
1853(c)(3) (42 U.S.C. 1395w–23(c)(3)) is amend-
ed—
810
(1) in subparagraph (A), by striking 
‘‘subparagraph (B)’’ and inserting ‘‘sub-
paragraphs (B) and (E)’’, and 
(2) by adding at the end the following 
new subparagraph: 
‘‘(E) INCLUSION
OF
COSTS
OF
DOD 
AND VA MILITARY FACILITY SERVICES TO 
MEDICARE-ELIGIBLE
BENEFICIARIES.—In 
determining 
the 
area-specific 
Medicare+Choice 
capitation 
rate 
under subparagraph (A) for a year 
(beginning with 2004), the annual per 
capita rate of payment for 1997 deter-
mined 
under 
section 
1876(a)(1)(C) 
shall be adjusted to include in the 
rate the Secretary’s estimate, on a per 
capita basis, of the amount of addi-
tional payments that would have 
been made in the area involved under 
this title if individuals entitled to 
benefits under this title had not re-
ceived services from facilities of the 
Department of Defense or the Depart-
ment of Veterans Affairs.’’.
811
(e) EXTENDING SPECIAL RULE FOR CERTAIN 
INPATIENT HOSPITAL STAYS TO REHABILITATION 
HOSPITALS.—
(1) IN
GENERAL.—Section 1853(g) (42 
U.S.C. 1395w–23(g)) is amended—
(A) by inserting ‘‘or from a reha-
bilitation facility (as defined in sec-
tion 
1886(j)(1)(A))’’ 
after 
‘‘1886(d)(1)(B))’’; and 
(B) in paragraph (2)(B), by insert-
ing ‘‘or section 1886(j), as the case 
may be,’’ after ‘‘1886(d)’’. 
(2) EFFECTIVE DATE.—The amendments 
made by paragraph (1) shall apply to con-
tract years beginning on or after January 
1, 2004. 
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment 
Advisory Commission shall conduct a 
study that assesses the method used for 
determining the adjusted average per 
capita 
cost 
(AAPCC) 
under 
section 
1876(a)(4) of the Social Security Act (42 
U.S.C. 1395mm(a)(4)) as applied under 
section 1853(c)(1)(A) of such Act (as
812
amended by subsection (a)). Such study 
shall include an examination of—
(A) the bases for variation in such 
costs between different areas, includ-
ing differences in input prices, utili-
zation, and practice patterns; 
(B) the appropriate geographic 
area for payment under the Medicare 
Advantage program under part C of 
title XVIII of such Act; and 
(C) the accuracy of risk adjust-
ment 
methods 
in 
reflecting 
dif-
ferences in costs of providing care to 
different 
groups 
of 
beneficiaries 
served under such program. 
(2) REPORT.—Not later than 18 months 
after the date of the enactment of this 
Act, the Commission shall submit to Con-
gress a report on the study conducted 
under paragraph (1). 
(g) REPORT ON IMPACT OF INCREASED FINAN-
CIAL
ASSISTANCE
TO
MEDICARE
ADVANTAGE 
PLANS.—Not later than July 1, 2006, the Medi-
care Benefits Administrator shall submit to 
Congress a report that describes the impact
813
of additional financing provided under this 
Act and other Acts (including the Medicare, 
Medicaid, and SCHIP Balanced Budget Re-
finement Act of 1999 and BIPA) on the avail-
ability of Medicare Advantage plans in dif-
ferent areas and its impact on lowering pre-
miums and increasing benefits under such 
plans. 
CHAPTER 2—IMPLEMENTATION OF 
COMPETITION PROGRAM
SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006. 
