payment, with respect to costs incurred that are
equal to the sum of the deductible under sub-
section (d)(1) and the initial coverage limit
under subsection (d)(3), of an amount equal to
at least such initial coverage limit multiplied by
the percentage specified in subsection (d)(2).
Benefits other than qualified prescription drug cov-
erage shall not be taken into account for purposes
of this paragraph.
‘‘(2) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARIES.—The coverage provides
the limitation on out-of-pocket expenditures by bene-
ficiaries described in subsection (d)(4).
‘‘(f) ACCESS TO NEGOTIATED PRICES.—Under quali-
fied prescription drug coverage offered by an eligible entity
or a Medicare+Choice organization, the entity or organi-
zation shall provide beneficiaries with access to negotiated
prices (including applicable discounts) used for payment
for covered outpatient drugs, regardless of the fact that
no benefits may be payable under the coverage with re-
spect to such drugs because of the application of cost-shar-
ing or an initial coverage limit (described in subsection
(d)(3)). In providing such access, the eligible entity or
Medicare+Choice organization shall issue a card pursuant
to section 2206(b)(1).
‘‘(g) ACTUARIAL VALUATION; DETERMINATION OF
ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section,
the 
Secretary 
shall 
establish 
processes 
and
methods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard
coverage and of the reinsurance subsidy
payments under section 2212;
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and
‘‘(iii) applying the same methodology
for determinations of alternative coverage
under subsection (e) as is used with re-
spect to determinations of standard cov-
erage under subsection (d); and
‘‘(B) for determining annual percentage in-
creases described in subsection (d)(5).
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the
processes under paragraph (1)(A), eligible entities
and Medicare+Choice organizations may use actu-
arial opinions certified by independent, qualified ac-
tuaries to establish actuarial values.
‘‘BENEFICIARY PROTECTIONS
‘‘SEC. 2206. (a) DISSEMINATION
OF
INFORMA-
TION.—
‘‘(1) GENERAL INFORMATION.—An eligible enti-
ty offering a Medicare Prescription Plus plan shall
disclose, in a clear, accurate, and standardized form
to each enrollee at the time of enrollment and at
least annually thereafter, the information described
in section 1852(c)(1) relating to such plan. Such in-
formation includes the following:
‘‘(A) Access to covered outpatient drugs.
‘‘(B) How any formulary used by the enti-
ty functions.
‘‘(C) Co-payments, coinsurance, and de-
ductible requirements.
‘‘(D) Grievance and appeals procedures.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll in a Medicare Prescription Plus plan, the eligible
entity offering such plan shall provide the informa-
tion described in section 1852(c)(2) to such indi-
vidual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
An eligible entity offering a Medicare Prescription
Plus plan shall have a mechanism for providing spe-
cific information to enrollees upon request, including
information on specific changes in its formulary.
‘‘(4) CLAIMS INFORMATION.—An eligible entity
offering a Medicare Prescription Plus plan must fur-
nish to enrolled individuals in a form easily under-
standable to such individuals an explanation of bene-
fits (in accordance with section 1806(a) or in a com-
parable manner) and a notice of the benefits in rela-
tion to initial coverage limit and annual out-of-pock-
et limit for the current year, whenever prescription
drug benefits are provided under this part (except
that such notice need not be provided more often
than monthly).
‘‘(b) ACCESS TO COVERED OUTPATIENT DRUGS.—
‘‘(1) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION
DRUGS.—An eligible entity offering a
Medicare Prescription Plus plan shall issue such a
card that may be used by an enrolled beneficiary to
assure access to negotiated prices under section
2205(f) for the purchase of prescription drugs for
which coverage is not otherwise provided under the
Medicare Prescription Plus plan.
‘‘(2) REQUIREMENTS
ON
DEVELOPMENT
AND
APPLICATION OF FORMULARIES.—Insofar as an eli-
gible entity offering a Medicare Prescription Plus
plan uses a formulary with respect to qualified pre-
scription drug coverage, the following requirements
must be met:
‘‘(A) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within all therapeutic categories
and classes of covered outpatient drugs (al-
though not necessarily for all drugs within such
categories and classes).