(a) SUBMISSION OF EFFS-LIKE BIDDING IN-
FORMATION BEGINNING IN 2006.—Section 1854 
(42 U.S.C. 1395w–24) is amended—
(1) by amending the section heading 
to read as follows: 
‘‘PREMIUMS AND BID AMOUNT’’; 
(2) in subsection (a)(1)(A)—
(A) by striking ‘‘(A)’’ and inserting 
‘‘(A)(i) if the following year is before 
2006,’’; and 
(B) by inserting before the semi-
colon at the end the following: ‘‘or (ii) 
if the following year is 2006 or later, 
the information described in para-
814
graph (3) or (6)(A) for the type of plan 
involved’’; and 
(3) by adding at the end of subsection 
(a) the following: 
‘‘(6) SUBMISSION
OF
BID
AMOUNTS
BY 
MEDICARE ADVANTAGE ORGANIZATIONS.—
‘‘(A) 
INFORMATION
TO
BE
SUB-
MITTED.—The information described 
in this subparagraph is as follows: 
‘‘(i) The monthly aggregate 
bid amount for provision of all 
items and services under this 
part, 
which 
amount 
shall 
be 
based on average costs for a typ-
ical beneficiary residing in the 
area, and the actuarial basis for 
determining such amount. 
‘‘(ii) The proportions of such 
bid amount that are attributable 
to—
‘‘(I) the provision of statu-
tory non-drug benefits (such 
portion referred to in this 
part as the ‘unadjusted Medi-
815
care Advantage statutory non-
drug monthly bid amount’); 
‘‘(II) the provision of stat-
utory prescription drug bene-
fits; and 
‘‘(III) the provision of non-
statutory benefits; 
and the actuarial basis for deter-
mining such proportions. 
‘‘(iii) Such additional informa-
tion as the Administrator may re-
quire to verify the actuarial bases 
described in clauses (i) and (ii). 
‘‘(B) 
STATUTORY
BENEFITS
DE-
FINED.—For purposes of this part: 
‘‘(i) The term ‘statutory non-
drug 
benefits’ 
means 
benefits 
under section 1852(a)(1). 
‘‘(ii) The term ‘statutory pre-
scription drug benefits’ means 
benefits under part D. 
‘‘(iii) The term ‘statutory ben-
efits’ means statutory prescrip-
tion drug benefits and statutory 
non-drug benefits.
816
‘‘(C) ACCEPTANCE AND NEGOTIATION 
OF BID AMOUNTS.—
‘‘(i) IN
GENERAL.—Subject to 
clause (ii)—
‘‘(I) the Administrator has 
the authority to negotiate re-
garding monthly bid amounts 
submitted 
under 
subpara-
graph (A) (and the proportion 
described 
in 
subparagraph 
(A)(ii)), and for such purpose 
and subject to such clause, 
the Administrator has nego-
tiation authority that the Di-
rector of the Office of Per-
sonnel Management has with 
respect 
to 
health 
benefits 
plans under chapter 89 of title 
5, United States Code; and 
‘‘(II) 
the 
Administrator 
may reject such a bid amount 
or proportion if the Adminis-
trator determines that such 
amount or proportion is not 
supported by the actuarial
817
bases provided under sub-
paragraph (A). 
‘‘(ii) EXCEPTION.—In the case 
of a plan described in section 
1851(a)(2)(C), the provisions of 
clause (i) shall not apply and the 
provisions of paragraph (5)(B), 
prohibiting the review, approval, 
or disapproval of amounts de-
scribed in such paragraph, shall 
apply to the negotiation and re-
jection 
of 
the 
monthly 
bid 
amounts and proportion referred 
to in subparagraph (A).’’. 
(b) PROVIDING
FOR BENEFICIARY SAVINGS 
FOR CERTAIN PLANS.—
(1) IN
GENERAL.—Section 1854(b) (42 
U.S.C. 1395w–24(b)) is amended—
(A) by adding at the end of para-
graph (1) the following new subpara-
graph: 
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) REQUIREMENT.—The Medi-
care Advantage plan shall provide 
to the enrollee a monthly rebate
818
equal to 75 percent of the average 
per capita savings (if any) de-
scribed in paragraph (3) applica-
ble to the plan and year involved. 
‘‘(iii) FORM OF REBATE.—A re-
bate required under this subpara-
graph shall be provided—
‘‘(I) through the crediting 
of the amount of the rebate 
towards the Medicare Advan-
tage monthly supplementary 
beneficiary premium or the 
premium 
imposed 
for 
pre-
scription drug coverage under 
part D; 
‘‘(II) 
through 
a 
direct 
monthly 
payment 
(through 
electronic funds transfer or 
otherwise); or 
‘‘(III) through other means 
approved 
by 
the 
Medicare 
Benefits Administrator, 
or any combination thereof.’’; and 
(B) by adding at the end the fol-
lowing new paragraphs:
819
‘‘(3) COMPUTATION
OF
AVERAGE
PER 
CAPITA
MONTHLY
SAVINGS.—For purposes 
of paragraph (1)(C)(i), the average per 
capita monthly savings referred to in 
such paragraph for a Medicare Advan-
tage plan and year is computed as fol-
lows: 
‘‘(A) DETERMINATION OF STATE-WIDE 
AVERAGE RISK ADJUSTMENT.—
‘‘(i) IN
GENERAL.—The Medi-
care Benefits Administrator shall 
determine, at the same time rates 
are promulgated under section 
1853(b)(1) (beginning with 2006), 
for each State the average of the 
risk adjustment factors to be ap-
plied under section 1853(a)(1)(A) 
to payment for enrollees in that 
State. In the case of a State in 
which a Medicare Advantage plan 
was offered in the previous year, 
the Administrator may compute 
such average based upon risk ad-
justment factors applied in that 
State in a previous year.
820
‘‘(ii) 
TREATMENT
OF
NEW 
STATES.—In the case of a State in 
which no Medicare Advantage 
plan was offered in the previous 
year, the Administrator shall esti-
mate such average. In making 
such estimate, the Administrator 
may use average risk adjustment 
factors 
applied 
to 
comparable 
States or applied on a national 
basis. 
‘‘(B) DETERMINATION
OF
RISK
AD-
JUSTED BENCHMARK AND RISK-ADJUSTED 
BID.—For each Medicare Advantage 
plan offered in a State, the Adminis-
trator shall—
‘‘(i) adjust the Medicare Ad-
vantage 
area-specific 
non-drug 
monthly benchmark amount (as 
defined in subsection (j)) by the 
applicable average risk adjust-
ment factor computed under sub-
paragraph (A); and 
‘‘(ii) adjust the unadjusted 
Medicare 
Advantage 
statutory
821
non-drug monthly bid amount by 
such applicable average risk ad-
justment factor. 
‘‘(C) DETERMINATION
OF
AVERAGE 
PER CAPITA MONTHLY SAVINGS.—The av-
erage per capita monthly savings de-
scribed in this subparagraph is equal 
to the amount (if any) by which—
‘‘(i) the risk-adjusted bench-
mark amount computed under 
subparagraph (B)(i), exceeds 
‘‘(ii) 
the 
risk-adjusted 
bid 
computed 
under 
subparagraph 
(B)(ii). 
‘‘(D) AUTHORITY TO DETERMINE RISK 
ADJUSTMENT
FOR
AREAS
OTHER
THAN 
STATES.—The Administrator may pro-
vide for the determination and appli-
cation of risk adjustment factors 
under this paragraph on the basis of 
areas other than States. 
‘‘(4) BENEFICIARY’S OPTION OF PAYMENT 
THROUGH WITHHOLDING FROM SOCIAL SECU-
RITY PAYMENT OR USE OF ELECTRONIC FUNDS 
TRANSFER
MECHANISM.—In 
accordance
822
with regulations, a Medicare Advantage 
organization shall permit each enrollee, 
at the enrollee’s option, to make payment 
of premiums under this part to the orga-
nization indirectly through withholding 
from benefit payments in the manner 
provided under section 1840 with respect 
to monthly premiums under section 1839 
or through an electronic funds transfer 
mechanism (such as automatic charges of 
an account at a financial institution or a 
credit or debit card account) or other-
wise. All premium payments that are 
withheld under this paragraph that are 
credited to the Federal Supplementary 
Medical Insurance Drug Trust Fund shall 
be paid to the Medicare Advantage orga-
nization involved.’’. 