‘‘(B) APPEALS AND EXCEPTIONS TO AP-
PLICATION.—The eligible entity must have, as
part of the appeals process under subsection
(e)(2), a process for appeals for denials of cov-
erage based on such application of the for-
mulary.
‘‘(c) COST AND UTILIZATION MANAGEMENT.—
‘‘(1) IN GENERAL.—An eligible entity shall have
in place—
‘‘(A) an effective cost and drug utilization
management program, including appropriate in-
centives to use generic drugs, when appropriate;
‘‘(B) quality assurance measures to reduce
medical errors and adverse drug interactions,
which may include the measures described in
paragraph (2); and
‘‘(C) a program to control fraud, abuse,
and waste.
‘‘(2) MEASURES.—The measures described in
this paragraph are beneficiary education programs,
counseling, medication refill reminders, and special
packaging.
‘‘(d) GRIEVANCE MECHANISM.—An eligible entity
shall provide meaningful procedures for hearing and re-
solving grievances between the eligible entity (including
any entity or individual through which the eligible entity
provides covered benefits) and enrollees in a Medicare Pre-
scription Plus plan offered by the eligible entity in accord-
ance with section 1852(f).
‘‘(e) COVERAGE
DETERMINATIONS, RECONSIDER-
ATIONS, AND APPEALS.—
‘‘(1) IN
GENERAL.—An eligible entity shall
meet the requirements of section 1852(g) with re-
spect to covered benefits under the Medicare Pre-
scription Plus plan it offers under this part in the
same manner as such requirements apply to a
Medicare+Choice organization with respect to bene-
fits it offers under a Medicare+Choice plan under
part C of title XVIII.
‘‘(2) APPEALS
OF
FORMULARY
DETERMINA-
TIONS.—Consistent with the requirements of section
1852(g), an eligible entity shall establish a process
for appeals of formulary determinations.
‘‘(f) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—An eligible entity shall meet the re-
quirements of section 1852(h) with respect to enrollees
under this part in the same manner as such requirements
apply to a Medicare+Choice organization with respect to
enrollees under part C of title XVIII.
‘‘(g) UNIFORM PREMIUM.—An eligible entity shall
ensure that the premium for a Medicare Prescription Plus
plan charged under this section is the same for all individ-
uals enrolled in the plan in the same service area.
‘‘REQUIREMENTS FOR ENTITIES OFFERING MEDICARE
PRESCRIPTION PLUS PLANS
‘‘SEC. 2207. (a) GENERAL REQUIREMENTS.—An eli-
gible entity offering a Medicare Prescription Plus plan
shall meet the following requirements:
‘‘(1) LICENSURE.—Subject to subsection (c),
the entity is organized and licensed under State law
as a risk-bearing entity eligible to offer health insur-
ance or health benefits coverage in each State in
which it offers a Medicare Prescription Plus plan.
‘‘(2) ASSUMPTION OF FULL FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the entity assumes full financial risk
on a prospective basis for the benefits that it
offers under a Medicare Prescription Plus plan
and that is not covered under reinsurance
under section 2212.
‘‘(B) REINSURANCE PERMITTED.—The en-
tity may obtain insurance or make other ar-
rangements for the cost of coverage provided to
any enrolled member under this part.
‘‘(3) SOLVENCY FOR UNLICENSED ENTITIES.—
In the case of an eligible entity that is not described
in paragraph (1), the entity shall meet solvency
standards established by the Secretary under sub-
section (d).
‘‘(b) CONTRACT
REQUIREMENTS.—The Secretary
shall not permit an eligible beneficiary to elect a Medicare
Prescription Plus plan offered by an eligible entity under
this part, and the entity shall not be eligible for payments
under section 2210, 2211(e), or 2212, unless the Sec-
retary has entered into a contract under this subsection
with the entity with respect to the offering of such plan.