(2) PROVISION OF SINGLE CONSOLIDATED 
PREMIUM.—Section 
1854(b) 
(42 
U.S.C. 
1395w–24(b)), as amended by paragraph 
(1), is further amended by adding at the 
end the following new paragraph: 
‘‘(5) SINGLE CONSOLIDATED PREMIUM.—
In the case of an enrollee in a Medicare
823
Advantage plan who elects under part D 
to be provided qualified prescription 
drug coverage through the plan, the Ad-
ministrator shall provide a mechanism 
for the consolidation of the beneficiary 
premium amount for non-drug benefits 
under 
this 
part 
with 
the 
premium 
amount for prescription drug coverage 
under part D provided through the 
plan.’’. 
(3) COMPUTATION OF MEDICARE ADVAN-
TAGE
AREA-SPECIFIC
NON-DRUG
BENCH-
MARK.—Section 1853 (42 U.S.C. 1395w–23) 
is amended by adding at the end the fol-
lowing new subsection: 
‘‘(j) COMPUTATION OF MEDICARE ADVANTAGE 
AREA-SPECIFIC
NON-DRUG
MONTHLY
BENCH-
MARK AMOUNT.—For purposes of this part, the 
term ‘Medicare Advantage area-specific non-
drug monthly benchmark amount’ means, 
with respect to a Medicare Advantage pay-
ment area for a month in a year, an amount 
equal to 1⁄12 of the annual Medicare Advan-
tage capitation rate under section 1853(c)(1) 
for the area for the year.’’.
824
(c) PAYMENT
OF
PLANS
BASED
ON
BID 
AMOUNTS.—
(1) IN GENERAL.—Section 1853(a)(1)(A) 
(42 U.S.C. 1395w–23) is amended by strik-
ing ‘‘in an amount’’ and all that follows 
and 
inserting 
the 
following: 
‘‘in 
an 
amount determined as follows: 
‘‘(i) PAYMENT BEFORE 2006.—For 
years before 2006, the payment 
amount shall be equal to 1⁄12 of 
the annual Medicare Advantage 
capitation 
rate 
(as 
calculated 
under subsection (c)(1)) with re-
spect to that individual for that 
area, reduced by the amount of 
any reduction elected under sec-
tion 1854(f )(1)(E) and adjusted 
under clause (iv). 
‘‘(ii) PAYMENT
FOR
STATUTORY 
NON-DRUG
BENEFITS
BEGINNING 
WITH
2006.—For years beginning 
with 2006—
‘‘(I) 
PLANS
WITH
BIDS 
BELOW
BENCHMARK.—In 
the 
case of a plan for which there
825
are average per capita month-
ly savings described in sec-
tion 1854(b)(3)(C), the pay-
ment under this subsection is 
equal to the unadjusted Medi-
care Advantage statutory non-
drug monthly bid amount, ad-
justed under clause (iv), plus 
the amount of the monthly re-
bate computed under section 
1854(b)(1)(C)(i) for that plan 
and year. 
‘‘(II) PLANS
WITH
BIDS
AT 
OR ABOVE BENCHMARK.—In the 
case of a plan for which there 
are no average per capita 
monthly savings described in 
section 1854(b)(3)(C), the pay-
ment amount under this sub-
section is equal to the Medi-
care Advantage area-specific 
non-drug monthly benchmark 
amount, 
adjusted 
under 
clause (iv).
826
‘‘(iii) FOR FEDERAL DRUG SUB-
SIDIES.—In the case in which an 
enrollee who elects under part D 
to be provided qualified prescrip-
tion drug coverage through the 
plan, the Medicare Advantage or-
ganization offering such plan also 
is entitled—
‘‘(I) to direct subsidy pay-
ment under section 1860D–
8(a)(1); 
‘‘(II) to reinsurance sub-
sidy payments under section 
1860D–8(a)(2); and 
‘‘(III) 
to 
reimbursement 
for premium and cost-sharing 
reductions for low-income in-
dividuals 
under 
section 
1860D–7(c)(3). 
‘‘(iv) 
DEMOGRAPHIC
ADJUST-
MENT, INCLUDING ADJUSTMENT FOR 
HEALTH
STATUS.—The 
Adminis-
trator shall adjust the payment 
amount 
under 
clause 
(i), 
the 
unadjusted Medicare Advantage
827
statutory non-drug monthly bid 
amount under clause (ii)(I), and 
the Medicare Advantage area-spe-
cific non-drug monthly bench-
mark amount under clause (ii)(II) 
for such risk factors as age, dis-
ability 
status, 
gender, 
institu-
tional status, and such other fac-
tors as the Administrator deter-
mines to be appropriate, includ-
ing adjustment for health status 
under paragraph (3), so as to en-
sure actuarial equivalence. The 
Administrator may add to, mod-
ify, or substitute for such adjust-
ment factors if such changes will 
improve the determination of ac-
tuarial equivalence.’’. 
(d) CONFORMING AMENDMENTS.—
(1) PROTECTION
AGAINST
BENEFICIARY 
SELECTION.—Section 
1852(b)(1)(A) 
(42 
U.S.C. 1395w–22(b)(1)(A)) is amended by 
adding at the end the following: ‘‘The Ad-
ministrator shall not approve a plan of 
an organization if the Administrator de-
828
termines that the benefits are designed to 
substantially discourage enrollment by 
certain Medicare Advantage eligible indi-
viduals with the organization.’’. 
(2) CONFORMING
AMENDMENT
TO
PRE-
MIUM
TERMINOLOGY.—Section 
1854(b)(2) 
(42 U.S.C. 1395w–24(b)(2)) is amended by 
redesignating subparagraph (C) as sub-
paragraph (D) and by striking subpara-
graphs (A) and (B) and inserting the fol-
lowing: 
‘‘(A) MEDICARE ADVANTAGE MONTH-
LY
BASIC
BENEFICIARY
PREMIUM.—The 
term ‘Medicare Advantage monthly 
basic beneficiary premium’ means, 
with respect to a Medicare Advantage 
plan—
‘‘(i) 
described 
in 
section 
1853(a)(1)(A)(ii)(I) 
(relating 
to 
plans providing rebates), zero; or 
‘‘(ii) 
described 
in 
section 
1853(a)(1)(A)(ii)(II), the amount (if 
any) by which the unadjusted 
Medicare 
Advantage 
statutory 
non-drug monthly bid amount ex-
829
ceeds the Medicare Advantage 
area-specific 
non-drug 
monthly 
benchmark amount. 
‘‘(B) MEDICARE ADVANTAGE MONTH-
LY
PRESCRIPTION
DRUG
BENEFICIARY 
PREMIUM.—The term ‘Medicare Advan-
tage monthly prescription drug bene-
ficiary premium’ means, with respect 
to a Medicare Advantage plan, that 
portion of the bid amount submitted 
under 
clause 
(i) 
of 
subsection 
(a)(6)(A) for the year that is attrib-
utable under such section to the pro-
vision of statutory prescription drug 
benefits. 
‘‘(C) MEDICARE ADVANTAGE MONTH-
LY
SUPPLEMENTAL
BENEFICIARY
PRE-
MIUM.—The term ‘Medicare Advantage 
monthly 
supplemental 
beneficiary 
premium’ means, with respect to a 
Medicare Advantage plan, the portion 
of the aggregate monthly bid amount 
submitted under clause (i) of sub-
section (a)(6)(A) for the year that is
830
attributable under such section to the 
provision of nonstatutory benefits.’’. 
(3) REQUIREMENT
FOR
UNIFORM
PRE-
MIUM
AND
BID
AMOUNTS.—Section 1854(c) 
(42 U.S.C. 1395w–24(c)) is amended to 
read as follows: 
‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—
The Medicare Advantage monthly bid amount 
submitted under subsection (a)(6), the Medi-
care Advantage monthly basic, prescription 
drug, and supplemental beneficiary pre-
miums, and the Medicare Advantage monthly 
MSA premium charged under subsection (b) 
of a Medicare Advantage organization under 
this part may not vary among individuals en-
rolled in the plan.’’. 