Such a contract with an entity may cover more than 1
Medicare Prescription Plus plan. Such contract shall pro-
vide that the entity agrees to comply with the applicable
requirements and standards of this part and the terms
and conditions of payment as provided for in this part.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EX-
PAND CHOICE.—
‘‘(1) IN GENERAL.—In the case of an eligible
entity that seeks to offer a Medicare Prescription
Plus plan in a State, the Secretary shall waive the
requirement of subsection (a)(1) that the entity be
licensed in that State if the Secretary determines,
based on the application and other evidence pre-
sented to the Secretary, that any of the grounds for
approval of the application described in paragraph
(2) have been met.
‘‘(2) GROUNDS FOR APPROVAL.—The grounds
for approval under this paragraph are the grounds
for approval described in subparagraphs (B), (C),
and (D) of section 1855(a)(2), and also include the
application by a State of any grounds other than
those required under Federal law.
‘‘(3) APPLICATION OF MEDICARE+CHOICE PSO
WAIVER PROCEDURES.—With respect to an applica-
tion for a waiver (or a waiver granted) under this
subsection, the provisions of subparagraphs (E), (F),
and (G) of section 1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
entity is licensed in accordance with subsection
(a)(1) does not deem the eligible entity to meet other
requirements imposed under this part for an eligible
entity.
‘‘(5) REFERENCES TO CERTAIN PROVISIONS.—
For purposes of this subsection, in applying the pro-
visions of section 1855(a)(2) under this subsection
to Medicare Prescription Plus plans and eligible
entities—
‘‘(A) any reference to a waiver application
under section 1855 shall be treated as a ref-
erence to a waiver application under paragraph
(1); and
‘‘(B) any reference to solvency standards
were treated as a reference to solvency stand-
ards established under subsection (d).
‘‘(d) SOLVENCY STANDARDS
FOR NON-LICENSED
ENTITIES.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish, by not later than October 1, 2001, financial
solvency and capital adequacy standards that an en-
tity that does not meet the requirements of sub-
section (a)(1) must meet to qualify as an eligible en-
tity under this part.
‘‘(2) COMPLIANCE WITH STANDARDS.—An eligi-
ble entity that is not licensed by a State under sub-
section (a)(1) and for which a waiver application has
been approved under subsection (c) shall meet sol-
vency and capital adequacy standards established
under paragraph (1). The Secretary shall establish
certification procedures for such eligible entities with
respect to such solvency standards in the manner de-
scribed in section 1855(c)(2).
‘‘(e) OTHER STANDARDS.—The Secretary shall es-
tablish by regulation other standards (not described in
subsection (d)) for eligible entities and Medicare Prescrip-
tion Plus plans consistent with, and to carry out, this part.
The Secretary shall publish such regulations by October
1, 2001.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established
under this section shall supersede any State law or
regulation (including standards described in para-
graph (2)) with respect to Medicare Prescription
Plus plans which are offered by eligible entities
under this part to the extent such law or regulation
is inconsistent with such standards, in the same
manner as such laws and regulations are superseded
under section 1856(b)(3).
‘‘(2) 
STANDARDS
SPECIFICALLY
SUPER-
SEDED.—State standards relating to the following
are superseded under this section:
‘‘(A) Benefit requirements.
‘‘(B) Requirements relating to inclusion or
treatment of providers.
‘‘(C) Coverage determinations (including
related appeals and grievance processes).
‘‘(3) PROHIBITION OF STATE IMPOSITION OF
PREMIUM TAXES.—No State may impose a premium
tax or similar tax with respect to premiums paid to
eligible entities for Medicare Prescription Plus plans
under this part, or with respect to any payments
made to such an entity by the Secretary under this
part.
‘‘SUBMISSION OF MEDICARE PRESCRIPTION PLUS PLANS
‘‘SEC. 2208. (a) IN GENERAL.—Each eligible entity
that intends to offer a Medicare Prescription Plus plan
in a year (beginning with 2003) shall submit to the Sec-
retary, at such time and in such manner as the Secretary
may specify, such information as the Secretary may re-
quire, including the information described in subsection
(b).
‘‘(b) INFORMATION DESCRIBED.—The information
described in this subsection includes information on each
of the following:
‘‘(1) A description of the benefits under the
plan, including any supplemental benefits pursuant
to section 2205(b).
‘‘(2) Information on the actuarial value of the
qualified prescription drug coverage.
‘‘(3) Information on the monthly premium to be
charged for all benefits, including an actuarial cer-
tification of—
‘‘(A) the actuarial basis for such premium;
‘‘(B) the portion of such premium attrib-
utable to benefits in excess of standard cov-
erage; and
‘‘(C) the reduction in such premium result-
ing from the reinsurance subsidy payments pro-
vided under section 2212.
‘‘(4) The service area for the plan.
‘‘(5) Such other information as the Secretary
may require to carry out this part.
‘‘APPROVAL OF MEDICARE PRESCRIPTION PLUS PLANS
‘‘SEC. 2209. (a) IN GENERAL.—The Secretary shall
review the information filed under section 2208 and shall
approve or disapprove the Medicare Prescription Plus
plan.
‘‘(b) NEGOTIATION.—In exercising such authority,
the Secretary shall have the same authority to negotiate
the terms and conditions of the premiums submitted and
other terms and conditions of plans as the Director of the
Office of Personnel Management has with respect to
health benefits plans under chapter 89 of title 5, United
States Code.
‘‘(c) SPECIAL RULES FOR APPROVAL.—
‘‘(1) SERVICE AREA.—The Secretary may ap-
prove a service area submitted under section
2208(b)(4) only if the Secretary finds that—
‘‘(A) the use of such an area is consistent
with the purposes of this part; and
‘‘(B) the service area for the plan is not
designed so as to discriminate based on the
health status, economic status, or prior receipt
of health care of eligible beneficiaries.
‘‘(2) AVOIDANCE OF FAVORABLE SELECTION.—
The Secretary may approve a Medicare Prescription
Plus plan submitted under section 2208 only if the
benefits under such plan—
‘‘(A) include the required benefits under
section 2205(a)(1); and
‘‘(B) are not designed in such a manner
that the Secretary finds is likely to result in fa-
vorable selection of eligible beneficiaries.
‘‘PAYMENTS TO MEDICARE PRESCRIPTION PLUS PLANS
FOR BENEFITS
‘‘SEC. 2210. (a) IN GENERAL.—Subject to subsection
(b), for each year (beginning with 2003), the Secretary
shall pay to each eligible entity offering a Medicare Pre-
scription Plus plan in which an eligible beneficiary is en-
rolled an amount equal to—
‘‘(1) the full amount of the premium approved
under section 2209 on behalf of each eligible bene-
ficiary enrolled in such plan for the year; minus
‘‘(2) the amount of any fees imposed on the en-
tity pursuant to section 2213).
‘‘(b) PAYMENT TERMS.—Payment under this section
to an eligible entity offering a Medicare Prescription Plus
plan shall be made in a manner determined by the Sec-
retary and based upon the manner in which payments are
made under section 1853(a) (relating to payments to
Medicare+Choice organizations).
‘‘COMPUTATION AND COLLECTION OF BENEFICIARY
SHARE OF PREMIUM
‘‘SEC. 2211. (a) COMPUTATION.—
‘‘(1) AMOUNT.—The annual beneficiary pre-
mium for enrollment in a Medicare Prescription Plus
plan providing coverage under this part for a year
shall be an amount equal to—
‘‘(A) an amount equal to the full amount
of the premium approved under section 2209
for the plan in which the beneficiary is enrolled;
minus
‘‘(B) the amount of the discount deter-
mined under subsection (b).
‘‘(2) COLLECTION
OF
PREMIUM
AMOUNT
IN
SAME MANNER AS PART B PREMIUM.—
‘‘(A) IN
GENERAL.—The amount of the
annual beneficiary premium determined under
paragraph (1) shall be collected and credited to
the Medicare Prescription Drug Account in the
same manner as the monthly premium deter-
mined under section 1839 is collected and cred-
ited to the Federal Supplementary Medical In-
surance Trust Fund under section 1840.
‘‘(B) INFORMATION NECESSARY FOR COL-
LECTION.—In order to carry out subparagraph
(A), the Secretary shall transmit to the Sec-
retary of Social Security—
‘‘(i) at the beginning of each year, the
name, social security account number, and
annual beneficiary premium owed by each
individual enrolled in a Medicare Prescrip-
tion Plus plan for each month during the
year; and
‘‘(ii) periodically throughout the year,
information to update the information pre-
viously transmitted under this paragraph
for the year.
‘‘(b) DISCOUNTS FOR REQUIRED DRUG PORTION OF
PREMIUM.—
‘‘(1) FULL PREMIUM DISCOUNT AND REDUC-
TION OF COST-SHARING FOR INDIVIDUALS WITH IN-
COME BELOW 135 PERCENT OF FEDERAL POVERTY
LEVEL.—In the case of a low-income individual (as
defined in paragraph (5)(A)) who is determined to
have income that does not exceed 135 percent of the
Federal poverty level, the individual is entitled under
this section—
‘‘(A) to a premium discount equal to 100
percent of the amount described in subsection
(c); and
‘‘(B) subject to subsection (d), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section
2205(d) (up to the initial coverage limit speci-
fied in paragraph (3) of such section) of
amounts that are nominal.
‘‘(2) SLIDING SCALE PREMIUM DISCOUNT FOR
INDIVIDUALS WITH INCOME ABOVE 135, BUT BELOW
150
PERCENT, OF
FEDERAL
POVERTY
LEVEL.—In
the case of a low-income individual who is deter-
mined to have income that exceeds 135 percent, but
does not exceed 150 percent, of the Federal poverty
level, the individual is entitled under this section to
a premium discount determined on a linear sliding
scale ranging from 100 percent of the amount de-
scribed in subsection (c) for individuals with incomes
at 135 percent of such level to 25 percent of such
amount for individuals with incomes at 150 percent
of such level.
‘‘(3) PARTIAL PREMIUM DISCOUNT FOR INDI-
VIDUALS
WITH
INCOME
ABOVE
150
PERCENT
OF
FEDERAL POVERTY LEVEL.—In the case of an eligi-
ble beneficiary who is not a low-income individual,
the beneficiary is entitled under this section to a
premium discount equal to 25 percent of the amount
described in subsection (c).
‘‘(4) TAX
TREATMENT
OF
PREMIUM
DIS-
COUNT.—
‘‘(A) IN GENERAL.—For purposes of the
Internal Revenue Code of 1986, the premium
discount determined under this subsection for
an eligible beneficiary for a year shall be in-
cluded in the gross income of the beneficiary for
the year.
‘‘(B) STATEMENT OF TAXABLE AMOUNT.—
Not later than January 31 of each year (begin-
ning with 2004), the Secretary shall provide—
‘‘(i) each eligible beneficiary enrolled
under this part with a statement that de-
scribes the amount of the discount that is
required to be included in the gross income
of the beneficiary for the previous year
pursuant to subparagraph (A); and
‘‘(ii) the Secretary of the Treasury
with the information described in clause
(i).
‘‘(5) DETERMINATION OF ELIGIBILITY.—
‘‘(A) 
LOW-INCOME
INDIVIDUAL
DE-
FINED.—For purposes of this section, subject
to subparagraph (D), the term ‘low-income indi-
vidual’ means an individual who—
‘‘(i) is eligible to enroll, and has en-
rolled, under this part;
‘‘(ii) has income below 150 percent of
the Federal poverty line; and
‘‘(iii) meets the resources requirement
described in section 1905(p)(1)(C).
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State
is a low-income individual and the amount of
such individual’s income shall be determined
under the State medicaid plan for the State
under section 1935(a). In the case of a State
that does not operate such a medicaid plan (ei-
ther under title XIX or under a statewide waiv-
er granted under section 1115), such deter-
mination shall be made under arrangements
made by the Secretary.
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the
manner 
described 
in 
section
1905(p)(1)(B); and
‘‘(ii) the term ‘Federal poverty line’
means the official poverty line (as defined
by the Office of Management and Budget,
and revised annually in accordance with
section 673(2) of the Omnibus Budget