(4) 
PERMITTING
BENEFICIARY
RE-
BATES.—
(A) 
Section 
1851(h)(4)(A) 
(42 
U.S.C. 1395w–21(h)(4)(A)) is amended 
by inserting ‘‘except as provided 
under section 1854(b)(1)(C)’’ after ‘‘or 
otherwise’’. 
(B) Section 1854(d) (42 U.S.C. 
1395w–24(d)) is amended by inserting
831
‘‘, except as provided under sub-
section (b)(1)(C),’’ after ‘‘and may not 
provide’’. 
(5) OTHER
CONFORMING
AMENDMENTS 
RELATING TO BIDS.—Section 1854 (42 U.S.C. 
1395w–24) is amended—
(A) in the heading of subsection 
(a), by inserting ‘‘AND BID AMOUNTS’’ 
after ‘‘PREMIUMS’’; and 
(B) in subsection (a)(5)(A), by in-
serting ‘‘paragraphs (2), (3), and (4) 
of’’ after ‘‘filed under’’. 
(e) 
ADDITIONAL
CONFORMING
AMEND-
MENTS.—
(1) ANNUAL
DETERMINATION
AND
AN-
NOUNCEMENT
OF
CERTAIN
FACTORS.—Sec-
tion 1853(b)(1) (42 U.S.C. 1395w–23(b)(1)) 
is amended by striking ‘‘the respective 
calendar year’’ and all that follows and 
inserting the following: ‘‘the calendar 
year concerned with respect to each 
Medicare Advantage payment area, the 
following:
832
‘‘(A) 
PRE-COMPETITION
INFORMA-
TION.—For years before 2006, the fol-
lowing: 
‘‘(i) MEDICARE ADVANTAGE CAPI-
TATION RATES.—The annual Medi-
care Advantage capitation rate 
for each Medicare Advantage pay-
ment area for the year. 
‘‘(ii) ADJUSTMENT
FACTORS.—
The risk and other factors to be 
used 
in 
adjusting 
such 
rates 
under 
subsection 
(a)(1)(A) 
for 
payments for months in that year. 
‘‘(B) COMPETITION
INFORMATION.—
For years beginning with 2006, the 
following: 
‘‘(i) BENCHMARK.—The Medi-
care Advantage area-specific non-
drug benchmark under section 
1853(j). 
‘‘(ii) ADJUSTMENT
FACTORS.—
The adjustment factors applied 
under section 1853(a)(1)(A)(iv) (re-
lating 
to 
demographic 
adjust-
ment), section 1853(a)(1)(B) (relat-
833
ing to adjustment for end-stage 
renal 
disease), 
and 
section 
1853(a)(3) (relating to health sta-
tus adjustment).’’. 
(2) REPEAL OF PROVISIONS RELATING TO 
ADJUSTED COMMUNITY RATE (ACR).—
(A) IN
GENERAL.—Subsections (e) 
and (f) of section 1854 (42 U.S.C. 
1395w–24) are repealed. 
(B) CONFORMING AMENDMENTS.—(i) 
Section 
1839(a)(2) 
(42 
U.S.C. 
1395r(a)(2)) is amended by striking ‘‘, 
and to reflect’’ and all that follows 
and inserting a period. 
(ii) Section 1852(a)(1) (42 U.S.C. 
1395w–22(a)(1)) is amended by strik-
ing ‘‘title XI’’ and all that follows and 
inserting the following: ‘‘title XI those 
items and services (other than hos-
pice care) for which benefits are 
available under parts A and B to indi-
viduals residing in the area served by 
the plan.’’. 
(iii) Section 1857(d)(1) (42 U.S.C. 
1395w–27(d)(1)) is amended by strik-
834
ing ‘‘, costs, and computation of the 
adjusted community rate’’ and insert-
ing ‘‘and costs’’. 
(f) REFERENCES
UNDER PART E.—Section 
1859 (42 U.S.C. 1395w–29) is amended by add-
ing at the end the following new subsection: 
‘‘(f) APPLICATION
UNDER PART E.—In the 
case of any reference under part E to a re-
quirement or provision of this part in the re-
lation to an EFFS plan or organization under 
such part, except as otherwise specified any 
such requirement or provision shall be ap-
plied to such organization or plan in the same 
manner as such requirement or provision ap-
plies to a Medicare Advantage private fee-for-
service plan (and the Medicare Advantage or-
ganization that offers such plan) under this 
part.’’. 
(g) EFFECTIVE
DATE.—The amendments 
made by this section shall apply to payments 
and premiums for months beginning with 
January 2006.
835
CHAPTER 3—ADDITIONAL REFORMS
SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE AD-
VANTAGE REPORTING DEADLINES AND AN-
NUAL, COORDINATED ELECTION PERIOD. 
(a) CHANGE IN REPORTING DEADLINE.—Sec-
tion 1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as 
amended by section 532(b)(1) of the Public 
Health Security and Bioterrorism Prepared-
ness and Response Act of 2002, is amended by 
striking ‘‘2002, 2003, and 2004 (or July 1 of 
each other year)’’ and inserting ‘‘2002 and 
each subsequent year’’. 
(b) DELAY IN ANNUAL, COORDINATED ELEC-
TION PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 
1395w–21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and 
Bioterrorism Preparedness and Response Act 
of 2002, is amended—
(1) by striking ‘‘and after 2005’’; and 
(2) by striking ‘‘, 2004, and 2005’’ and 
inserting ‘‘and any subsequent year’’. 
(c) ANNUAL ANNOUNCEMENT
OF PAYMENT 
RATES.—Section 1853(b)(1) (42 U.S.C. 1395w–
23(b)(1)), as amended by section 532(d)(1) of 
the Public Health Security and Bioterrorism
836
Preparedness and Response Act of 2002, is 
amended—
(1) by striking ‘‘and after 2005’’; and 
(2) by striking ‘‘and 2005’’ and insert-
ing ‘‘and each subsequent year’’. 
(d) REQUIRING PROVISION OF AVAILABLE IN-
FORMATION
COMPARING
PLAN
OPTIONS.—The 
first sentence of section 1851(d)(2)(A)(ii) (42 
U.S.C. 1395w–21(d)(2)(A)(ii)) is amended by in-
serting before the period the following: ‘‘to 
the extent such information is available at the 
time of preparation of materials for the mail-
ing’’. 
SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION. 
(a) IN GENERAL.—Section 1856(b)(3) (42 
U.S.C. 1395w–26(b)(3)) is amended to read as 
follows: 
‘‘(3) RELATION
TO
STATE
LAWS.—The 
standards established under this sub-
section shall supersede any State law or 
regulation (other than State licensing 
laws or State laws relating to plan sol-
vency) with respect to Medicare Advan-
tage plans which are offered by Medicare
842
(1) by adding ‘‘or’’ at the end of clause 
(i); 
(2) by striking ‘‘, or’’ at the end of 
clause (ii) and inserting a semicolon; and 
(3) by striking clause (iii). 
SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS. 
Subparagraph (C) of section 1876(h)(5) (42 
U.S.C. 1395mm(h)(5)) is amended to read as 
follows: 
‘‘(C)(i) Subject to clause (ii), may be ex-
tended or renewed under this subsection in-
definitely. 
‘‘(ii) For any period beginning on or after 
January 1, 2008, a reasonable cost reimburse-
ment contract under this subsection may not 
be extended or renewed for a service area in-
sofar as such area, during the entire previous 
year, was within the service area of 2 or more 
plans which were coordinated care Medicare 
Advantage plans under part C or 2 or more 
enhanced fee-for-service plans under part E 
and each of which plan for that previous year 
for the area involved meets the following min-
imum enrollment requirements: