II 
Calendar No. 331 
111TH CONGRESS 
2D SESSION 
H. R. 4872 
IN THE SENATE OF THE UNITED STATES 
MARCH 23 (legislative day, MARCH 19), 2010 
Received and read the first time 
MARCH 23, 2010 
Read the second time and placed on the calendar 
AN ACT 
To provide for reconciliation pursuant to Title II of the 
concurrent resolution on the budget for fiscal year 2010 
(S. Con. Res. 13). 
Be it enacted by the Senate and House of Representa-
tives 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 
‘‘Health Care and Education Reconciliation Act of 2010’’. 
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
TITLE I—COVERAGE, MEDICARE, MEDICAID, AND REVENUES 
Subtitle A—Coverage 
Sec. 1001. Tax credits. 
Sec. 1002. Individual responsibility. 
Sec. 1003. Employer responsibility. 
Sec. 1004. Income definitions. 
Sec. 1005. Implementation funding. 
Subtitle B—Medicare 
Sec. 1101. Closing the medicare prescription drug ‘‘donut hole’’. 
Sec. 1102. Medicare Advantage payments. 
Sec. 1103. Savings from limits on MA plan administrative costs. 
Sec. 1104. Disproportionate share hospital (DSH) payments. 
Sec. 1105. Market basket updates. 
Sec. 1106. Physician ownership-referral. 
Sec. 1107. Payment for imaging services. 
Sec. 1108. PE GPCI adjustment for 2010. 
Sec. 1109. Payment for qualifying hospitals. 
Subtitle C—Medicaid 
Sec. 1201. Federal funding for States. 
Sec. 1202. Payments to primary care physicians. 
Sec. 1203. Disproportionate share hospital payments. 
Sec. 1204. Funding for the territories. 
Sec. 1205. Delay in Community First Choice option. 
Sec. 1206. Drug rebates for new formulations of existing drugs. 
Subtitle D—Reducing Fraud, Waste, and Abuse 
Sec. 1301. Community mental health centers. 
Sec. 1302. Medicare prepayment medical review limitations. 
Sec. 1303. Funding to fight fraud, waste, and abuse. 
Sec. 1304. 90-day period of enhanced oversight for initial claims of DME sup-
pliers. 
Subtitle E—Provisions Relating to Revenue 
Sec. 1401. High-cost plan excise tax. 
Sec. 1402. Unearned income Medicare contribution. 
Sec. 1403. Delay of limitation on health flexible spending arrangements under 
cafeteria plans.
Sec. 1404. Brand name pharmaceuticals. 
Sec. 1405. Excise tax on medical device manufacturers. 
Sec. 1406. Health insurance providers. 
Sec. 1407. Delay of elimination of deduction for expenses allocable to medicare 
part D subsidy. 
Sec. 1408. Elimination of unintended application of cellulosic biofuel producer 
credit. 
Sec. 1409. Codification of economic substance doctrine and penalties. 
Sec. 1410. Time for payment of corporate estimated taxes. 
Subtitle F—Other Provisions 
Sec. 1501. Community college and career training grant program. 
TITLE II—EDUCATION AND HEALTH 
Subtitle A—Education 
Sec. 2001. Short title; references. 
PART I—INVESTING IN STUDENTS AND FAMILIES 
Sec. 2101. Federal Pell Grants. 
Sec. 2102. College access challenge grant program. 
Sec. 2103. Investment in historically black colleges and universities and minor-
ity-serving institutions. 
PART II—STUDENT LOAN REFORM 
Sec. 2201. Termination of Federal Family Education Loan appropriations. 
Sec. 2202. Termination of Federal loan insurance program. 
Sec. 2203. Termination of applicable interest rates. 
Sec. 2204. Termination of Federal payments to reduce student interest costs. 
Sec. 2205. Termination of FFEL PLUS Loans. 
Sec. 2206. Federal Consolidation Loans. 
Sec. 2207. Termination of Unsubsidized Stafford Loans for middle-income bor-
rowers. 
Sec. 2208. Termination of special allowances. 
Sec. 2209. Origination of Direct Loans at institutions outside the United 
States. 
Sec. 2210. Conforming amendments. 
Sec. 2211. Terms and conditions of loans. 
Sec. 2212. Contracts; mandatory funds. 
Sec. 2213. Income-based repayment. 
Subtitle B—Health 
Sec. 2301. Insurance reforms. 
Sec. 2302. Drugs purchased by covered entities. 
Sec. 2303. Community health centers.
TITLE I—COVERAGE, MEDICARE, 
MEDICAID, AND REVENUES 
Subtitle A—Coverage 
SEC. 1001. TAX CREDITS. 
(a) PREMIUM TAX CREDITS.—Section 36B of the In-
ternal Revenue Code of 1986, as added by section 1401 
of the Patient Protection and Affordable Care Act and 
amended by section 10105 of such Act, is amended— 
(1) in subsection (b)(3)(A)— 
(A) in clause (i), by striking ‘‘with respect 
to any taxpayer’’ and all that follows up to the 
end period and inserting: ‘‘for any taxable year 
shall be the percentage such that the applicable 
percentage for any taxpayer whose household 
income is within an income tier specified in the 
following table shall increase, on a sliding scale 
in a linear manner, from the initial premium 
percentage to the final premium percentage 
specified in such table for such income tier: 
‘‘In the case of household in-
come (expressed as a percent of 
poverty line) within the fol-
lowing income tier: 
The initial premium 
percentage is— 
The final premium 
percentage is— 
Up to 133% 
2.0% 
2.0% 
133% up to 150% 
3.0% 
4.0% 
150% up to 200% 
4.0% 
6.3% 
200% up to 250% 
6.3% 
8.05% 
250% up to 300% 
8.05% 
9.5% 
300% up to 400% 
9.5% 
9.5%’’; and
(B) by striking clauses (ii) and (iii), and 
inserting the following: 
‘‘(ii) INDEXING.— 
‘‘(I) IN
GENERAL.—Subject to 
subclause (II), in the case of taxable 
years beginning in any calendar year 
after 2014, the initial and final appli-
cable percentages under clause (i) (as 
in effect for the preceding calendar 
year after application of this clause) 
shall be adjusted to reflect the excess 
of the rate of premium growth for the 
preceding calendar year over the rate 
of income growth for the preceding 
calendar year. 
‘‘(II) 
ADDITIONAL
ADJUST-
MENT.—Except as provided in sub-
clause (III), in the case of any cal-
endar year after 2018, the percent-
ages described in subclause (I) shall, 
in addition to the adjustment under 
subclause (I), be adjusted to reflect 
the excess (if any) of the rate of pre-
mium growth estimated under sub-
clause (I) for the preceding calendar
year over the rate of growth in the 
consumer price index for the pre-
ceding calendar year. 
‘‘(III) FAILSAFE.—Subclause (II) 
shall apply for any calendar year only 
if the aggregate amount of premium 
tax credits under this section and 
cost-sharing reductions under section 
1402 of the Patient Protection and 
Affordable Care Act for the preceding 
calendar year exceeds an amount 
equal to 0.504 percent of the gross 
domestic product for the preceding 
calendar year.’’; and 
(2) in subsection (c)(2)(C)— 
(A) by striking ‘‘9.8 percent’’ in clauses 
(i)(II) and (iv) and inserting ‘‘9.5 percent’’; and 
(B) by striking ‘‘(b)(3)(A)(iii)’’ in clause 
(iv) and inserting ‘‘(b)(3)(A)(ii)’’. 
(b) COST SHARING.—Section 1402(c) of the Patient 
Protection and Affordable Care Act is amended— 
(1) in paragraph (1)(B)(i)— 
(A) in subclause (I), by striking ‘‘90’’ and 
inserting ‘‘94’’; 
(B) in subclause (II)—
(i) by striking ‘‘80’’ and inserting 
‘‘87’’; and 
(ii) by striking ‘‘and’’; and 
(C) by striking subclause (III) and insert-
ing the following: 
‘‘(III) 73 percent in the case of 
an eligible insured whose household 
income is more than 200 percent but 
not more than 250 percent of the pov-
erty line for a family of the size in-
volved; and 
‘‘(IV) 70 percent in the case of 
an eligible insured whose household 
income is more than 250 percent but 
not more than 400 percent of the pov-
erty line for a family of the size in-
volved.’’; and 
(2) in paragraph (2)— 
(A) in subparagraph (A)— 
(i) by striking ‘‘90’’ and inserting 
‘‘94’’; and 
(ii) by striking ‘‘and’’; 
(B) in subparagraph (B)— 
(i) by striking ‘‘80’’ and inserting 
‘‘87’’; and
(ii) by striking the period and insert-
ing ‘‘; and’’; and 
(C) by inserting after subparagraph (B) 
the following new subparagraph: 
‘‘(C) in the case of an eligible insured 
whose household income is more than 200 per-
cent but not more than 250 percent of the pov-
erty line for a family of the size involved, in-
crease the plan’s share of the total allowed 
costs of benefits provided under the plan to 73 
percent of such costs.’’. 
SEC. 1002. INDIVIDUAL RESPONSIBILITY. 
(a) AMOUNTS.—Section 5000A(c) of the Internal 
Revenue Code of 1986, as added by section 1501(b) of 
the Patient Protection and Affordable Care Act and 
amended by section 10106 of such Act, is amended— 
(1) in paragraph (2)(B)— 
(A) in the matter preceding clause (i), 
by— 
(i) inserting ‘‘the excess of’’ before 
‘‘the taxpayer’s household income’’; and 
(ii) inserting ‘‘for the taxable year 
over the amount of gross income specified 
in section 6012(a)(1) with respect to the 
taxpayer’’ before ‘‘for the taxable year’’;
(B) in clause (i), by striking ‘‘0.5’’ and in-
serting ‘‘1.0’’; 
(C) in clause (ii), by striking ‘‘1.0’’ and in-
serting ‘‘2.0’’; and 
(D) in clause (iii), by striking ‘‘2.0’’ and 
inserting ‘‘2.5’’; and 
(2) in paragraph (3)— 
(A) in subparagraph (A), by striking 
‘‘$750’’ and inserting ‘‘$695’’; 
(B) in subparagraph (B), by striking 
‘‘$495’’ and inserting ‘‘$325’’; and 
(C) in subparagraph (D)— 
(i) in the matter preceding clause (i), 
by striking ‘‘$750’’ and inserting ‘‘$695’’; 
and 
(ii) in clause (i), by striking ‘‘$750’’ 
and inserting ‘‘$695’’. 
(b) THRESHOLD.—Section 5000A of such Code, as 
so added and amended, is amended— 
(1) by striking subsection (c)(4)(D); and 
(2) in subsection (e)(2)— 
(A) by striking ‘‘UNDER 100 PERCENT OF 
POVERTY LINE’’ and inserting ‘‘BELOW FILING 
THRESHOLD’’; and
(B) by striking all that follows ‘‘less than’’ 
and inserting ‘‘the amount of gross income 
specified in section 6012(a)(1) with respect to 
the taxpayer.’’. 
SEC. 1003. EMPLOYER RESPONSIBILITY. 
(a) PAYMENT CALCULATION.—Subparagraph (D) of 
subsection (d)(2) of section 4980H of the Internal Rev-
enue Code of 1986, as added by section 1513 of the Pa-
tient Protection and Affordable Care Act and amended by 
section 10106 of such Act, is amended to read as follows: 
‘‘(D) APPLICATION OF EMPLOYER SIZE TO 
ASSESSABLE PENALTIES.— 
‘‘(i) IN GENERAL.—The number of in-
dividuals employed by an applicable large 
employer as full-time employees during any 
month shall be reduced by 30 solely for 
purposes of calculating— 
‘‘(I) 
the 
assessable 
payment 
under subsection (a), or 
‘‘(II) the overall limitation under 
subsection (b)(2). 
‘‘(ii) AGGREGATION.—In the case of 
persons treated as 1 employer under sub-
paragraph (C)(i), only 1 reduction under 
subclause (I) or (II) shall be allowed with
respect to such persons and such reduction 
shall be allocated among such persons rat-
ably on the basis of the number of full- 
time employees employed by each such per-
son.’’. 
(b) 
APPLICABLE
PAYMENT
AMOUNT.—Section 
4980H of such Code, as so added and amended, is amend-
ed— 
(1) in the flush text following subsection 
(c)(1)(B), by striking ‘‘400 percent of the applicable 
payment amount’’ and inserting ‘‘an amount equal 
to 1⁄12 of $3,000’’; 
(2) in subsection (d)(1), by striking ‘‘$750’’ 
and inserting ‘‘$2,000’’; and 
(3) in subsection (d)(5)(A), in the matter pre-
ceding clause (i), by striking ‘‘subsection (b)(2) and 
(d)(1)’’ and inserting ‘‘subsection (b) and paragraph 
(1)’’. 
(c) COUNTING PART-TIME WORKERS
IN SETTING 
THE THRESHOLD
FOR EMPLOYER RESPONSIBILITY.— 
Section 4980H(d)(2) of such Code, as so added and 
amended and as amended by subsection (a), is amended 
by adding at the end the following new subparagraph: 
‘‘(E) FULL-TIME EQUIVALENTS TREATED 
AS
FULL-TIME
EMPLOYEES.—Solely for pur-
poses of determining whether an employer is an 
applicable large employer under this paragraph, 
an employer shall, in addition to the number of 
full-time employees for any month otherwise de-
termined, include for such month a number of 
full-time employees determined by dividing the 
aggregate number of hours of service of employ-
ees who are not full-time employees for the 
month by 120.’’. 
(d) ELIMINATING WAITING PERIOD ASSESSMENT.— 
Section 4980H of such Code, as so added and amended 
and as amended by the preceding subsections, is amended 
by striking subsection (b) and redesignating subsections 
(c), (d), and (e) as subsections (b), (c), and (d), respec-
tively. 
SEC. 1004. INCOME DEFINITIONS. 
(a) MODIFIED ADJUSTED GROSS INCOME.— 
(1) IN GENERAL.—The following provisions of 
the Internal Revenue Code of 1986 are each amend-
ed by striking ‘‘modified gross’’ each place it ap-
pears and inserting ‘‘modified adjusted gross’’: 
(A) Clauses (i) and (ii) of section 
36B(d)(2)(A), as added by section 1401 of the 
Patient Protection and Affordable Care Act.
(B) Section 6103(l)(21)(A)(iv), as added 
by section 1414 of such Act. 
(C) Clauses (i) and (ii) of section 
5000A(c)(4), as added by section 1501(b) of 
such Act. 
(2) DEFINITION.— 
(A) Section 36B(d)(2)(B) of such Code, as 
so added, is amended to read as follows: 
‘‘(B) MODIFIED
ADJUSTED
GROSS
IN-
COME.—The term ‘modified adjusted gross in-
come’ means adjusted gross income increased 
by— 
‘‘(i) any amount excluded from gross 
income under section 911, and 
‘‘(ii) any amount of interest received 
or accrued by the taxpayer during the tax-
able year which is exempt from tax.’’. 
(B) Section 5000A(c)(4)(C) of such Code, 
as so added, is amended to read as follows: 
‘‘(C) MODIFIED
ADJUSTED
GROSS
IN-
COME.—The term ‘modified adjusted gross in-
come’ means adjusted gross income increased 
by— 
‘‘(i) any amount excluded from gross 
income under section 911, and
‘‘(ii) any amount of interest received 
or accrued by the taxpayer during the tax-
able year which is exempt from tax.’’. 
(b) MODIFIED ADJUSTED GROSS INCOME DEFINI-
TION.— 
(1) MEDICAID.—Section 1902 of the Social Se-
curity Act (42 U.S.C. 1396a) is amended by striking 
‘‘modified gross income’’ each place it appears in the 
text and headings of the following provisions and in-
serting ‘‘modified adjusted gross income’’: 
(A) Paragraph (14) of subsection (e), as 
added by section 2002(a) of the Patient Protec-
tion and Affordable Care Act. 
(B) Subsection (gg)(4)(A), as added by 
section 2001(b) of such Act. 
(2) CHIP.— 
(A) STATE PLAN REQUIREMENTS.—Section 
2102(b)(1)(B)(v) of the Social Security Act (42 
U.S.C. 1397bb(b)(1)(B)(v)), as added by sec-
tion 2101(d)(1) of the Patient Protection and 
Affordable Care Act, is amended by striking 
‘‘modified gross income’’ and inserting ‘‘modi-
fied adjusted gross income’’. 
(B) 
PLAN
ADMINISTRATION.—Section 
2107(e)(1)(E) of the Social Security Act (42
U.S.C. 1397gg(e)(1)(E)), as added by section 
2101(d)(2) of the Patient Protection and Af-
fordable Care Act, is amended by striking 
‘‘modified gross income’’ and inserting ‘‘modi-
fied adjusted gross income’’. 
(c) NO EXCESS PAYMENTS.—Section 36B(f) of the 
Internal Revenue Code of 1986, as added by section 
1401(a) of the Patient Protection and Affordable Care 
Act, is amended by adding at the end the following new 
paragraph: 
‘‘(3) INFORMATION REQUIREMENT.—Each Ex-
change (or any person carrying out 1 or more re-
sponsibilities 
of 
an 
Exchange 
under 
section 
1311(f)(3) or 1321(c) of the Patient Protection and 
Affordable Care Act) shall provide the following in-
formation to the Secretary and to the taxpayer with 
respect to any health plan provided through the Ex-
change: 
‘‘(A) The level of coverage described in sec-
tion 1302(d) of the Patient Protection and Af-
fordable Care Act and the period such coverage 
was in effect. 
‘‘(B) The total premium for the coverage 
without regard to the credit under this section
or cost-sharing reductions under section 1402 
of such Act. 
‘‘(C) The aggregate amount of any ad-
vance payment of such credit or reductions 
under section 1412 of such Act. 
‘‘(D) The name, address, and TIN of the 
primary insured and the name and TIN of each 
other individual obtaining coverage under the 
policy. 
‘‘(E) Any information provided to the Ex-
change, including any change of circumstances, 
necessary to determine eligibility for, and the 
amount of, such credit. 
‘‘(F) Information necessary to determine 
whether a taxpayer has received excess advance 
payments.’’. 
(d) ADULT DEPENDENTS.— 
(1) EXCLUSION OF AMOUNTS EXPENDED FOR 
MEDICAL
CARE.—The first sentence of section 
105(b) of the Internal Revenue Code of 1986 (relat-
ing to amounts expended for medical care) is amend-
ed— 
(A) by striking ‘‘and his dependents’’ and 
inserting ‘‘his dependents’’; and
(B) by inserting before the period the fol-
lowing: ‘‘, and any child (as defined in section 
152(f)(1)) of the taxpayer who as of the end of 
the taxable year has not attained age 27’’. 
(2) SELF-EMPLOYED HEALTH INSURANCE DE-
DUCTION.—Section 162(l)(1) of such Code is 
amended to read as follows: 
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case 
of a taxpayer who is an employee within the mean-
ing of section 401(c)(1), there shall be allowed as a 
deduction under this section an amount equal to the 
amount paid during the taxable year for insurance 
which constitutes medical care for— 
‘‘(A) the taxpayer, 
‘‘(B) the taxpayer’s spouse, 
‘‘(C) the taxpayer’s dependents, and 
‘‘(D) any child (as defined in section 
152(f)(1)) of the taxpayer who as of the end of 
the taxable year has not attained age 27.’’. 
(3) COVERAGE UNDER SELF-EMPLOYED DEDUC-
TION.—Section 162(l)(2)(B) of such Code is amend-
ed by inserting ‘‘, or any dependent, or individual 
described in subparagraph (D) of paragraph (1) 
with respect to,’’ after ‘‘spouse of’’.
(4) SICK AND ACCIDENT BENEFITS PROVIDED 
TO MEMBERS OF A VOLUNTARY EMPLOYEES’ BENE-
FICIARY ASSOCIATION AND THEIR DEPENDENTS.— 
Section 501(c)(9) of such Code is amended by add-
ing at the end the following new sentence: ‘‘For pur-
poses of providing for the payment of sick and acci-
dent benefits to members of such an association and 
their dependents, the term ‘dependent’ shall include 
any individual who is a child (as defined in section 
152(f)(1)) of a member who as of the end of the cal-
endar year has not attained age 27.’’. 
(5) MEDICAL AND OTHER BENEFITS FOR RE-
TIRED EMPLOYEES.—Section 401(h) of such Code is 
amended by adding at the end the following: ‘‘For 
purposes of this subsection, the term ‘dependent’ 
shall include any individual who is a child (as de-
fined in section 152(f)(1)) of a retired employee who 
as of the end of the calendar year has not attained 
age 27.’’. 
(e) FIVE PERCENT INCOME DISREGARD FOR CER-
TAIN INDIVIDUALS.—Section 1902(e)(14) of the Social 
Security Act (42 U.S.C. 1396a(e)(14)), as amended by 
subsection (b)(1), is further amended—
(1) in subparagraph (B), by striking ‘‘No type’’ 
and inserting ‘‘Subject to subparagraph (I), no 
type’’; and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(I) TREATMENT OF PORTION OF MODI-
FIED ADJUSTED GROSS INCOME.—For purposes 
of determining the income eligibility of an indi-
vidual for medical assistance whose eligibility is 
determined based on the application of modified 
adjusted gross income under subparagraph (A), 
the State shall— 
‘‘(i) determine the dollar equivalent of 
the difference between the upper income 
limit on eligibility for such an individual 
(expressed as a percentage of the poverty 
line) and such upper income limit in-
creased by 5 percentage points; and 
‘‘(ii) notwithstanding the requirement 
in subparagraph (A) with respect to use of 
modified adjusted gross income, utilize as 
the applicable income of such individual, in 
determining such income eligibility, an 
amount equal to the modified adjusted 
gross income applicable to such individual
reduced 
by 
such 
dollar 
equivalent 
amount.’’. 
SEC. 1005. IMPLEMENTATION FUNDING. 
(a) IN GENERAL.—There is hereby established a 
Health Insurance Reform Implementation Fund (referred 
to in this section as the ‘‘Fund’’) within the Department 
of Health and Human Services to carry out the Patient 
Protection and Affordable Care Act and this Act (and the 
amendments made by such Acts). 
(b) FUNDING.—There is appropriated to the Fund, 
out of any funds in the Treasury not otherwise appro-
priated, $1,000,000,000 for Federal administrative ex-
penses to carry out such Act (and the amendments made 
by such Acts). 
Subtitle B—Medicare 
SEC. 1101. CLOSING THE MEDICARE PRESCRIPTION DRUG 
‘‘DONUT HOLE’’. 
(a) COVERAGE GAP REBATE FOR 2010.— 
(1) IN
GENERAL.—Section 1860D–42 of the 
Social Security Act (42 U.S.C. 1395w–152) is 
amended by adding at the end the following new 
subsection: 
‘‘(c) COVERAGE GAP REBATE FOR 2010.— 
‘‘(1) IN GENERAL.—In the case of an individual 
described in subparagraphs (A) through (D) of sec-
tion 1860D–14A(g)(1) who as of the last day of a 
calendar quarter in 2010 has incurred costs for cov-
ered part D drugs so that the individual has exceed-
ed the initial coverage limit under section 1860D– 
2(b)(3) for 2010, the Secretary shall provide for 
payment from the Medicare Prescription Drug Ac-
count of $250 to the individual by not later than the 
15th day of the third month following the end of 
such quarter. 
‘‘(2) LIMITATION.—The Secretary shall provide 
only 1 payment under this subsection with respect to 
any individual.’’. 
(2) REPEAL OF PROVISION.—Section 3315 of 
the Patient Protection and Affordable Care Act (in-
cluding the amendments made by such section) is re-
pealed, and any provision of law amended or re-
pealed by such sections is hereby restored or revived 
as if such section had not been enacted into law. 
(b) CLOSING THE DONUT HOLE.—Part D of title 
XVIII of the Social Security Act (42 U.S.C. 1395w–101 
et seq.), as amended by section 3301 of the Patient Pro-
tection and Affordable Care Act, is further amended— 
(1) in section 1860D–43— 
(A) in subsection (b), by striking ‘‘July 1, 
2010’’ and inserting ‘‘January 1, 2011’’; and
(B) in subsection (c)(2), by striking ‘‘July 
1, 2010, and ending on December 31, 2010,’’ 
and inserting ‘‘January 1, 2011, and December 
31, 2011,’’; 
(2) in section 1860D–14A— 
(A) in subsection (a)— 
(i) by striking ‘‘July 1, 2010’’ and in-
serting ‘‘January 1, 2011’’; and 
(ii) by striking ‘‘April 1, 2010’’ and 
inserting ‘‘180 days after the date of the 
enactment of this section’’; 
(B) in subsection (b)(1)(C)— 
(i) in the heading, by striking ‘‘2010 
AND’’; 
(ii) by striking ‘‘July 1, 2010’’ and in-
serting ‘‘January 1, 2011’’; and 
(iii) by striking ‘‘May 1, 2010’’ and 
inserting ‘‘not later than 30 days after the 
date of the establishment of a model agree-
ment under subsection (a)’’; 
(C) in subsection (c)— 
(i) in paragraph (1)(A)(iii), by strik-
ing ‘‘July 1, 2010, and ending on Decem-
ber 31, 2011’’ and inserting ‘‘January 1,
2011, and ending on December 31, 2011’’; 
and 
(ii) in paragraph (2), by striking 
‘‘2010’’ and inserting ‘‘2011’’; 
(D) in subsection (d)(2)(B), by striking 
‘‘July 1, 2010, and ending on December 31, 
2010’’ and inserting ‘‘January 1, 2011, and 
ending on December 31, 2011’’; and 
(E) in subsection (g)(1)— 
(i) in the matter before subparagraph 
(A), by striking ‘‘an applicable drug’’ and 
inserting ‘‘a covered part D drug’’; 
(ii) by adding ‘‘and’’ at the end of 
subparagraph (C); 
(iii) by striking subparagraph (D); 
and 
(iv) by redesignating subparagraph 
(E) as subparagraph (D); and 
(3) in section 1860D–2(b)— 
(A) in paragraph (2)(A), by striking ‘‘The 
coverage’’ and inserting ‘‘Subject to subpara-
graphs (C) and (D), the coverage’’; 
(B) in paragraph (2)(B), by striking ‘‘sub-
paragraph (A)(ii)’’ and inserting ‘‘subpara-
graphs (A)(ii), (C), and (D)’’;
(C) by adding at the end of paragraph (2) 
the following new subparagraphs: 
‘‘(C) COVERAGE FOR GENERIC DRUGS IN 
COVERAGE GAP.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (4), the coverage for an 
applicable beneficiary (as defined in section 
1860D–14A(g)(1)) has coinsurance (for 
costs above the initial coverage limit under 
paragraph (3) and below the out-of-pocket 
threshold) for covered part D drugs that 
are not applicable drugs under section 
1860D–14A(g)(2) that is— 
‘‘(I) equal to the generic-gap co-
insurance percentage (specified in 
clause (ii)) for the year; or 
‘‘(II) 
actuarially 
equivalent 
(using processes and methods estab-
lished under section 1860D–11(c)) to 
an average expected payment of such 
percentage of such costs for covered 
part D drugs that are not applicable 
drugs 
under 
section 
1860D– 
14A(g)(2).
‘‘(ii) 
GENERIC-GAP
COINSURANCE 
PERCENTAGE.—The generic-gap coinsur-
ance percentage specified in this clause 
for— 
‘‘(I) 2011 is 93 percent; 
‘‘(II) 2012 and each succeeding 
year before 2020 is the generic-gap 
coinsurance percentage under this 
clause for the previous year decreased 
by 7 percentage points; and 
‘‘(III) 2020 and each subsequent 
year is 25 percent. 
‘‘(D) COVERAGE FOR APPLICABLE DRUGS 
IN COVERAGE GAP.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (4), the coverage for an 
applicable beneficiary (as defined in section 
1860D–14A(g)(1)) has coinsurance (for 
costs above the initial coverage limit under 
paragraph (3) and below the out-of-pocket 
threshold) for the negotiated price (as de-
fined in section 1860D–14A(g)(6)) of cov-
ered part D drugs that are applicable 
drugs under section 1860D–14A(g)(2) that 
is—
‘‘(I) equal to the difference be-
tween the applicable gap percentage 
(specified in clause (ii) for the year) 
and the discount percentage specified 
in section 1860D–14A(g)(4)(A) for 
such applicable drugs; or 
‘‘(II) 
actuarially 
equivalent 
(using processes and methods estab-
lished under section 1860D–11(c)) to 
an average expected payment of such 
percentage of such costs, for covered 
part D drugs that are applicable 
drugs 
under 
section 
1860D– 
14A(g)(2). 
‘‘(ii) 
APPLICABLE
GAP
PERCENT-
AGE.—The applicable gap percentage spec-
ified in this clause for— 
‘‘(I) 2013 and 2014 is 97.5 per-
cent; 
‘‘(II) 2015 and 2016 is 95 per-
cent; 
‘‘(III) 2017 is 90 percent; 
‘‘(IV) 2018 is 85 percent; 
‘‘(V) 2019 is 80 percent; and
‘‘(VI) 2020 and each subsequent 
year is 75 percent.’’; 
(D) in paragraph (3)(A), as restored under 
subsection (a)(2), by striking ‘‘paragraph (4)’’ 
and inserting ‘‘paragraphs (2)(C), (2)(D), and 
(4)’’; and 
(E) in paragraph (4)(E), by inserting be-
fore the period at the end the following: ‘‘, ex-
cept that incurred costs shall not include the 
portion of the negotiated price that represents 
the reduction in coinsurance resulting from the 
application of paragraph (2)(D)’’; and 
(4) in section 1860D–22(a)(2)(A), by inserting 
before the period at the end the following: ‘‘, not 
taking into account the value of any discount or cov-
erage provided during the gap in prescription drug 
coverage that occurs between the initial coverage 
limit under section 1860D–2(b)(3) during the year 
and the out-of-pocket threshold specified in section 
1860D–2(b)(4)(B)’’. 
(c) CONFORMING AMENDMENT
TO AMP UNDER 
MEDICAID.—Section 1927(k)(1)(B)(i) of the Social Secu-
rity Act (42 U.S.C. 1396r–8(k)(1)(B)(i)), as amended by 
section 2503(a)(2)(B) of the Patient Protection and Af-
fordable Care Act, is amended—
(1) by striking ‘‘and’’ at the end of subclause 
(III); 
(2) by striking the period at the end of sub-
clause (IV); and 
(3) by adding at the end the following new sub-
clause: 
‘‘(V) discounts provided by man-
ufacturers 
under 
section 
1860D– 
14A.’’. 
(d) REDUCING GROWTH RATE OF OUT-OF-POCKET 
COST THRESHOLD.—Section 1860D–2(b) of the Social 
Security Act (42 U.S.C. 1395w–102(b)) is amended— 
(1) in paragraph (4)(B)(i)— 
(A) in subclause (I), by striking ‘‘or’’ at 
the end; 
(B) by redesignating subclause (II) as sub-
clause (VI); and 
(C) by inserting after subclause (I) the fol-
lowing new subclauses: 
‘‘(II) for each of years 2007 
through 2013, is equal to the amount 
specified in this subparagraph for the 
previous year, increased by the annual 
percentage increase described in para-
graph (6) for the year involved;
‘‘(III) for 2014 and 2015, is 
equal to the amount specified in this 
subparagraph for the previous year, 
increased by the annual percentage in-
crease described in paragraph (6) for 
the year involved, minus 0.25 percent-
age point; 
‘‘(IV) for each of years 2016 
through 2019, is equal to the amount 
specified in this subparagraph for the 
previous year, increased by the lesser 
of— 
‘‘(aa) the annual percentage 
increase described in paragraph 
(7) for the year involved, plus 2 
percentage points; or 
‘‘(bb) the annual percentage 
increase described in paragraph 
(6) for the year; 
‘‘(V) for 2020, is equal to the 
amount that would have been applied 
under this subparagraph for 2020 if 
the amendments made by section 
1101(d)(1) of the Health Care and
Education Reconciliation Act of 2010 
had not been enacted; or’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(7) ADDITIONAL
ANNUAL
PERCENTAGE
IN-
CREASE.—The annual percentage increase specified 
in this paragraph for a year is equal to the annual 
percentage increase in the consumer price index for 
all urban consumers (United States city average) for 
the 12-month period ending in July of the previous 
year.’’. 
SEC. 1102. MEDICARE ADVANTAGE PAYMENTS. 
(a) REPEAL.—Effective as if included in the enact-
ment of the Patient Protection and Affordable Care Act, 
sections 3201 and 3203 of such Act (and the amendments 
made by such sections) are repealed. 
(b) PHASE-IN OF MODIFIED BENCHMARKS.—Section 
1853 of the Social Security Act (42 U.S.C. 1395w–23) 
is amended— 
(1) in subsection (j)(1)(A), by striking ‘‘(or, be-
ginning with 2007, 1⁄12 of the applicable amount de-
termined under subsection (k)(1)) for the area for 
the year’’ and inserting ‘‘for the area for the year 
(or, for 2007, 2008, 2009, and 2010, 1⁄12 of the ap-
plicable amount determined under subsection (k)(1)
for the area for the year; for 2011, 1⁄12 of the appli-
cable amount determined under subsection (k)(1) for 
the area for 2010; and, beginning with 2012, 1⁄12 of 
the blended benchmark amount determined under 
subsection (n)(1) for the area for the year)’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(n) DETERMINATION
OF BLENDED BENCHMARK 
AMOUNT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(j), subject to paragraphs (3), (4), and (5), the term 
‘blended benchmark amount’ means for an area— 
‘‘(A) for 2012 the sum of— 
‘‘(i) 1⁄2 of the applicable amount for 
the area and year; and 
‘‘(ii) 1⁄2 of the amount specified in 
paragraph (2)(A) for the area and year; 
and 
‘‘(B) for a subsequent year the amount 
specified in paragraph (2)(A) for the area and 
year. 
‘‘(2) SPECIFIED AMOUNT.— 
‘‘(A) IN GENERAL.—The amount specified 
in this subparagraph for an area and year is 
the product of—
‘‘(i) the base payment amount speci-
fied in subparagraph (E) for the area and 
year adjusted to take into account the 
phase-out in the indirect costs of medical 
education from capitation rates described 
in subsection (k)(4); and 
‘‘(ii) the applicable percentage for the 
area for the year specified under subpara-
graph (B). 
‘‘(B) APPLICABLE PERCENTAGE.—Subject 
to subparagraph (D), the applicable percentage 
specified in this subparagraph for an area for 
a year in the case of an area that is ranked— 
‘‘(i) in the highest quartile under sub-
paragraph (C) for the previous year is 95 
percent; 
‘‘(ii) in the second highest quartile 
under such subparagraph for the previous 
year is 100 percent; 
‘‘(iii) in the third highest quartile 
under such subparagraph for the previous 
year is 107.5 percent; or 
‘‘(iv) in the lowest quartile under such 
subparagraph for the previous year is 115 
percent.
‘‘(C) PERIODIC
RANKING.—For purposes 
of this paragraph in the case of an area lo-
cated— 
‘‘(i) in 1 of the 50 States or the Dis-
trict of Columbia, the Secretary shall rank 
such area in each year specified under sub-
section (c)(1)(D)(ii) based upon the level 
of the amount specified in subparagraph 
(A)(i) for such areas; or 
‘‘(ii) in a territory, the Secretary shall 
rank such areas in each such year based 
upon the level of the amount specified in 
subparagraph (A)(i) for such area relative 
to quartile rankings computed under clause 
(i). 
‘‘(D) 1-YEAR TRANSITION FOR CHANGES IN 
APPLICABLE PERCENTAGE.—If, for a year after 
2012, there is a change in the quartile in which 
an area is ranked compared to the previous 
year, the applicable percentage for the area in 
the year shall be the average of— 
‘‘(i) the applicable percentage for the 
area for the previous year; and
‘‘(ii) the applicable percentage that 
would otherwise apply for the area for the 
year. 
‘‘(E) BASE
PAYMENT
AMOUNT.—Subject 
to subparagraph (F), the base payment amount 
specified in this subparagraph— 
‘‘(i) for 2012 is the amount specified 
in subsection (c)(1)(D) for the area for the 
year; or 
‘‘(ii) for a subsequent year that— 
‘‘(I) is not specified under sub-
section (c)(1)(D)(ii), is the base 
amount specified in this subparagraph 
for the area for the previous year, in-
creased by the national per capita MA 
growth percentage, described in sub-
section (c)(6) for that succeeding 
year, but not taking into account any 
adjustment under subparagraph (C) 
of such subsection for a year before 
2004; and 
‘‘(II) is specified under sub-
section (c)(1)(D)(ii), is the amount 
specified in subsection (c)(1)(D) for 
the area for the year.
‘‘(F) APPLICATION OF INDIRECT MEDICAL 
EDUCATION
PHASE-OUT.—The base payment 
amount specified in subparagraph (E) for a 
year shall be adjusted in the same manner 
under paragraph (4) of subsection (k) as the 
applicable amount is adjusted under such sub-
section. 
‘‘(3) ALTERNATIVE PHASE-INS.— 
‘‘(A) 4-YEAR
PHASE-IN
FOR
CERTAIN 
AREAS.—If the difference between the applica-
ble amount (as defined in subsection (k)) for an 
area for 2010 and the projected 2010 bench-
mark amount (as defined in subparagraph (C)) 
for the area is at least $30 but less than $50, 
the blended benchmark amount for the area 
is— 
‘‘(i) for 2012 the sum of— 
‘‘(I) 3⁄4 of the applicable amount 
for the area and year; and 
‘‘(II) 1⁄4 of the amount specified 
in paragraph (2)(A) for the area and 
year; 
‘‘(ii) for 2013 the sum of— 
‘‘(I) 1⁄2 of the applicable amount 
for the area and year; and
‘‘(II) 1⁄2 of the amount specified 
in paragraph (2)(A) for the area and 
year; 
‘‘(iii) for 2014 the sum of— 
‘‘(I) 1⁄4 of the applicable amount 
for the area and year; and 
‘‘(II) 3⁄4 of the amount specified 
in paragraph (2)(A) for the area and 
year; and 
‘‘(iv) for a subsequent year the 
amount specified in paragraph (2)(A) for 
the area and year. 
‘‘(B) 6-YEAR
PHASE-IN
FOR
CERTAIN 
AREAS.—If the difference between the applica-
ble amount (as defined in subsection (k)) for an 
area for 2010 and the projected 2010 bench-
mark amount (as defined in subparagraph (C)) 
for the area is at least $50, the blended bench-
mark amount for the area is— 
‘‘(i) for 2012 the sum of— 
‘‘(I) 5⁄6 of the applicable amount 
for the area and year; and 
‘‘(II) 1⁄6 of the amount specified 
in paragraph (2)(A) for the area and 
year;
‘‘(ii) for 2013 the sum of— 
‘‘(I) 2⁄3 of the applicable amount 
for the area and year; and 
‘‘(II) 1⁄3 of the amount specified 
in paragraph (2)(A) for the area and 
year; 
‘‘(iii) for 2014 the sum of— 
‘‘(I) 1⁄2 of the applicable amount 
for the area and year; and 
‘‘(II) 1⁄2 of the amount specified 
in paragraph (2)(A) for the area and 
year; 
‘‘(iv) for 2015 the sum of— 
‘‘(I) 1⁄3 of the applicable amount 
for the area and year; and 
‘‘(II) 2⁄3 of the amount specified 
in paragraph (2)(A) for the area and 
year; and 
‘‘(v) for 2016 the sum of— 
‘‘(I) 1⁄6 of the applicable amount 
for the area and year; and 
‘‘(II) 5⁄6 of the amount specified 
in paragraph (2)(A) for the area and 
year; and
‘‘(vi) for a subsequent year the 
amount specified in paragraph (2)(A) for 
the area and year. 
‘‘(C) 
PROJECTED
2010
BENCHMARK 
AMOUNT.—The 
projected 
2010 
benchmark 
amount described in this subparagraph for an 
area is equal to the sum of— 
‘‘(i) 1⁄2 of the applicable amount (as 
defined in subsection (k)) for the area for 
2010; and 
‘‘(ii) 1⁄2 of the amount specified in 
paragraph (2)(A) for the area for 2010 but 
determined as if there were substituted for 
the applicable percentage specified in 
clause (ii) of such paragraph the sum of— 
‘‘(I) the applicable percent that 
would be specified under subpara-
graph (B) of paragraph (2) (deter-
mined without regard to subpara-
graph (D) of such paragraph) for the 
area for 2010 if any reference in such 
paragraph to ‘the previous year’ were 
deemed a reference to 2010; and 
‘‘(II) the applicable percentage 
increase that would apply to a quali-
fying plan in the area under sub-
section (o) as if any reference in such 
subsection to 2012 were deemed a ref-
erence to 2010 and as if the deter-
mination of a qualifying county under 
paragraph (3)(B) of such subsection 
were made for 2010. 
‘‘(4) CAP
ON
BENCHMARK
AMOUNT.—In no 
case shall the blended benchmark amount for an 
area for a year (determined taking into account sub-
section (o)) be greater than the applicable amount 
that would (but for the application of this sub-
section) be determined under subsection (k)(1) for 
the area for the year. 
‘‘(5) NON-APPLICATION TO PACE PLANS.—This 
subsection shall not apply to payments to a PACE 
program under section 1894.’’. 
(c) 
APPLICABLE
PERCENTAGE
QUALITY
IN-
CREASES.—Section 1853 of such Act (42 U.S.C. 1395w– 
23), as amended by subsection (b), is amended— 
(1) in subsection (j), by inserting ‘‘subject to 
subsection (o),’’ after ‘‘For purposes of this part,’’; 
(2) in subsection (n)(2)(B), as added by sub-
section (b), by inserting ‘‘, subject to subsection (o)’’ 
after ‘‘as follows’’; and
(3) by adding at the end the following new sub-
section: 
‘‘(o) 
APPLICABLE
PERCENTAGE
QUALITY
IN-
CREASES.— 
‘‘(1) IN GENERAL.—Subject to the succeeding 
paragraphs, in the case of a qualifying plan with re-
spect to a year beginning with 2012, the applicable 
percentage under subsection (n)(2)(B) shall be in-
creased on a plan or contract level, as determined by 
the Secretary— 
‘‘(A) for 2012, by 1.5 percentage points; 
‘‘(B) for 2013, by 3.0 percentage points; 
and 
‘‘(C) for 2014 or a subsequent year, by 5.0 
percentage points. 
‘‘(2) INCREASE
FOR
QUALIFYING
PLANS
IN 
QUALIFYING COUNTIES.—The increase applied under 
paragraph (1) for a qualifying plan located in a 
qualifying county for a year shall be doubled. 
‘‘(3) QUALIFYING
PLANS
AND
QUALIFYING 
COUNTY DEFINED; APPLICATION OF INCREASES TO 
LOW ENROLLMENT AND NEW PLANS.—For purposes 
of this subsection: 
‘‘(A) QUALIFYING PLAN.—
‘‘(i) IN GENERAL.—The term ‘quali-
fying plan’ means, for a year and subject 
to paragraph (4), a plan that had a quality 
rating under paragraph (4) of 4 stars or 
higher based on the most recent data avail-
able for such year. 
‘‘(ii) APPLICATION OF INCREASES TO 
LOW ENROLLMENT PLANS.— 
‘‘(I) 2012.—For 2012, the term 
‘qualifying plan’ includes an MA plan 
that the Secretary determines is not 
able to have a quality rating under 
paragraph (4) because of low enroll-
ment. 
‘‘(II) 2013 
AND
SUBSEQUENT 
YEARS.—For 2013 and subsequent 
years, for purposes of determining 
whether an MA plan with low enroll-
ment (as defined by the Secretary) is 
included as a qualifying plan, the Sec-
retary shall establish a method to 
apply to MA plans with low enroll-
ment (as defined by the Secretary) 
the computation of quality rating and
the rating system under paragraph 
(4). 
‘‘(iii) APPLICATION OF INCREASES TO 
NEW PLANS.— 
‘‘(I) IN
GENERAL.—A new MA 
plan that meets criteria specified by 
the Secretary shall be treated as a 
qualifying plan, except that in apply-
ing paragraph (1), the applicable per-
centage under subsection (n)(2)(B) 
shall be increased— 
‘‘(aa) for 2012, by 1.5 per-
centage points; 
‘‘(bb) for 2013, by 2.5 per-
centage points; and 
‘‘(cc) for 2014 or a subse-
quent year, by 3.5 percentage 
points. 
‘‘(II) NEW MA PLAN DEFINED.— 
The term ‘new MA plan’ means, with 
respect to a year, a plan offered by an 
organization or sponsor that has not 
had a contract as a Medicare Advan-
tage organization in the preceding 3- 
year period.
‘‘(B) QUALIFYING
COUNTY.—The term 
‘qualifying county’ means, for a year, a coun-
ty— 
‘‘(i) that has an MA capitation rate 
that, in 2004, was based on the amount 
specified in subsection (c)(1)(B) for a Met-
ropolitan Statistical Area with a population 
of more than 250,000; 
‘‘(ii) for which, as of December 2009, 
of the Medicare Advantage eligible individ-
uals residing in the county at least 25 per-
cent of such individuals were enrolled in 
Medicare Advantage plans; and 
‘‘(iii) that has per capita fee-for-serv-
ice spending that is lower than the na-
tional monthly per capita cost for expendi-
tures for individuals enrolled under the 
original medicare fee-for-service program 
for the year. 
‘‘(4) QUALITY DETERMINATIONS FOR APPLICA-
TION OF INCREASE.— 
‘‘(A) 
QUALITY
DETERMINATION.—The 
quality rating for a plan shall be determined ac-
cording to a 5-star rating system (based on the 
data collected under section 1852(e)).
‘‘(B) PLANS THAT FAILED TO REPORT.— 
An MA plan which does not report data that 
enables the Secretary to rate the plan for pur-
poses of this paragraph shall be counted as hav-
ing a rating of fewer than 3.5 stars. 
‘‘(5) EXCEPTION FOR PACE PLANS.—This sub-
section shall not apply to payments to a PACE pro-
gram under section 1894.’’. 
(4) DETERMINATION
OF
MEDICARE
PART
D 
LOW-INCOME
BENCHMARK
PREMIUM.—Section 
1860D–14(b)(2)(B)(iii) of the Social Security Act 
(42 U.S.C. 1395w–114(b)(2)(B)(iii)) as amended by 
section 3302 of the Patient Protection and Afford-
able Care Act, is amended by striking ‘‘, determined 
without regard to any reduction in such premium as 
a result of any beneficiary rebate under section 
1854(b)(1)(C) or bonus payment under section 
1853(n)’’ and inserting the following: ‘‘and deter-
mined before the application of the monthly rebate 
computed under section 1854(b)(1)(C)(i) for that 
plan and year involved and, in the case of a quali-
fying plan, before the application of the increase 
under section 1853(o) for that plan and year in-
volved’’.
(d) BENEFICIARY REBATES.—Section 1854(b)(1)(C) 
of such Act (42 U.S.C. 1395w–24(b)(1)(C)), as amended 
by section 3202(b) of the Patient Protection and Afford-
able Care Act, is further amended— 
(1) in clause (i), by inserting ‘‘(or the applica-
ble rebate percentage specified in clause (iii) in the 
case of plan years beginning on or after January 1, 
2012)’’ after ‘‘75 percent’’; and 
(2) by striking clause (iii), by redesignating 
clauses (iv) and (v) as clauses (vii) and (viii), respec-
tively, and by inserting after clause (ii) the following 
new clauses: 
‘‘(iii) APPLICABLE REBATE PERCENT-
AGE.—The applicable rebate percentage 
specified in this clause for a plan for a 
year, based on the system under section 
1853(o)(4)(A), is the sum of— 
‘‘(I) the product of the old phase- 
in proportion for the year under 
clause (iv) and 75 percent; and 
‘‘(II) the product of the new 
phase-in proportion for the year under 
clause (iv) and the final applicable re-
bate percentage under clause (v).
‘‘(iv) OLD AND NEW PHASE-IN PRO-
PORTIONS.—For purposes of clause (iv)— 
‘‘(I) for 2012, the old phase-in 
proportion is 2⁄3 and the new phase-in 
proportion is 1⁄3; 
‘‘(II) for 2013, the old phase-in 
proportion is 1⁄3 and the new phase-in 
proportion is 2⁄3; and 
‘‘(III) for 2014 and any subse-
quent year, the old phase-in propor-
tion is 0 and the new phase-in propor-
tion is 1. 
‘‘(v) FINAL APPLICABLE REBATE PER-
CENTAGE.—Subject to clause (vi), the final 
applicable rebate percentage under this 
clause is— 
‘‘(I) in the case of a plan with a 
quality rating under such system of at 
least 4.5 stars, 70 percent; 
‘‘(II) in the case of a plan with 
a quality rating under such system of 
at least 3.5 stars and less than 4.5 
stars, 65 percent; and
‘‘(III) in the case of a plan with 
a quality rating under such system of 
less than 3.5 stars, 50 percent. 
‘‘(vi) TREATMENT OF LOW ENROLL-
MENT AND NEW PLANS.—For purposes of 
clause (v)— 
‘‘(I) for 2012, in the case of a 
plan described in subclause (I) of sub-
section (o)(3)(A)(ii), the plan shall be 
treated as having a rating of 4.5 
stars; and 
‘‘(II) for 2012 or a subsequent 
year, in the case of a new MA plan 
(as defined under subclause (III) of 
subsection (o)(3)(A)(iii)) that is treat-
ed as a qualifying plan pursuant to 
subclause (I) of such subsection, the 
plan shall be treated as having a rat-
ing of 3.5 stars.’’. 
(e) 
CODING
INTENSITY
ADJUSTMENT.—Section 
1853(a)(1)(C)(ii) of such Act (42 U.S.C. 1395w– 
23(a)(1)(C)(ii)) is amended— 
(1) in the heading, by striking ‘‘DURING PHASE-
OUT OF BUDGET NEUTRALITY FACTOR’’ and insert-
ing ‘‘OF CODING ADJUSTMENT’’;
(2) in the matter before subclause (I), by strik-
ing ‘‘through 2010’’ and inserting ‘‘and each subse-
quent year’’; and 
(3) in subclause (II)— 
(A) in the first sentence, by inserting ‘‘an-
nually’’ before ‘‘conduct an analysis’’; 
(B) in the second sentence— 
(i) by inserting ‘‘on a timely basis’’ 
after ‘‘are incorporated’’; and 
(ii) by striking ‘‘only for 2008, 2009, 
and 2010’’ and inserting ‘‘for 2008 and 
subsequent years’’; 
(C) in the third sentence, by inserting 
‘‘and updated as appropriate’’ before the period 
at the end; and 
(D) by adding at the end the following new 
subclauses: 
‘‘(III) In calculating each year’s 
adjustment, the adjustment factor 
shall be for 2014, not less than the 
adjustment factor applied for 2010, 
plus 1.3 percentage points; for each of 
years 2015 through 2018, not less 
than the adjustment factor applied for 
the previous year, plus 0.25 percent-
age point; and for 2019 and each sub-
sequent year, not less than 5.7 per-
cent. 
‘‘(IV) Such adjustment shall be 
applied to risk scores until the Sec-
retary implements risk adjustment 
using Medicare Advantage diagnostic, 
cost, and use data.’’. 
(f) REPEAL OF COMPARATIVE COST ADJUSTMENT 
PROGRAM.—Section 1860C–1 of the Social Security Act 
(42 U.S.C. 1395w–29), as added by section 241(a) of the 
Medicare Prescription Drug, Improvement, and Mod-
ernization Act of 2003 (Public Law 108–173), is repealed. 
SEC. 1103. SAVINGS FROM LIMITS ON MA PLAN ADMINIS-
TRATIVE COSTS. 
Section 1857(e) of the Social Security Act (42 U.S.C. 
1395w–27(e)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) REQUIREMENT
FOR
MINIMUM
MEDICAL 
LOSS RATIO.—If the Secretary determines for a con-
tract year (beginning with 2014) that an MA plan 
has failed to have a medical loss ratio of at least 
.85— 
‘‘(A) the MA plan shall remit to the Sec-
retary an amount equal to the product of—
‘‘(i) the total revenue of the MA plan 
under this part for the contract year; and 
‘‘(ii) the difference between .85 and 
the medical loss ratio; 
‘‘(B) for 3 consecutive contract years, the 
Secretary shall not permit the enrollment of 
new enrollees under the plan for coverage dur-
ing the second succeeding contract year; and 
‘‘(C) the Secretary shall terminate the plan 
contract if the plan fails to have such a medical 
loss ratio for 5 consecutive contract years.’’. 
SEC. 1104. DISPROPORTIONATE SHARE HOSPITAL (DSH) 
PAYMENTS. 
Section 1886(r) of the Social Security Act (42 U.S.C. 
1395ww(r)), as added by section 3133 of the Patient Pro-
tection and Affordable Care Act and as amended by sec-
tion 10316 of such Act, is amended— 
(1) in paragraph (1), by striking ‘‘2015’’ and 
inserting ‘‘2014’’; and 
(2) in paragraph (2)— 
(A) in the matter preceding subparagraph 
(A), by striking ‘‘2015’’ and inserting ‘‘2014’’; 
(B) in subparagraph (B)(i)— 
(i) in the heading, by inserting ‘‘2014,’’ 
after ‘‘YEARS’’;
(ii) in the matter preceding subclause 
(I), by inserting ‘‘2014,’’ after ‘‘each of fis-
cal years’’; 
(iii) in subclause (I), by striking ‘‘on 
such Act’’ and inserting ‘‘on the Health 
Care and Education Reconciliation Act of 
2010’’; and 
(iv) in the matter following subclause 
(II), by striking ‘‘minus 1.5 percentage 
points’’ and inserting ‘‘minus 0.1 percent-
age points for fiscal year 2014 and minus 
0.2 percentage points for each of fiscal 
years 2015, 2016, and 2017’’; and 
(C) in subparagraph (B)(ii), in the matter 
following subclause (II), by striking ‘‘and, for 
each of 2018 and 2019, minus 1.5 percentage 
points’’ and inserting ‘‘minus 0.2 percentage 
points for each of fiscal years 2018 and 2019’’. 
SEC. 1105. MARKET BASKET UPDATES. 
(a) IPPS.—Section 1886(b)(3)(B) of the Social Se-
curity Act (42 U.S.C. 1395ww(b)(3)(B)), as amended by 
sections 3401(a)(4) and 10319(a) of the Patient Protec-
tion and Affordable Care Act, is amended— 
(1) in clause (xii)—
(A) by placing the subclause (II) (inserted 
by section 10319(a)(3) of the Patient Protec-
tion and Affordable Care Act) immediately after 
subclause (I) and, in such subclause (II), by 
striking ‘‘and’’ at the end; and 
(B) by striking subclause (III) and insert-
ing the following: 
‘‘(III) for fiscal year 2014, by 0.3 percentage 
point; 
‘‘(IV) for each of fiscal years 2015 and 2016, 
by 0.2 percentage point; and 
‘‘(V) for each of fiscal years 2017, 2018, and 
2019, by 0.75 percentage point.’’; and 
(2) by striking clause (xiii). 
(b) 
LONG-TERM
CARE
HOSPITALS.—Section 
1886(m)(4) of the Social Security Act (42 U.S.C. 
1395ww(m)(4)), as added by section 3401(c) of the Pa-
tient Protection and Affordable Care Act and amended by 
section 10319(b) of such Act, is amended— 
(1) in subparagraph (A)— 
(A) in clause (iii), by striking ‘‘and’’ at the 
end; and 
(B) by striking clause (iv) and inserting 
the following:
‘‘(iv) for rate year 2014, 0.3 percent-
age point; 
‘‘(v) for each of rate years 2015 and 
2016, 0.2 percentage point; and 
‘‘(vi) for each of rate years 2017, 
2018, and 2019, 0.75 percentage point.’’; 
(2) by striking subparagraph (B); and 
(3) by striking ‘‘(4) OTHER ADJUSTMENT.—’’ 
and all that follows through ‘‘For purposes’’ and in-
serting ‘‘(4) OTHER ADJUSTMENT.—For purposes’’ 
(and redesignating clauses (i) through (vi) as sub-
paragraphs (A) through (F), respectively, with ap-
propriate indentation). 
(c) INPATIENT REHABILITATION FACILITIES.—Sec-
tion 1886(j)(3)(D) of the Social Security Act (42 U.S.C. 
1395ww(j)(3)(D)), as added by section 3401(d)(2) of the 
Patient Protection and Affordable Care Act and amended 
by section 10319(c) of such Act, is amended— 
(1) in clause (i)— 
(A) by placing the subclause (II) (inserted 
by section 10319(c)(3) of the Patient Protec-
tion and Affordable Care Act) immediately after 
subclause (I) and, in such subclause (II), by 
striking ‘‘and’’ at the end; and
(B) by striking subclause (III) and insert-
ing the following: 
‘‘(III) for fiscal year 2014, 0.3 
percentage point; 
‘‘(IV) for each of fiscal years 
2015 and 2016, 0.2 percentage point; 
and 
‘‘(V) for each of fiscal years 
2017, 2018, and 2019, 0.75 percent-
age point.’’; 
(2) by striking clause (ii); and 
(3) by striking ‘‘(D) OTHER ADJUSTMENT.—’’ 
and all that follows through ‘‘For purposes’’ and in-
serting ‘‘(D) OTHER ADJUSTMENT.—For purposes’’ 
(and redesignating subclauses (I) through (V) as 
clauses (i) through (v), respectively, with appropriate 
indentation). 
(d) PSYCHIATRIC HOSPITALS.—Section 1886(s)(3) of 
the Social Security Act, as added by section 3401(f) of 
the Patient Protection and Affordable Care Act and 
amended by section 10319(e) of such Act, is amended— 
(1) in subparagraph (A)— 
(A) by placing the clause (ii) (inserted by 
section 10319(e)(3) of the Patient Protection 
and Affordable Care Act) immediately after
clause (i) and, in such clause (ii), by striking 
‘‘and’’ at the end; and 
(B) by striking clause (iii) and inserting 
the following: 
‘‘(iii) for the rate year beginning in 
2014, 0.3 percentage point; 
‘‘(iv) for each of the rate years begin-
ning in 2015 and 2016, 0.2 percentage 
point; and 
‘‘(v) for each of the rate years begin-
ning in 2017, 2018, and 2019, 0.75 per-
centage point.’’; 
(2) by striking subparagraph (B); and 
(3) by striking ‘‘(3) OTHER ADJUSTMENT.—’’ 
and all that follows through ‘‘For purposes’’ and in-
serting ‘‘(3) OTHER ADJUSTMENT.—For purposes’’ 
(and redesignating clauses (i) through (v) as sub-
paragraphs (A) through (E), respectively, with ap-
propriate indentation). 
(e) 
OUTPATIENT
HOSPITALS.—Section 
1833(t)(3)(G) of the Social Security Act (42 U.S.C. 
1395l(t)(3)(G)), as added by section 3401(i)(2) of the Pa-
tient Protection and Affordable Care Act and amended by 
section 10319(g) of such Act, is amended— 
(1) in clause (i)—
(A) by placing the subclause (II) (inserted 
by section 10319(g)(3) of the Patient Protec-
tion and Affordable Care Act) immediately after 
subclause (I) and, in such subclause (II), by 
striking ‘‘and’’ at the end; and 
(B) by striking subclause (III) and insert-
ing the following: 
‘‘(III) for 2014, 0.3 percentage 
point; 
‘‘(IV) for each of 2015 and 2016, 
0.2 percentage point; and 
‘‘(V) for each of 2017, 2018, and 
2019, 0.75 percentage point.’’; 
(2) by striking clause (ii); and 
(3) by striking ‘‘(G) OTHER ADJUSTMENT.—’’ 
and all that follows through ‘‘For purposes’’ and in-
serting ‘‘(G) OTHER ADJUSTMENT.—For purposes’’ 
(and redesignating subclauses (I) through (V) as 
clauses (i) through (v), respectively, with appropriate 
indentation). 
SEC. 1106. PHYSICIAN OWNERSHIP-REFERRAL. 
Section 1877(i) of the Social Security Act (42 U.S.C. 
1395nn(i)), as added by section 6001(a)(3) of the Patient 
Protection and Affordable Care Act and as amended by 
section 10601(a) of such Act, is amended—
(1) in paragraph (1)(A)(i), by striking ‘‘August 
1, 2010’’ and inserting ‘‘December 31, 2010’’; and 
(2) in paragraph (3)— 
(A) in subparagraph (A)(i), by striking 
‘‘an applicable hospital (as defined in subpara-
graph (E))’’ and inserting ‘‘a hospital that is an 
applicable hospital (as defined in subparagraph 
(E)) or is a high Medicaid facility described in 
subparagraph (F)’’; 
(B) in subparagraph (C)(iii), by inserting 
after ‘‘date of enactment of this subsection’’ the 
following: ‘‘(or, in the case of a hospital that 
did not have a provider agreement in effect as 
of such date but does have such an agreement 
in effect on December 31, 2010, the effective 
date of such provider agreement)’’; 
(C) by redesignating subparagraphs (F) 
through (H) as subparagraphs (G) through (I), 
respectively; and 
(D) by inserting after subparagraph (E) 
the following new subparagraph: 
‘‘(F) 
HIGH
MEDICAID
FACILITY
DE-
SCRIBED.—A high Medicaid facility described in 
this subparagraph is a hospital that—
‘‘(i) is not the sole hospital in a coun-
ty; 
‘‘(ii) with respect to each of the 3 
most recent years for which data are avail-
able, has an annual percent of total inpa-
tient admissions that represent inpatient 
admissions under title XIX that is esti-
mated to be greater than such percent with 
respect to such admissions for any other 
hospital located in the county in which the 
hospital is located; and 
‘‘(iii) meets the conditions described 
in subparagraph (E)(iii).’’. 
SEC. 1107. PAYMENT FOR IMAGING SERVICES. 
Section 1848 of the Social Security Act (42 U.S.C. 
1395w–4), as amended by section 3135(a) of the Patient 
Protection and Affordable Care Act, is amended— 
(1) in subsection (b)(4)— 
(A) in subparagraph (B), by striking ‘‘this 
paragraph’’ and inserting ‘‘subparagraph (A)’’; 
and 
(B) by amending subparagraph (C) to read 
as follows: 
‘‘(C) ADJUSTMENT IN IMAGING UTILIZA-
TION RATE.—With respect to fee schedules es-
tablished for 2011 and subsequent years, in the 
methodology for determining practice expense 
relative value units for expensive diagnostic im-
aging equipment under the final rule published 
by the Secretary in the Federal Register on No-
vember 25, 2009 (42 CFR 410 et al.), the Sec-
retary shall use a 75 percent assumption in-
stead of the utilization rates otherwise estab-
lished in such final rule.’’; and 
(2) in subsection (c)(2)(B)(v), by striking sub-
clauses (III), (IV), and (V) and inserting the fol-
lowing new subclause: 
‘‘(III) CHANGE
IN
UTILIZATION 
RATE
FOR
CERTAIN
IMAGING
SERV-
ICES.—Effective for fee schedules es-
tablished beginning with 2011, re-
duced expenditures attributable to the 
change in the utilization rate applica-
ble to 2011, as described in subsection 
(b)(4)(C).’’. 
SEC. 1108. PE GPCI ADJUSTMENT FOR 2010. 
Effective as if included in the enactment of the Pa-
tient Protection and Affordable Care Act, section 
1848(e)(1)(H)(i) of the Social Security Act (42 U.S.C. 
1395w–4(e)(1)(H)(i)), as added by section 3102(b)(2) of
the Patient Protection and Affordable Care Act, is amend-
ed by striking ‘‘3⁄4’’ and inserting ‘‘1⁄2’’. 
SEC. 1109. PAYMENT FOR QUALIFYING HOSPITALS. 
(a) IN GENERAL.—From the amount available under 
subsection (b), the Secretary of Health and Human Serv-
ices shall provide for a payment to qualifying hospitals (as 
defined in subsection (d)) for fiscal years 2011 and 2012 
of the amount determined under subsection (c). 
(b) AMOUNTS AVAILABLE.—There shall be available 
from the Federal Hospital Insurance Trust Fund 
$400,000,000 for payments under this section for fiscal 
years 2011 and 2012. 
(c) PAYMENT AMOUNT.—The amount of payment 
under this section for a qualifying hospital shall be deter-
mined, in a manner consistent with the amount available 
under subsection (b), in proportion to the portion of the 
amount of the aggregate payments under section 1886(d) 
of the Social Security Act to the hospital for fiscal year 
2009 bears to the sum of all such payments to all quali-
fying hospitals for such fiscal year. 
(d) QUALIFYING HOSPITAL DEFINED.—In this sec-
tion, the term ‘‘qualifying hospital’’ means a subsection 
(d) hospital (as defined for purposes of section 1886(d) 
of the Social Security Act) that is located in a county that 
ranks, based upon its ranking in age, sex, and race ad-
justed spending for benefits under parts A and B under 
title XVIII of such Act per enrollee, within the lowest 
quartile of such counties in the United States. 
Subtitle C—Medicaid 
SEC. 1201. FEDERAL FUNDING FOR STATES. 
Section 1905 of the Social Security Act (42 U.S.C. 
1396d), as amended by sections 2001(a)(3) and 10201(c) 
of the Patient Protection and Affordable Care Act, is 
amended— 
(1) in subsection (y)— 
(A) by redesignating subclause (II) of 
paragraph (1)(B)(ii) as paragraph (5) of sub-
section (z) and realigning the left margins ac-
cordingly; and 
(B) by striking paragraph (1) and insert-
ing the following: 
‘‘(1) AMOUNT OF INCREASE.—Notwithstanding 
subsection (b), the Federal medical assistance per-
centage for a State that is one of the 50 States or 
the District of Columbia, with respect to amounts 
expended by such State for medical assistance for 
newly eligible individuals described in subclause 
(VIII) of section 1902(a)(10)(A)(i), shall be equal 
to—
‘‘(A) 100 percent for calendar quarters in 
2014, 2015, and 2016; 
‘‘(B) 95 percent for calendar quarters in 
2017; 
‘‘(C) 94 percent for calendar quarters in 
2018; 
‘‘(D) 93 percent for calendar quarters in 
2019; and 
‘‘(E) 90 percent for calendar quarters in 
2020 and each year thereafter.’’; and 
(2) in subsection (z)— 
(A) in paragraph (1), by striking ‘‘Sep-
tember 30, 2019’’ and inserting ‘‘December 31, 
2015’’ 
and 
by 
striking 
‘‘subsection 
(y)(1)(B)(ii)(II)’’ and inserting ‘‘paragraph 
(3)’’; 
(B) by striking paragraphs (2) through (4) 
and inserting the following: 
‘‘(2)(A) For calendar quarters in 2014 and 
each year thereafter, the Federal medical assistance 
percentage otherwise determined under subsection 
(b) for an expansion State described in paragraph 
(3) with respect to medical assistance for individuals 
described in section 1902(a)(10)(A)(i)(VIII) who are 
nonpregnant childless adults with respect to whom
the State may require enrollment in benchmark cov-
erage under section 1937 shall be equal to the per-
cent specified in subparagraph (B)(i) for such year. 
‘‘(B)(i) The percent specified in this subpara-
graph for a State for a year is equal to the Federal 
medical assistance percentage (as defined in the first 
sentence of subsection (b)) for the State increased 
by a number of percentage points equal to the tran-
sition percentage (specified in clause (ii) for the 
year) of the number of percentage points by which— 
‘‘(I) such Federal medical assistance per-
centage for the State, is less than 
‘‘(II) the percent specified in subsection 
(y)(1) for the year. 
‘‘(ii) The transition percentage specified in this 
clause for— 
‘‘(I) 2014 is 50 percent; 
‘‘(II) 2015 is 60 percent; 
‘‘(III) 2016 is 70 percent; 
‘‘(IV) 2017 is 80 percent; 
‘‘(V) 2018 is 90 percent; and 
‘‘(VI) 2019 and each subsequent year is 
100 percent.’’; and 
(C) by redesignating paragraph (5) (as 
added by paragraph (1)(A) of this section) as
paragraph (3), realigning the left margins to 
align with paragraph (2), and striking the 
heading and all that follows through ‘‘a State 
is’’ and inserting ‘‘A State is’’. 
SEC. 1202. PAYMENTS TO PRIMARY CARE PHYSICIANS. 
(a) IN GENERAL.— 
(1) 
FEE-FOR-SERVICE
PAYMENTS.—Section 
1902 of the Social Security Act (42 U.S.C. 1396a), 
as amended by section 2303(a)(2) of the Patient 
Protection and Affordable Care Act, is amended— 
(A) in subsection (a)(13)— 
(i) by striking ‘‘and’’ at the end of 
subparagraph (A); 
(ii) by adding ‘‘and’’ at the end of 
subparagraph (B); and 
(iii) by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) payment for primary care services (as 
defined in subsection (jj)) furnished in 2013 
and 2014 by a physician with a primary spe-
cialty designation of family medicine, general 
internal medicine, or pediatric medicine at a 
rate not less than 100 percent of the payment 
rate that applies to such services and physician 
under part B of title XVIII (or, if greater, the
payment rate that would be applicable under 
such part if the conversion factor under section 
1848(d) for the year involved were the conver-
sion factor under such section for 2009);’’; and 
(B) by adding at the end the following new 
subsection: 
‘‘(jj) PRIMARY CARE SERVICES DEFINED.—For pur-
poses of subsection (a)(13)(C), the term ‘primary care 
services’ means— 
‘‘(1) evaluation and management services that 
are procedure codes (for services covered under title 
XVIII) for services in the category designated Eval-
uation and Management in the Healthcare Common 
Procedure Coding System (established by the Sec-
retary under section 1848(c)(5) as of December 31, 
2009, and as subsequently modified); and 
‘‘(2) services related to immunization adminis-
tration for vaccines and toxoids for which CPT codes 
90465, 90466, 90467, 90468, 90471, 90472, 90473, 
or 90474 (as subsequently modified) apply under 
such System.’’. 
(2) 
UNDER
MEDICAID
MANAGED
CARE 
PLANS.—Section 1932(f) of such Act (42 U.S.C. 
1396u–2(f)) is amended—
(A) in the heading, by adding at the end 
the following: ‘‘; ADEQUACY OF PAYMENT FOR 
PRIMARY CARE SERVICES’’; and 
(B) by inserting before the period at the 
end the following: ‘‘and, in the case of primary 
care 
services 
described 
in 
section 
1902(a)(13)(C), consistent with the minimum 
payment rates specified in such section (regard-
less of the manner in which such payments are 
made, including in the form of capitation or 
partial capitation)’’. 
(b) INCREASE
IN
PAYMENT
USING
INCREASED 
FMAP.—Section 1905 of the Social Security Act, as 
amended by section 1004(b) of this Act and section 
10201(c)(6) of the Patient Protection and Affordable Care 
Act, is amended by adding at the end the following new 
subsection: 
‘‘(dd) INCREASED FMAP FOR ADDITIONAL EXPEND-
ITURES FOR PRIMARY CARE SERVICES.—Notwithstanding 
subsection (b), with respect to the portion of the amounts 
expended for medical assistance for services described in 
section 1902(a)(13)(C) furnished on or after January 1, 
2013, and before January 1, 2015, that is attributable to 
the amount by which the minimum payment rate required 
under such section (or, by application, section 1932(f)) ex-
ceeds the payment rate applicable to such services under 
the State plan as of July 1, 2009, the Federal medical 
assistance percentage for a State that is one of the 50 
States or the District of Columbia shall be equal to 100 
percent. The preceding sentence does not prohibit the pay-
ment of Federal financial participation based on the Fed-
eral medical assistance percentage for amounts in excess 
of those specified in such sentence.’’. 
SEC. 1203. DISPROPORTIONATE SHARE HOSPITAL PAY-
MENTS. 
(a) IN GENERAL.—Section 1923(f) of the Social Se-
curity Act (42 U.S.C. 1396r–4(f)), as amended by sections 
2551(a)(4) and 10201(e)(1) of the Patient Protection and 
Affordable Care Act, is amended— 
(1) in paragraph (6)(B)(iii), in the matter pre-
ceding subclause (I), by striking ‘‘or paragraph (7)’’; 
and 
(2) by striking paragraph (7) and inserting the 
following: 
‘‘(7) MEDICAID DSH REDUCTIONS.— 
‘‘(A) REDUCTIONS.— 
‘‘(i) IN GENERAL.—For each of fiscal 
years 2014 through 2020 the Secretary 
shall effect the following reductions:
‘‘(I) REDUCTION IN DSH ALLOT-
MENTS.—The Secretary shall reduce 
DSH allotments to States in the 
amount specified under the DSH 
health reform methodology under sub-
paragraph (B) for the State for the 
fiscal year. 
‘‘(II) 
REDUCTIONS
IN
PAY-
MENTS.—The Secretary shall reduce 
payments to States under section 
1903(a) for each calendar quarter in 
the fiscal year, in the manner speci-
fied in clause (iii), in an amount equal 
to 1⁄4 of the DSH allotment reduction 
under subclause (I) for the State for 
the fiscal year. 
‘‘(ii) AGGREGATE REDUCTIONS.—The 
aggregate reductions in DSH allotments 
for all States under clause (i)(I) shall be 
equal to— 
‘‘(I) $500,000,000 for fiscal year 
2014; 
‘‘(II) $600,000,000 for fiscal 
year 2015;
‘‘(III) $600,000,000 for fiscal 
year 2016; 
‘‘(IV) $1,800,000,000 for fiscal 
year 2017; 
‘‘(V) $5,000,000,000 for fiscal 
year 2018; 
‘‘(VI) $5,600,000,000 for fiscal 
year 2019; and 
‘‘(VII) $4,000,000,000 for fiscal 
year 2020. 
The Secretary shall distribute such aggre-
gate reductions among States in accord-
ance with subparagraph (B). 
‘‘(iii) MANNER OF PAYMENT REDUC-
TION.—The amount of the payment reduc-
tion under clause (i)(II) for a State for a 
quarter shall be deemed an overpayment to 
the State under this title to be disallowed 
against the State’s regular quarterly draw 
for all spending under section 1903(d)(2). 
Such a disallowance is not subject to a re-
consideration under subsections (d) and (e) 
of section 1116.
‘‘(iv) DEFINITION.—In this para-
graph, the term ‘State’ means the 50 
States and the District of Columbia. 
‘‘(B) DSH HEALTH
REFORM
METHOD-
OLOGY.—The Secretary shall carry out sub-
paragraph (A) through use of a DSH Health 
Reform methodology that meets the following 
requirements: 
‘‘(i) The methodology imposes the 
largest percentage reductions on the States 
that— 
‘‘(I) have the lowest percentages 
of uninsured individuals (determined 
on the basis of data from the Bureau 
of the Census, audited hospital cost 
reports, and other information likely 
to yield accurate data) during the 
most recent year for which such data 
are available; or 
‘‘(II) do not target their DSH 
payments on— 
‘‘(aa) hospitals with high 
volumes of Medicaid inpatients 
(as 
defined 
in 
subsection 
(b)(1)(A)); and
‘‘(bb) hospitals that have 
high levels of uncompensated 
care (excluding bad debt). 
‘‘(ii) The methodology imposes a 
smaller percentage reduction on low DSH 
States described in paragraph (5)(B). 
‘‘(iii) The methodology takes into ac-
count the extent to which the DSH allot-
ment for a State was included in the budg-
et neutrality calculation for a coverage ex-
pansion approved under section 1115 as of 
July 31, 2009.’’. 
(b) EXTENSION
OF
DSH ALLOTMENT.—Section 
1923(f)(6)(A) of the Social Security Act (42 U.S.C. 
1396r–4(f)(6)(A)) is amended by adding at the end the 
following: 
‘‘(v) ALLOTMENT FOR 2D, 3RD, AND 
4TH QUARTERS OF FISCAL YEAR 2012 AND 
FOR FISCAL YEAR 2013.—Notwithstanding 
the table set forth in paragraph (2): 
‘‘(I) 2D, 3RD, AND
4TH
QUAR-
TERS OF FISCAL YEAR 2012.—In the 
case of a State that has a DSH allot-
ment of $0 for the 2d, 3rd, and 4th 
quarters of fiscal year 2012, the DSH
allotment shall be $47,200,000 for 
such quarters. 
‘‘(II) FISCAL YEAR 2013.—In the 
case of a State that has a DSH allot-
ment of $0 for fiscal year 2013, the 
DSH allotment shall be $53,100,000 
for such fiscal year.’’. 
SEC. 1204. FUNDING FOR THE TERRITORIES. 
(a) IN GENERAL.—Part III of subtitle D of title I 
of the Patient Protection and Affordable Care Act, as 
amended by section 10104(m) of such Act, is amended 
by inserting after section 1322 the following section: 
‘‘SEC. 1323. FUNDING FOR THE TERRITORIES. 
‘‘(a) IN GENERAL.—A territory that— 
‘‘(1) elects consistent with subsection (b) to es-
tablish an Exchange in accordance with part II of 
this subtitle and establishes such an Exchange in ac-
cordance with such part shall be treated as a State 
for purposes of such part and shall be entitled to 
payment from the amount allocated to the territory 
under subsection (c); or 
‘‘(2) does not make such election shall be enti-
tled to an increase in the dollar limitation applicable 
to the territory under subsections (f) and (g) of sec-
tion 1108 of the Social Security Act (42 U.S.C.
sharing assistance is available under the agree-
ment. 
‘‘(c) APPROPRIATION AND ALLOCATION.— 
‘‘(1) APPROPRIATION.—Out of any funds in the 
Treasury not otherwise appropriated, there is appro-
priated for purposes of payment pursuant to sub-
section (a) $1,000,000,000, to be available during 
the period beginning with 2014 and ending with 
2019. 
‘‘(2) ALLOCATION.—The Secretary shall allo-
cate the amount appropriated under paragraph (1) 
among the territories for purposes of carrying out 
this section as follows: 
‘‘(A) For Puerto Rico, $925,000,000. 
‘‘(B) For another territory, the portion of 
$75,000,000 specified by the Secretary.’’. 
(b) MEDICAID FUNDING.— 
(1) INCREASE
IN
FUNDING
CAPS.—Section 
1108(g) of the Social Security Act (42 U.S.C. 
1308(g)), as amended by section 2005(a) of the Pa-
tient Protection and Affordable Care Act, is amend-
ed— 
(A) in paragraph (2), by inserting ‘‘and 
section 1323(a)(2) of the Patient Protection
and Affordable Care Act’’ after ‘‘subject to’’; 
and 
(B) by striking paragraph (5) and insert-
ing the following: 
‘‘(5) ADDITIONAL
INCREASE.—The Secretary 
shall increase the amounts otherwise determined 
under this subsection for Puerto Rico, the Virgin Is-
lands, Guam, the Northern Mariana Islands, and 
American Samoa (after the application of subsection 
(f) and the preceding paragraphs of this subsection) 
for the period beginning July 1, 2011, and ending 
on September 30, 2019, by such amounts that the 
total additional payments under title XIX to such 
territories equals $6,300,000,000 for such period. 
The Secretary shall increase such amounts in pro-
portion to the amounts applicable to such territories 
under this subsection and subsection (f) on the date 
of enactment of this paragraph.’’. 
(2) DISREGARD
OF
PAYMENTS; INCREASED 
FMAP.—Section 2005 of the Patient Protection and 
Affordable Care Act is amended— 
(A) by repealing subsection (b) (and the 
amendments made by that subsection) and sec-
tion 1108(g)(4) of the Social Security Act shall
be applied as if such amendments had never 
been enacted; and 
(B) in subsection (c)(2), by striking ‘‘Jan-
uary’’ and inserting ‘‘July’’. 
SEC. 1205. DELAY IN COMMUNITY FIRST CHOICE OPTION. 
Section 1915(k)(1) of the Social Security Act (42 
U.S.C. 1396n(k)), as added by section 2401 of the Patient 
Protection and Affordable Care Act, is amended by strik-
ing ‘‘October 1, 2010’’ and inserting ‘‘October 1, 2011’’. 
SEC. 1206. DRUG REBATES FOR NEW FORMULATIONS OF 
EXISTING DRUGS. 
(a) TREATMENT
OF NEW FORMULATIONS.—Sub-
paragraph (C) of section 1927(c)(2) of the Social Security 
Act (42 U.S.C. 1396r–8(c)(2)), as added by section 
2501(d) of the Patient Protection and Affordable Care 
Act, is amended to read as follows: 
‘‘(C) TREATMENT
OF
NEW
FORMULA-
TIONS.—In the case of a drug that is a line ex-
tension of a single source drug or an innovator 
multiple source drug that is an oral solid dos-
age form, the rebate obligation with respect to 
such drug under this section shall be the 
amount computed under this section for such 
new drug or, if greater, the product of—
‘‘(i) the average manufacturer price of 
the line extension of a single source drug 
or an innovator multiple source drug that 
is an oral solid dosage form; 
‘‘(ii) the highest additional rebate 
(calculated as a percentage of average 
manufacturer price) under this section for 
any strength of the original single source 
drug or innovator multiple source drug; 
and 
‘‘(iii) the total number of units of 
each dosage form and strength of the line 
extension product paid for under the State 
plan in the rebate period (as reported by 
the State). 
In this subparagraph, the term ‘line extension’ 
means, with respect to a drug, a new formula-
tion of the drug, such as an extended release 
formulation.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect as if included in the enact-
ment of the Patient Protection and Affordable Care Act.
Subtitle D—Reducing Fraud, 
Waste, and Abuse 
SEC. 1301. COMMUNITY MENTAL HEALTH CENTERS. 
(a) IN GENERAL.—Section 1861(ff)(3)(B) of the So-
cial Security Act (42 U.S.C. 1395x(ff)(3)(B)) is amend-
ed— 
(1) in clause (ii), by striking ‘‘and’’ at the end; 
(2) by redesignating clause (iii) as clause (iv); 
and 
(3) by inserting after clause (ii) the following: 
‘‘(iii) provides at least 40 percent of its services 
to individuals who are not eligible for benefits under 
this title; and’’. 
(b) RESTRICTION.—Section 1861(ff)(3)(A) of such 
Act (42 U.S.C. 1395x(ff)(3)(A)) is amended by inserting 
‘‘other than in an individual’s home or in an inpatient or 
residential setting’’ before the period. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to items and services furnished on 
or after the first day of the first calendar quarter that 
begins at least 12 months after the date of the enactment 
of this Act.
SEC. 1302. MEDICARE PREPAYMENT MEDICAL REVIEW LIM-
ITATIONS. 
Section 1874A(h) of the Social Security Act (42 
U.S.C. 1395w–3a(h)) is repealed. 
SEC. 1303. FUNDING TO FIGHT FRAUD, WASTE, AND ABUSE. 
(a) FUNDING
TO
FIGHT
FRAUD, WASTE, AND 
ABUSE.— 
(1) IN GENERAL.—Section 1817(k) of the So-
cial Security Act (42 U.S.C. 1395i(k)), as amended 
by section 6402(i) of the Patient Protection and Af-
fordable Care Act, is further amended— 
(A) by adding at the end the following new 
paragraph: 
‘‘(8) ADDITIONAL FUNDING.— 
‘‘(A) IN
GENERAL.—In addition to the 
funds otherwise appropriated to the Account 
from the Trust Fund under paragraphs (3)(C) 
and (4)(A) and for purposes described in para-
graphs (3)(C) and (4)(A), there are hereby ap-
propriated to such Account from such Trust 
Fund the following additional amounts: 
‘‘(i) 
For 
fiscal 
year 
2011, 
$95,000,000. 
‘‘(ii) 
For 
fiscal 
year 
2012, 
$55,000,000.
‘‘(iii) For each of fiscal years 2013 
and 2014, $30,000,000. 
‘‘(iv) For each of fiscal years 2015 
and 2016, $20,000,000. 
‘‘(B) ALLOCATION.—The funds appro-
priated under this paragraph shall be allocated 
in the same proportion as the total funding ap-
propriated with respect to paragraphs (3)(A) 
and (4)(A) was allocated with respect to fiscal 
year 2010, and shall be available without fur-
ther appropriation until expended.’’; and 
(B) in paragraph (4)(A), by inserting ‘‘for 
activities described in paragraph (3)(C) and’’ 
after ‘‘necessary’’. 
(b) 
MEDICAID
INTEGRITY
PROGRAM.—Section 
1936(e)(1) of such Act (42 U.S.C. 1396–u6(e)(1)) is 
amended— 
(1) in subparagraph (B), by striking at the end 
‘‘and’’; 
(2) in subparagraph (C)— 
(A) by striking ‘‘for each fiscal year there-
after’’ and inserting ‘‘for each of fiscal years 
2009 and 2010’’; and 
(B) by striking the period and inserting ‘‘; 
and’’; and
(3) by adding at the end the following new sub-
paragraph: 
‘‘(D) for each fiscal year after fiscal year 
2010, the amount appropriated under this para-
graph for the previous fiscal year, increased by 
the percentage increase in the consumer price 
index for all urban consumers (all items; United 
States city average) over the previous year.’’. 
SEC. 1304. 90-DAY PERIOD OF ENHANCED OVERSIGHT FOR 
INITIAL CLAIMS OF DME SUPPLIERS. 
Section 1866(j), as amended by section 6401 of the 
Patient Protection and Affordable Care Act, is further 
amended— 
(1) by redesignating paragraphs (4) through 
(7) as paragraphs (5) through (8), respectively; and 
(2) by inserting after paragraph (3) the fol-
lowing new paragraph: 
‘‘(4) 90-DAY PERIOD OF ENHANCED OVERSIGHT 
FOR INITIAL CLAIMS OF DME SUPPLIERS.—For peri-
ods beginning after January 1, 2011, if the Sec-
retary determines that there is a significant risk of 
fraudulent activity among suppliers of durable med-
ical equipment, in the case of a supplier of durable 
medical equipment who is within a category or geo-
graphic area under title XVIII identified pursuant to
such determination and who is initially enrolling 
under such title, the Secretary shall, notwith-
standing sections 1816(c), 1842(c), and 1869(a)(2), 
withhold payment under such title with respect to 
durable medical equipment furnished by such sup-
plier during the 90-day period beginning on the date 
of the first submission of a claim under such title 
for durable medical equipment furnished by such 
supplier.’’. 
Subtitle E—Provisions Relating to 
Revenue 
SEC. 1401. HIGH-COST PLAN EXCISE TAX. 
(a) IN GENERAL.—Section 4980I of the Internal 
Revenue Code of 1986, as added by section 9001 of the 
Patient Protection and Affordable Care Act and amended 
by section 10901 of such Act, is amended— 
(1) in subsection (b)(3)(B)— 
(A) by striking ‘‘The annual’’ and insert-
ing the following: 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the annual’’; and 
(B) by adding at the end the following new 
clause: 
‘‘(ii) MULTIEMPLOYER
PLAN
COV-
ERAGE.—Any coverage provided under a
multiemployer plan (as defined in section 
414(f)) shall be treated as coverage other 
than self-only coverage.’’; 
(2) in subsection (b)(3)(C)— 
(A) by striking ‘‘Except as provided in 
subparagraph (D)—’’; 
(B) in clause (i)— 
(i) by striking ‘‘2013’’ each place it 
appears in the heading and the text and 
inserting ‘‘2018’’; 
(ii) by striking ‘‘$8,500’’ in subclause 
(I) and inserting ‘‘$10,200 multiplied by 
the health cost adjustment percentage (de-
termined by only taking into account self- 
only coverage)’’; and 
(iii) by striking ‘‘$23,000’’ in sub-
clause (II) and inserting ‘‘$27,500 multi-
plied by the health cost adjustment per-
centage (determined by only taking into 
account coverage other than self-only cov-
erage)’’; 
(C) by redesignating clauses (ii) and (iii) 
as clauses (iv) and (v), respectively, and by in-
serting after clause (i) the following new 
clauses:
‘‘(ii) HEALTH
COST
ADJUSTMENT 
PERCENTAGE.—For purposes of clause (i), 
the health cost adjustment percentage is 
equal to 100 percent plus the excess (if 
any) of— 
‘‘(I) the percentage by which the 
per employee cost for providing cov-
erage under the Blue Cross/Blue 
Shield standard benefit option under 
the Federal Employees Health Bene-
fits Plan for plan year 2018 (deter-
mined by using the benefit package 
for such coverage in 2010) exceeds 
such cost for plan year 2010, over 
‘‘(II) 55 percent. 
‘‘(iii) AGE
AND
GENDER
ADJUST-
MENT.— 
‘‘(I) IN GENERAL.—The amount 
determined under subclause (I) or (II) 
of clause (i), whichever is applicable, 
for any taxable period shall be in-
creased by the amount determined 
under subclause (II). 
‘‘(II) AMOUNT
DETERMINED.— 
The amount determined under this
subclause is an amount equal to the 
excess (if any) of— 
‘‘(aa) the premium cost of 
the 
Blue 
Cross/Blue 
Shield 
standard benefit option under the 
Federal Employees Health Bene-
fits Plan for the type of coverage 
provided such individual in such 
taxable period if priced for the 
age and gender characteristics of 
all employees of the individual’s 
employer, over 
‘‘(bb) that premium cost for 
the provision of such coverage 
under such option in such taxable 
period if priced for the age and 
gender characteristics of the na-
tional workforce.’’. 
(D) in clause (iv), as redesignated by sub-
paragraph (C)— 
(i) by inserting ‘‘covered by the plan’’ 
after ‘‘whose employees’’; and 
(ii) by striking subclauses (I) and (II) 
and inserting the following:
‘‘(I) the dollar amount in clause 
(i)(I) shall be increased by $1,650, 
and 
‘‘(II) the dollar amount in clause 
(i)(II) shall be increased by $3,450,’’, 
and 
(E) in clause (v), as redesignated by sub-
paragraph (C)— 
(i) by striking ‘‘2013’’ and inserting 
‘‘2018’’; 
(ii) by striking ‘‘clauses (i) and (ii)’’ 
and inserting ‘‘clauses (i) (after the appli-
cation of clause (ii)) and (iv)’’; and 
(iii) by inserting ‘‘in the case of deter-
minations for calendar years beginning be-
fore 2020’’ after ‘‘1 percentage point’’ in 
subclause (II) thereof; 
(3) by striking subparagraph (D) of subsection 
(b)(3); 
(4) in subsection (d)(1)(B), by redesignating 
clause (ii) as clause (iii) and by inserting after 
clause (i) the following new clause: 
‘‘(ii) any coverage under a separate 
policy, certificate, or contract of insurance 
which provides benefits substantially all of
which are for treatment of the mouth (in-
cluding any organ or structure within the 
mouth) or for treatment of the eye, or’’; 
and 
(5) in subsection (d), by adding at the end the 
following new paragraph: 
‘‘(3) EMPLOYEE.—The term ‘employee’ includes 
any former employee, surviving spouse, or other pri-
mary insured individual.’’. 
(b) EFFECTIVE DATES.— 
(1) Section 9001(c) of the Patient Protection 
and Affordable Care Act is amended by striking 
‘‘2012’’ and inserting ‘‘2017’’. 
(2) Section 10901(c) of the Patient Protection 
and Affordable Care Act is amended by striking 
‘‘2012’’ and inserting ‘‘2017’’. 
SEC. 1402. UNEARNED INCOME MEDICARE CONTRIBUTION. 
(a) INVESTMENT INCOME.— 
(1) IN GENERAL.—Subtitle A of the Internal 
Revenue Code of 1986 is amended by inserting after 
chapter 2 the following new chapter: 
‘‘CHAPTER 2A—UNEARNED INCOME 
MEDICARE CONTRIBUTION 
‘‘Sec. 1411. Imposition of tax.
‘‘SEC. 1411. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—Except as provided in subsection 
(e)— 
‘‘(1) APPLICATION
TO
INDIVIDUALS.—In the 
case of an individual, there is hereby imposed (in ad-
dition to any other tax imposed by this subtitle) for 
each taxable year a tax equal to 3.8 percent of the 
lesser of— 
‘‘(A) net investment income for such tax-
able year, or 
‘‘(B) the excess (if any) of— 
‘‘(i) the modified adjusted gross in-
come for such taxable year, over 
‘‘(ii) the threshold amount. 
‘‘(2) APPLICATION TO ESTATES AND TRUSTS.— 
In the case of an estate or trust, there is hereby im-
posed (in addition to any other tax imposed by this 
subtitle) for each taxable year a tax of 3.8 percent 
of the lesser of— 
‘‘(A) the undistributed net investment in-
come for such taxable year, or 
‘‘(B) the excess (if any) of— 
‘‘(i) the adjusted gross income (as de-
fined in section 67(e)) for such taxable 
year, over
‘‘(ii) the dollar amount at which the 
highest tax bracket in section 1(e) begins 
for such taxable year. 
‘‘(b) THRESHOLD AMOUNT.—For purposes of this 
chapter, the term ‘threshold amount’ means— 
‘‘(1) in the case of a taxpayer making a joint 
return under section 6013 or a surviving spouse (as 
defined in section 2(a)), $250,000, 
‘‘(2) in the case of a married taxpayer (as de-
fined in section 7703) filing a separate return, 1⁄2 of 
the dollar amount determined under paragraph (1), 
and 
‘‘(3) in any other case, $200,000. 
‘‘(c) NET INVESTMENT INCOME.—For purposes of 
this chapter— 
‘‘(1) IN GENERAL.—The term ‘net investment 
income’ means the excess (if any) of— 
‘‘(A) the sum of— 
‘‘(i) gross income from interest, divi-
dends, annuities, royalties, and rents, other 
than such income which is derived in the 
ordinary course of a trade or business not 
described in paragraph (2),
‘‘(ii) other gross income derived from 
a trade or business described in paragraph 
(2), and 
‘‘(iii) net gain (to the extent taken 
into account in computing taxable income) 
attributable to the disposition of property 
other than property held in a trade or 
business not described in paragraph (2), 
over 
‘‘(B) the deductions allowed by this sub-
title which are properly allocable to such gross 
income or net gain. 
‘‘(2) TRADES AND BUSINESSES TO WHICH TAX 
APPLIES.—A trade or business is described in this 
paragraph if such trade or business is— 
‘‘(A) a passive activity (within the meaning 
of section 469) with respect to the taxpayer, or 
‘‘(B) a trade or business of trading in fi-
nancial instruments or commodities (as defined 
in section 475(e)(2)). 
‘‘(3) INCOME
ON
INVESTMENT
OF
WORKING 
CAPITAL SUBJECT TO TAX.—A rule similar to the 
rule of section 469(e)(1)(B) shall apply for purposes 
of this subsection.
‘‘(4) EXCEPTION FOR CERTAIN ACTIVE INTER-
ESTS IN PARTNERSHIPS AND S CORPORATIONS.—In 
the case of a disposition of an interest in a partner-
ship or S corporation— 
‘‘(A) gain from such disposition shall be 
taken into account under clause (iii) of para-
graph (1)(A) only to the extent of the net gain 
which would be so taken into account by the 
transferor if all property of the partnership or 
S corporation were sold for fair market value 
immediately before the disposition of such inter-
est, and 
‘‘(B) a rule similar to the rule of subpara-
graph (A) shall apply to a loss from such dis-
position. 
‘‘(5) EXCEPTION
FOR
DISTRIBUTIONS
FROM 
QUALIFIED PLANS.—The term ‘net investment in-
come’ shall not include any distribution from a plan 
or arrangement described in section 401(a), 403(a), 
403(b), 408, 408A, or 457(b). 
‘‘(6) SPECIAL RULE.—Net investment income 
shall not include any item taken into account in de-
termining self-employment income for such taxable 
year on which a tax is imposed by section 1401(b).
‘‘(d) MODIFIED ADJUSTED GROSS INCOME.—For 
purposes of this chapter, the term ‘modified adjusted gross 
income’ means adjusted gross income increased by the ex-
cess of— 
‘‘(1) the amount excluded from gross income 
under section 911(a)(1), over 
‘‘(2) the amount of any deductions (taken into 
account in computing adjusted gross income) or ex-
clusions disallowed under section 911(d)(6) with re-
spect to the amounts described in paragraph (1). 
‘‘(e) NONAPPLICATION OF SECTION.—This section 
shall not apply to— 
‘‘(1) a nonresident alien, or 
‘‘(2) a trust all of the unexpired interests in 
which are devoted to one or more of the purposes 
described in section 170(c)(2)(B).’’. 
(2) ESTIMATED TAXES.—Section 6654 of the 
Internal Revenue Code of 1986 is amended— 
(A) in subsection (a), by striking ‘‘and the 
tax under chapter 2’’ and inserting ‘‘the tax 
under chapter 2, and the tax under chapter 
2A’’; and 
(B) in subsection (f)— 
(i) by striking ‘‘minus’’ at the end of 
paragraph (2) and inserting ‘‘plus’’; and
(ii) by redesignating paragraph (3) as 
paragraph (4) and inserting after para-
graph (2) the following new paragraph: 
‘‘(3) the taxes imposed by chapter 2A, minus’’. 
(3) CLERICAL
AMENDMENT.—The table of 
chapters for subtitle A of chapter 1 of the Internal 
Revenue Code of 1986 is amended by inserting after 
the item relating to chapter 2 the following new 
item: 
‘‘CHAPTER 2A—UNEARNED INCOME MEDICARE CONTRIBUTION’’. 
(4) 
EFFECTIVE
DATES.—The 
amendments 
made by this subsection shall apply to taxable years 
beginning after December 31, 2012. 
(b) EARNED INCOME.— 
(1) THRESHOLD.— 
(A) FICA.—Paragraph (2) of section 
3101(b) of the Internal Revenue Code of 1986, 
as added by section 9015 of the Patient Protec-
tion and Affordable Care Act and amended by 
section 10906 of such Act, is amended by strik-
ing ‘‘and’’ at the end of subparagraph (A), by 
redesignating subparagraph (B) as subpara-
graph (C), and by inserting after subparagraph 
(A) the following new subparagraph: 
‘‘(B) in the case of a married taxpayer (as 
defined in section 7703) filing a separate re-
turn, 1⁄2 of the dollar amount determined under 
subparagraph (A), and’’. 
(B) SECA.—Section 1401(b)(2) of the In-
ternal Revenue Code of 1986, as added by sec-
tion 9015 of the Patient Protection and Afford-
able Care Act and amended by section 10906 of 
such Act, is amended— 
(i) in subparagraph (A), by striking 
‘‘and’’ at the end of clause (i), by redesig-
nating clause (ii) as clause (iii), and by in-
serting after clause (i) the following new 
clause: 
‘‘(ii) in the case of a married taxpayer 
(as defined in section 7703) filing a sepa-
rate return, 1⁄2 of the dollar amount deter-
mined under clause (i), and’’; and 
(ii) in subparagraph (B), by striking 
‘‘under clauses (i) and (ii)’’ and inserting 
‘‘under clause (i), (ii), or (iii) (whichever is 
applicable)’’. 
(2) ESTIMATED TAXES.—Section 6654 of the 
Internal Revenue Code of 1986 is amended by redes-
ignating subsection (m) as subsection (n) and by in-
serting after subsection (l) the following new sub-
section:
‘‘(m) SPECIAL RULE FOR MEDICARE TAX.—For pur-
poses of this section, the tax imposed under section 
3101(b)(2) (to the extent not withheld) shall be treated 
as a tax imposed under chapter 2.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply with respect to remu-
neration received, and taxable years beginning after, 
December 31, 2012. 
SEC. 1403. DELAY OF LIMITATION ON HEALTH FLEXIBLE 
SPENDING ARRANGEMENTS UNDER CAFE-
TERIA PLANS. 
(a) IN GENERAL.—Section 10902(b) of the Patient 
Protection and Affordable Care Act is amended by strik-
ing ‘‘December 31, 2010’’ and inserting ‘‘December 31, 
2012’’. 
(b) INFLATION ADJUSTMENT.—Paragraph (2) of sec-
tion 125(i) of the Internal Revenue Code of 1986, as 
added by section 9005 of the Patient Protection and Af-
fordable Care Act and amended by section 10902 of such 
Act, is amended— 
(1) in the matter preceding subparagraph (A), 
by striking ‘‘December 31, 2011’’ and inserting 
‘‘December 31, 2013’’; and 
(2) in subparagraph (B), by striking ‘‘2010’’ 
and inserting ‘‘2012’’.
SEC. 1404. BRAND NAME PHARMACEUTICALS. 
(a) IN GENERAL.—Section 9008 of the Patient Pro-
tection and Affordable Care Act is amended— 
(1) in subsection (a)(1), by striking ‘‘2009’’ and 
inserting ‘‘2010’’; 
(2) in subsection (b)— 
(A) by striking ‘‘$2,300,000,000’’ in para-
graph 
(1) 
and 
inserting 
‘‘the 
applicable 
amount’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(4) APPLICABLE AMOUNT.—For purposes of 
paragraph (1), the applicable amount shall be deter-
mined in accordance with the following table: 
‘‘Calendar year 
Applicable 
amount 
2011 .......................................................................
$2,500,000,000 
2012 .......................................................................
$2,800,000,000 
2013 .......................................................................
$2,800,000,000 
2014 .......................................................................
$3,000,000,000 
2015 .......................................................................
$3,000,000,000 
2016 .......................................................................
$3,000,000,000 
2017 .......................................................................
$4,000,000,000 
2018 .......................................................................
$4,100,000,000 
2019 and thereafter ...............................................
$2,800,000,000.’’; 
(3) in subsection (d), by adding at the end the 
following new paragraph: 
‘‘(3) JOINT AND SEVERAL LIABILITY.—If more 
than one person is liable for payment of the fee 
under subsection (a) with respect to a single covered 
entity by reason of the application of paragraph (2),
all such persons shall be jointly and severally liable 
for payment of such fee.’’; and 
(4) by striking subsection (j) and inserting the 
following new subsection: 
‘‘(j) EFFECTIVE DATE.—This section shall apply to 
calendar years beginning after December 31, 2010.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 9008 
of the Patient Protection and Affordable Care Act. 
SEC. 1405. EXCISE TAX ON MEDICAL DEVICE MANUFACTUR-
ERS. 
(a) IN GENERAL.—Chapter 32 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by inserting after subchapter D the fol-
lowing new subchapter: 
‘‘Subchapter E—Medical Devices 
‘‘Sec. 4191. Medical devices. 
‘‘SEC. 4191. MEDICAL DEVICES. 
‘‘(a) IN GENERAL.—There is hereby imposed on the 
sale of any taxable medical device by the manufacturer, 
producer, or importer a tax equal to 2.3 percent of the 
price for which so sold. 
‘‘(b) TAXABLE MEDICAL DEVICE.—For purposes of 
this section—
‘‘(1) IN GENERAL.—The term ‘taxable medical 
device’ means any device (as defined in section 
201(h) of the Federal Food, Drug, and Cosmetic 
Act) intended for humans. 
‘‘(2) EXEMPTIONS.—Such term shall not in-
clude— 
‘‘(A) eyeglasses, 
‘‘(B) contact lenses, 
‘‘(C) hearing aids, and 
‘‘(D) any other medical device determined 
by the Secretary to be of a type which is gen-
erally purchased by the general public at retail 
for individual use.’’, and 
(2) by inserting after the item relating to sub-
chapter D in the table of subchapters for such chap-
ter the following new item: 
‘‘SUBCHAPTER E. MEDICAL DEVICES’’. 
(b) CERTAIN EXEMPTIONS NOT TO APPLY.— 
(1) Section 4221(a) of the Internal Revenue 
Code of 1986 is amended by adding at the end the 
following new sentence: ‘‘In the case of the tax im-
posed by section 4191, paragraphs (3), (4), (5), and 
(6) shall not apply.’’. 
(2) Section 6416(b)(2) of such Code is amend-
ed by adding at the end the following: ‘‘In the case
of the tax imposed by section 4191, subparagraphs 
(B), (C), (D), and (E) shall not apply.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales after December 31, 2012. 
(d) REPEAL OF SECTION 9009 OF THE PATIENT 
PROTECTION
AND AFFORDABLE CARE ACT.—Section 
9009 of the Patient Protection and Affordable Care Act, 
as amended by section 10904 of such Act, is repealed ef-
fective as of the date of enactment of that Act. 
SEC. 1406. HEALTH INSURANCE PROVIDERS. 
(a) IN GENERAL.—Section 9010 of the Patient Pro-
tection and Affordable Care Act, as amended by section 
10905 of such Act, is amended— 
(1) in subsection (a)(1), by striking ‘‘2010’’ and 
inserting ‘‘2013’’; 
(2) in subsection (b)(2)— 
(A) by striking ‘‘For purposes of para-
graph (1), the net premiums’’ and inserting 
‘‘For purposes of paragraph (1)— 
‘‘(A) IN GENERAL.—The net premiums’’; 
and 
(B) by adding at the end the following sub-
paragraph: 
‘‘(B) PARTIAL
EXCLUSION
FOR
CERTAIN 
EXEMPT ACTIVITIES.—After the application of
100 
subparagraph (A), only 50 percent of the re-
maining net premiums written with respect to 
health insurance for any United States health 
risk that are attributable to the activities (other 
than activities of an unrelated trade or business 
as defined in section 513 of the Internal Rev-
enue Code of 1986) of any covered entity quali-
fying under paragraph (3), (4), (26), or (29) of 
section 501(c) of such Code and exempt from 
tax under section 501(a) of such Code shall be 
taken into account.’’; 
(3) in subsection (c)— 
(A) by inserting ‘‘during the calendar year 
in which the fee under this section is due’’ in 
paragraph (1) after ‘‘risk’’; 
(B) in paragraph (2), by striking subpara-
graphs (C), (D), and (E) and inserting the fol-
lowing new subparagraphs: 
‘‘(C) any entity— 
‘‘(i) which is incorporated as a non-
profit corporation under a State law, 
‘‘(ii) no part of the net earnings of 
which inures to the benefit of any private 
shareholder or individual, no substantial 
part of the activities of which is carrying
101 
on propaganda, or otherwise attempting, to 
influence legislation (except as otherwise 
provided in section 501(h) of the Internal 
Revenue Code of 1986), and which does 
not participate in, or intervene in (includ-
ing the publishing or distributing of state-
ments), any political campaign on behalf of 
(or in opposition to) any candidate for 
public office, and 
‘‘(iii) more than 80 percent of the 
gross revenues of which is received from 
government programs that target low-in-
come, elderly, or disabled populations 
under titles XVIII, XIX, and XXI of the 
Social Security Act, and 
‘‘(D) any entity which is described in sec-
tion 501(c)(9) of such Code and which is estab-
lished by an entity (other than by an employer 
or employers) for purposes of providing health 
care benefits.’’; 
(C) in paragraph (3)(A), by striking ‘‘sub-
paragraph (C)(i)(I), (D)(i)(I), or (E)(i)’’ and 
inserting ‘‘subparagraph (C) or (D)’’; and 
(D) by adding at the end the following new 
paragraph:
102 
‘‘(4) JOINT AND SEVERAL LIABILITY.—If more 
than one person is liable for payment of the fee 
under subsection (a) with respect to a single covered 
entity by reason of the application of paragraph (3), 
all such persons shall be jointly and severally liable 
for payment of such fee.’’; 
(4) by striking subsection (e) and inserting the 
following: 
‘‘(e) APPLICABLE AMOUNT.—For purposes of sub-
section (b)(1)— 
‘‘(1) YEARS BEFORE 2019.—In the case of cal-
endar years beginning before 2019, the applicable 
amount shall be determined in accordance with the 
following table: 
‘‘Calendar year 
Applicable 
amount 
2014 .......................................................................
$8,000,000,000 
2015 .......................................................................
$11,300,000,000 
2016 .......................................................................
$11,300,000,000 
2017 .......................................................................
$13,900,000,000 
2018 .......................................................................
$14,300,000,000. 
‘‘(2) YEARS AFTER 2018.—In the case of any 
calendar year beginning after 2018, the applicable 
amount shall be the applicable amount for the pre-
ceding calendar year increased by the rate of pre-
mium growth (within the meaning of section 
36B(b)(3)(A)(ii) of the Internal Revenue Code of 
1986) for such preceding calendar year.’’;
103 
(5) in subsection (g), by adding at the end the 
following new paragraphs: 
‘‘(3) ACCURACY-RELATED PENALTY.— 
‘‘(A) IN GENERAL.—In the case of any un-
derstatement of a covered entity’s net premiums 
written with respect to health insurance for any 
United States health risk for any calendar year, 
there shall be paid by the covered entity making 
such understatement, an amount equal to the 
excess of— 
‘‘(i) the amount of the covered entity’s 
fee under this section for the calendar year 
the Secretary determines should have been 
paid in the absence of any such under-
statement, over 
‘‘(ii) the amount of such fee the Sec-
retary determined based on such under-
statement. 
‘‘(B) UNDERSTATEMENT.—For purposes 
of this paragraph, an understatement of a cov-
ered entity’s net premiums written with respect 
to health insurance for any United States 
health risk for any calendar year is the dif-
ference between the amount of such net pre-
miums written as reported on the return filed
104 
by the covered entity under paragraph (1) and 
the amount of such net premiums written that 
should have been reported on such return. 
‘‘(C) TREATMENT OF PENALTY.—The pen-
alty imposed under subparagraph (A) shall be 
subject to the provisions of subtitle F of the In-
ternal Revenue Code of 1986 that apply to as-
sessable penalties imposed under chapter 68 of 
such Code. 
‘‘(4) TREATMENT
OF
INFORMATION.—Section 
6103 of the Internal Revenue Code of 1986 shall not 
apply to any information reported under this sub-
section.’’; and 
(6) by striking subsection (j) and inserting the 
following new subsection: 
‘‘(j) EFFECTIVE DATE.—This section shall apply to 
calendar years beginning after December 31, 2013.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 9010 
of the Patient Protection and Affordable Care Act.
105 
SEC. 1407. DELAY OF ELIMINATION OF DEDUCTION FOR EX-
PENSES ALLOCABLE TO MEDICARE PART D 
SUBSIDY. 
Section 9012(b) of the Patient Protection and Af-
fordable Care Act is amended by striking ‘‘2010’’ and in-
serting ‘‘2012’’. 
SEC. 1408. ELIMINATION OF UNINTENDED APPLICATION OF 
CELLULOSIC BIOFUEL PRODUCER CREDIT. 
(a) IN GENERAL.—Section 40(b)(6)(E) of the Inter-
nal Revenue Code of 1986 is amended by adding at the 
end the following new clause: 
‘‘(iii) EXCLUSION
OF
UNPROCESSED 
FUELS.—The term ‘cellulosic biofuel’ shall 
not include any fuel if— 
‘‘(I) more than 4 percent of such 
fuel (determined by weight) is any 
combination of water and sediment, or 
‘‘(II) the ash content of such fuel 
is more than 1 percent (determined by 
weight).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to fuels sold or used on or after 
January 1, 2010.
106 
SEC. 1409. CODIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE AND PENALTIES. 
(a) IN GENERAL.—Section 7701 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) 
the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the case 
of any transaction to which the economic substance 
doctrine is relevant, such transaction shall be treated 
as having economic substance only if— 
‘‘(A) the transaction changes in a mean-
ingful way (apart from Federal income tax ef-
fects) the taxpayer’s economic position, and 
‘‘(B) the taxpayer has a substantial pur-
pose (apart from Federal income tax effects) 
for entering into such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES 
ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential for 
profit of a transaction shall be taken into ac-
count in determining whether the requirements 
of subparagraphs (A) and (B) of paragraph (1) 
are met with respect to the transaction only if 
the present value of the reasonably expected
107 
pre-tax profit from the transaction is substan-
tial in relation to the present value of the ex-
pected net tax benefits that would be allowed if 
the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
shall be taken into account as expenses in de-
termining pre-tax profit under subparagraph 
(A). The Secretary shall issue regulations re-
quiring foreign taxes to be treated as expenses 
in determining pre-tax profit in appropriate 
cases. 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 
purposes of paragraph (1), any State or local income 
tax effect which is related to a Federal income tax 
effect shall be treated in the same manner as a Fed-
eral income tax effect. 
‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For 
purposes of paragraph (1)(B), achieving a financial 
accounting benefit shall not be taken into account as 
a purpose for entering into a transaction if the ori-
gin of such financial accounting benefit is a reduc-
tion of Federal income tax. 
‘‘(5) DEFINITIONS AND SPECIAL RULES.—For 
purposes of this subsection—
108 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 
The term ‘economic substance doctrine’ means 
the common law doctrine under which tax bene-
fits under subtitle A with respect to a trans-
action are not allowable if the transaction does 
not have economic substance or lacks a business 
purpose. 
‘‘(B) EXCEPTION FOR PERSONAL TRANS-
ACTIONS OF INDIVIDUALS.—In the case of an 
individual, paragraph (1) shall apply only to 
transactions entered into in connection with a 
trade or business or an activity engaged in for 
the production of income. 
‘‘(C) DETERMINATION OF APPLICATION OF 
DOCTRINE NOT AFFECTED.—The determination 
of whether the economic substance doctrine is 
relevant to a transaction shall be made in the 
same manner as if this subsection had never 
been enacted. 
‘‘(D) TRANSACTION.—The term ‘trans-
action’ includes a series of transactions.’’. 
(b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE 
TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE.—
109 
(1) IN
GENERAL.—Subsection (b) of section 
6662 is amended by inserting after paragraph (5) 
the following new paragraph: 
‘‘(6) Any disallowance of claimed tax benefits 
by reason of a transaction lacking economic sub-
stance (within the meaning of section 7701(o)) or 
failing to meet the requirements of any similar rule 
of law.’’. 
(2) INCREASED PENALTY FOR NONDISCLOSED 
TRANSACTIONS.—Section 6662 is amended by add-
ing at the end the following new subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS-
CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 
‘‘(1) IN GENERAL.—In the case of any portion 
of an underpayment which is attributable to one or 
more nondisclosed noneconomic substance trans-
actions, subsection (a) shall be applied with respect 
to such portion by substituting ‘40 percent’ for ‘20 
percent’. 
‘‘(2) 
NONDISCLOSED
NONECONOMIC
SUB-
STANCE TRANSACTIONS.—For purposes of this sub-
section, the term ‘nondisclosed noneconomic sub-
stance transaction’ means any portion of a trans-
action described in subsection (b)(6) with respect to 
which the relevant facts affecting the tax treatment
110 
are not adequately disclosed in the return nor in a 
statement attached to the return. 
‘‘(3) 
SPECIAL
RULE
FOR
AMENDED
RE-
TURNS.—In no event shall any amendment or sup-
plement to a return of tax be taken into account for 
purposes of this subsection if the amendment or sup-
plement is filed after the earlier of the date the tax-
payer is first contacted by the Secretary regarding 
the examination of the return or such other date as 
is specified by the Secretary.’’. 
(3) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 6662A(e)(2) is amended— 
(A) by striking ‘‘section 6662(h)’’ and in-
serting ‘‘subsections (h) or (i) of section 6662’’; 
and 
(B) 
by 
striking 
‘‘GROSS
VALUATION 
MISSTATEMENT PENALTY’’ in the heading and 
inserting 
‘‘CERTAIN
INCREASED
UNDER-
PAYMENT PENALTIES’’. 
(c) REASONABLE CAUSE EXCEPTION NOT APPLICA-
BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.— 
(1) REASONABLE CAUSE EXCEPTION FOR UN-
DERPAYMENTS.—Subsection (c) of section 6664 is 
amended—
111 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)’’ in para-
graph (4)(A), as so redesignated, and inserting 
‘‘paragraph (3)’’; and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of an underpayment which is 
attributable to one or more transactions described in 
section 6662(b)(6).’’. 
(2) REASONABLE CAUSE EXCEPTION FOR RE-
PORTABLE
TRANSACTION
UNDERSTATEMENTS.— 
Subsection (d) of section 6664 is amended— 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)(C)’’ in 
paragraph (4), as so redesignated, and inserting 
‘‘paragraph (3)(C)’’; and 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply to any portion of a reportable transaction un-
derstatement which is attributable to one or more 
transactions described in section 6662(b)(6).’’.
112 
(d) APPLICATION
OF PENALTY
FOR ERRONEOUS 
CLAIM FOR REFUND OR CREDIT TO NONECONOMIC SUB-
STANCE TRANSACTIONS.—Section 6676 is amended by re-
designating subsection (c) as subsection (d) and inserting 
after subsection (b) the following new subsection: 
‘‘(c) NONECONOMIC
SUBSTANCE
TRANSACTIONS 
TREATED AS LACKING REASONABLE BASIS.—For pur-
poses of this section, any excessive amount which is attrib-
utable to any transaction described in section 6662(b)(6) 
shall not be treated as having a reasonable basis.’’. 
(e) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to transactions entered into 
after the date of the enactment of this Act. 
(2) UNDERPAYMENTS.—The amendments made 
by subsections (b) and (c)(1) shall apply to under-
payments attributable to transactions entered into 
after the date of the enactment of this Act. 
(3) 
UNDERSTATEMENTS.—The 
amendments 
made by subsection (c)(2) shall apply to understate-
ments attributable to transactions entered into after 
the date of the enactment of this Act. 
(4) REFUNDS AND CREDITS.—The amendment 
made by subsection (d) shall apply to refunds and
113 
credits attributable to transactions entered into after 
the date of the enactment of this Act. 
SEC. 1410. TIME FOR PAYMENT OF CORPORATE ESTIMATED 
TAXES. 
The percentage under paragraph (1) of section 
202(b) of the Corporate Estimated Tax Shift Act of 2009 
in effect on the date of the enactment of this Act is in-
creased by 15.75 percentage points. 
Subtitle F—Other Provisions 
SEC. 1501. COMMUNITY COLLEGE AND CAREER TRAINING 
GRANT PROGRAM. 
Section 279(b) of the Trade Act of 1974 (19 U.S.C. 
2372a(b)) is amended by striking ‘‘SUPPLEMENT’’ and all 
that follows through ‘‘Funds’’ and inserting ‘‘There are’’ 
and by striking ‘‘pursuant’’ and all that follows and insert-
ing ‘‘$500,000,000 for each of fiscal years 2011, 2012, 
2013, and 2014 to carry out this subchapter, except that 
the limitations contained in section 278(a)(2) shall not 
apply to such funds and each State shall receive not less 
than 0.5 percent of the amount appropriated pursuant to 
this subsection for each such fiscal year.’’.
114 
TITLE II—EDUCATION AND 
HEALTH 
Subtitle A—Education 
SEC. 2001. SHORT TITLE; REFERENCES. 
(a) SHORT TITLE.—This subtitle may be cited as the 
‘‘SAFRA Act’’. 
(b) REFERENCES.—Except as otherwise expressly 
provided, whenever in this subtitle an amendment or re-
peal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be con-
sidered to be made to a section or other provision of the 
Higher Education Act of 1965 (20 U.S.C. 1001 et seq.). 
PART I—INVESTING IN STUDENTS AND FAMILIES 
SEC. 2101. FEDERAL PELL GRANTS. 
(a) AMOUNT
OF
GRANTS.—Section 401(b) (20 
U.S.C. 1070a(b)) is amended— 
(1) by amending paragraph (2)(A) to read as 
follows: 
‘‘(A) The amount of the Federal Pell 
Grant for a student eligible under this part 
shall be— 
‘‘(i) the maximum Federal Pell Grant, 
as specified in the last enacted appropria-
tion Act applicable to that award year, 
plus
115 
‘‘(ii) the amount of the increase cal-
culated under paragraph (8)(B) for that 
year, less 
‘‘(iii) an amount equal to the amount 
determined to be the expected family con-
tribution with respect to that student for 
that year.’’; and 
(2) in paragraph (8)— 
(A) in subparagraph (A)— 
(i) in the matter preceding clause (i), 
by striking ‘‘, to carry out subparagraph 
(B) of this paragraph’’; and 
(ii) by striking clauses (iii) through 
(x) and inserting the following: 
‘‘(iii) to carry out subparagraph (B) 
of this paragraph, such sums as may be 
necessary for fiscal year 2010 and each 
subsequent fiscal year to provide the 
amount of increase of the maximum Fed-
eral Pell Grant required by clauses (ii) and 
(iii) of subparagraph (B); and 
‘‘(iv) to carry out this section, 
$13,500,000,000 for fiscal year 2011.’’; 
(B) in subparagraph (B)—
116 
(i) in the matter preceding clause (i), 
by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘clauses (i) through (iii) of subpara-
graph (A)’’; 
(ii) in clause (ii), by striking ‘‘and 
2011–2012’’ and inserting ‘‘, 2011–2012, 
and 2012–2013’’; and 
(iii) by striking clause (iii) and insert-
ing the following: 
‘‘(iii) the amount determined under 
subparagraph (C) for each succeeding 
award year.’’; 
(C) by striking subparagraph (C) and in-
serting the following: 
‘‘(C) ADJUSTMENT AMOUNTS.— 
‘‘(i) AWARD
YEAR
2013–2014.—For 
award year 2013–2014, the amount deter-
mined under this subparagraph for pur-
poses of subparagraph (B)(iii) shall be 
equal to— 
‘‘(I) $5,550 or the total max-
imum Federal Pell Grant for the pre-
ceding award year (as determined 
under clause (v)(II)), whichever is 
greater, increased by a percentage
117 
equal to the annual adjustment per-
centage for award year 2013–2014, 
reduced by 
‘‘(II) $4,860 or the maximum 
Federal Pell Grant for which a stu-
dent was eligible for the preceding 
award year, as specified in the last en-
acted appropriation Act applicable to 
that year, whichever is greater; and 
‘‘(III) rounded to the nearest $5. 
‘‘(ii) 
AWARD
YEARS
2014–2015 
THROUGH
2017–2018.—For each of the 
award years 2014–2015 through 2017– 
2018, the amount determined under this 
subparagraph for purposes of subpara-
graph (B)(iii) shall be equal to— 
‘‘(I) the total maximum Federal 
Pell Grant for the preceding award 
year (as determined under clause 
(v)(II)), increased by a percentage 
equal to the annual adjustment per-
centage for the award year for which 
the amount under this subparagraph 
is being determined, reduced by
118 
‘‘(II) $4,860 or the maximum 
Federal Pell Grant for which a stu-
dent was eligible for the preceding 
award year, as specified in the last en-
acted appropriation Act applicable to 
that year, whichever is greater; and 
‘‘(III) rounded to the nearest $5. 
‘‘(iii) SUBSEQUENT AWARD YEARS.— 
For award year 2018–2019 and each sub-
sequent award year, the amount deter-
mined under this subparagraph for pur-
poses of subparagraph (B)(iii) shall be 
equal to the amount determined under 
clause (ii) for award year 2017–2018. 
‘‘(iv) LIMITATION
ON
DECREASES.— 
Notwithstanding clauses (i), (ii), and (iii), 
if the amount determined under clause (i), 
(ii), or (iii) for a particular award year is 
less than the amount determined under 
this paragraph for the award year pre-
ceding that particular award year, then the 
amount determined under such clause for 
that particular award year shall be the 
amount determined under this paragraph 
for the preceding award year.
119 
‘‘(v) DEFINITIONS.—For purposes of 
this subparagraph— 
‘‘(I) the term ‘annual adjustment 
percentage’ as applied to an award 
year, is equal to the estimated per-
centage change in the Consumer Price 
Index (as determined by the Sec-
retary, using the definition in section 
478(f)) for the most recent calendar 
year ending prior to the beginning of 
that award year; and 
‘‘(II) the term ‘total maximum 
Federal Pell Grant’ as applied to a 
preceding award year, is equal to the 
sum of— 
‘‘(aa) the maximum Federal 
Pell Grant for which a student is 
eligible during an award year, as 
specified in the last enacted ap-
propriation Act applicable to that 
preceding award year; and 
‘‘(bb) the amount of the in-
crease in the maximum Federal 
Pell Grant required by this para-
120 
graph for that preceding award 
year.’’; 
(D) by striking subparagraph (E); and 
(E) by redesignating subparagraph (F) as 
subparagraph (E). 
(b) CONFORMING
AMENDMENTS.—Title IV (20 
U.S.C. 1070 et seq.) is further amended— 
(1) in section 401(b) (20 U.S.C. 1070a(b))— 
(A) in paragraph (4)— 
(i) by striking ‘‘maximum basic grant 
level specified in the appropriate appro-
priation Act’’ and inserting ‘‘maximum 
amount of a Federal Pell Grant award de-
termined under paragraph (2)(A)’’; and 
(ii) by striking ‘‘such level’’ each place 
it appears and inserting ‘‘such Federal Pell 
Grant amount’’ in each such place; and 
(B) in paragraph (6), by striking ‘‘the 
grant level specified in the appropriate Appro-
priation Act for this subpart for such year’’ and 
inserting ‘‘the maximum amount of a Federal 
Pell Grant award determined under paragraph 
(2)(A), for which a student is eligible during 
such award year’’;
121 
(2) in section 402D(d)(1) (20 U.S.C. 1070a– 
14(d)(1)), by striking ‘‘exceed the maximum’’ and 
all that follows through ‘‘Grant, for’’ and inserting 
‘‘exceed the Federal Pell Grant amount, determined 
under section 401(b)(2)(A), for which a student is 
eligible, or be less than the minimum Federal Pell 
Grant amount described in section 401(b)(4), for’’; 
(3) in section 435(a)(5)(A)(i)(I) (20 U.S.C. 
1085(a)(5)(A)(i)(I)), by striking ‘‘one-half the max-
imum Federal Pell Grant award for which a student 
would be eligible’’ and inserting ‘‘one-half the Fed-
eral Pell Grant amount, determined under section 
401(b)(2)(A), for which a student would be eligible’’; 
(4) in section 483(e)(3)(A)(ii) (20 U.S.C. 
1090(e)(3)(A)(ii)), by striking ‘‘based on the max-
imum Federal Pell Grant award at the time of appli-
cation’’ and inserting ‘‘based on the Federal Pell 
Grant 
amount, 
determined 
under 
section 
401(b)(2)(A), for which a student is eligible at the 
time of application’’; 
(5) in section 485E(b)(1)(A) (20 U.S.C. 
1092f(b)(1)(A)), by striking ‘‘of such students’ po-
tential eligibility for a maximum Federal Pell Grant 
under subpart 1 of part A’’ and inserting ‘‘of such 
students’ potential eligibility for the Federal Pell
122 
Grant 
amount, 
determined 
under 
section 
401(b)(2)(A), for which the student would be eligi-
ble’’; and 
(6) in section 894(f)(2)(C)(ii)(I) (20 U.S.C. 
1161y(f)(2)(C)(ii)(I)), by striking ‘‘the maximum 
Federal Pell Grant for each award year’’ and insert-
ing ‘‘the Federal Pell Grant amount, determined 
under section 401(b)(2)(A), for which a student may 
be eligible for each award year’’. 
(c) EFFECTIVE DATE.—The amendments made by 
subsections (a) and (b) shall take effect on July 1, 2010. 
SEC. 2102. COLLEGE ACCESS CHALLENGE GRANT PRO-
GRAM. 
Section 781 (20 U.S.C. 1141) is amended— 
(1) in the first sentence of subsection (a), by 
striking ‘‘$66,000,000’’ and all that follows through 
the period and inserting ‘‘$150,000,000 for each of 
the fiscal years 2010 through 2014. The authority 
to award grants under this section shall expire at 
the end of fiscal year 2014.’’; and 
(2) in subsection (c)(2), by striking ‘‘0.5 per-
cent’’ and inserting ‘‘1.0 percent’’.
123 
SEC. 2103. INVESTMENT IN HISTORICALLY BLACK COL-
LEGES AND UNIVERSITIES AND MINORITY- 
SERVING INSTITUTIONS. 
Section 371(b)(1)(A) (20 U.S.C. 1067q(b)(1)(A)) is 
amended by striking ‘‘and 2009.’’ and all that follows and 
inserting ‘‘through 2019. The authority to award grants 
under this section shall expire at the end of fiscal year 
2019.’’. 
PART II—STUDENT LOAN REFORM 
SEC. 2201. TERMINATION OF FEDERAL FAMILY EDUCATION 
LOAN APPROPRIATIONS. 
Section 421 (20 U.S.C. 1071) is amended— 
(1) in subsection (b), in the first sentence of 
the matter following paragraph (6), by inserting ‘‘, 
except that no sums may be expended after June 30, 
2010, with respect to loans under this part for which 
the first disbursement is after such date’’ after ‘‘ex-
pended’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(d) TERMINATION OF AUTHORITY TO MAKE OR IN-
SURE NEW LOANS.—Notwithstanding paragraphs (1) 
through (6) of subsection (b) or any other provision of 
law—
124 
‘‘(1) no new loans (including consolidation 
loans) may be made or insured under this part after 
June 30, 2010; and 
‘‘(2) no funds are authorized to be appro-
priated, or may be expended, under this Act or any 
other Act to make or insure loans under this part 
(including consolidation loans) for which the first 
disbursement is after June 30, 2010, 
except as expressly authorized by an Act of Congress en-
acted after the date of enactment of the SAFRA Act.’’. 
SEC. 2202. TERMINATION OF FEDERAL LOAN INSURANCE 
PROGRAM. 
Section 424(a) (20 U.S.C. 1074(a)) is amended by 
striking ‘‘September 30, 1976,’’ and all that follows and 
inserting ‘‘September 30, 1976, for each of the succeeding 
fiscal years ending prior to October 1, 2009, and for the 
period from October 1, 2009, to June 30, 2010, for loans 
first disbursed on or before June 30, 2010.’’. 
SEC. 
2203. 
TERMINATION 
OF 
APPLICABLE 
INTEREST 
RATES. 
Section 427A(l) (20 U.S.C. 1077a(l)) is amended— 
(1) in the subsection heading, by inserting 
‘‘AND BEFORE JULY 1, 2010’’ after ‘‘2006’’; 
(2) in paragraph (1), by inserting ‘‘and before 
July 1, 2010,’’ after ‘‘July 1, 2006,’’;
125 
(3) in paragraph (2), by inserting ‘‘and before 
July 1, 2010,’’ after ‘‘July 1, 2006,’’; 
(4) in paragraph (3), by inserting ‘‘and that 
was disbursed before July 1, 2010,’’ after ‘‘July 1, 
2006,’’; and 
(5) in paragraph (4)— 
(A) in the matter preceding subparagraph 
(A), by striking ‘‘July 1, 2012’’ and inserting 
‘‘July 1, 2010’’; and 
(B) by repealing subparagraphs (D) and 
(E). 
SEC. 2204. TERMINATION OF FEDERAL PAYMENTS TO RE-
DUCE STUDENT INTEREST COSTS. 
(a) HIGHER EDUCATION ACT OF 1965.—Section 428 
(20 U.S.C. 1078) is amended— 
(1) in subsection (a)— 
(A) in paragraph (1), in the matter pre-
ceding subparagraph (A), by inserting ‘‘for 
which the first disbursement is made before 
July 1, 2010, and’’ after ‘‘eligible institution’’; 
and 
(B) in paragraph (5), by striking ‘‘Sep-
tember 30, 2014,’’ and all that follows through 
the period and inserting ‘‘June 30, 2010.’’; 
(2) in subsection (b)(1)—
126 
(A) in subparagraph (G)(ii), by inserting 
‘‘and before July 1, 2010,’’ after ‘‘July 1, 
2006,’’; and 
(B) in subparagraph (H)(ii), by inserting 
‘‘and that are first disbursed before July 1, 
2010,’’ after ‘‘July 1, 2006,’’; 
(3) in subsection (f)(1)(A)(ii)— 
(A) by striking ‘‘during fiscal years begin-
ning’’; and 
(B) by inserting ‘‘and first disbursed be-
fore July 1, 2010,’’ after ‘‘October 1, 2003,’’; 
and 
(4) in subsection (j)(1), by inserting ‘‘, before 
July 1, 2010,’’ after ‘‘section 435(d)(1)(D) of this 
Act shall’’. 
(b) COLLEGE COST REDUCTION AND ACCESS ACT.— 
Section 303 of the College Cost Reduction and Access Act 
(Public Law 110–84) is repealed. 
SEC. 2205. TERMINATION OF FFEL PLUS LOANS. 
Section 428B(a)(1) (20 U.S.C. 1078–2(a)(1)) is 
amended by striking ‘‘A graduate’’ and inserting ‘‘Prior 
to July 1, 2010, a graduate’’. 
SEC. 2206. FEDERAL CONSOLIDATION LOANS. 
(a) IN GENERAL.—Section 428C (20 U.S.C. 1078– 
3) is amended—
127 
(1) in subsection (a)(4)(A), by inserting ‘‘, and 
first disbursed before July 1, 2010’’ after ‘‘under 
this part’’; 
(2) in subsection (b)— 
(A) in paragraph (1)(E), by inserting be-
fore the semicolon ‘‘, and before July 1, 2010’’; 
and 
(B) in paragraph (5), by striking ‘‘In the 
event that’’ and inserting ‘‘If, before July 1, 
2010,’’; 
(3) in subsection (c)(1)— 
(A) in subparagraph (A)(ii), by inserting 
‘‘and that is disbursed before July 1, 2010,’’ 
after ‘‘2006,’’; and 
(B) in subparagraph (C), by inserting 
‘‘and disbursed before July 1, 2010,’’ after 
‘‘1994,’’; and 
(4) in subsection (e), by striking ‘‘September 
30, 2014.’’ and inserting ‘‘June 30, 2010. No loan 
may be made under this section for which the dis-
bursement is on or after July 1, 2010.’’. 
(b) TEMPORARY LOAN CONSOLIDATION AUTHOR-
ITY.—Part D of title IV (20 U.S.C. 1087a et seq.) is 
amended by inserting after section 459A (20 U.S.C. 
1087i) the following:
128 
‘‘SEC. 459B. TEMPORARY LOAN CONSOLIDATION AUTHOR-
ITY. 
‘‘(a) TEMPORARY LOAN CONSOLIDATION AUTHOR-
ITY.— 
‘‘(1) IN GENERAL.—A borrower who has 1 or 
more loans in 2 or more of the categories described 
in paragraph (2), and who has not yet entered re-
payment on 1 or more of those loans in any of the 
categories, may consolidate all of the loans of the 
borrower that are described in paragraph (2) into a 
Federal Direct Consolidation Loan during the period 
described in paragraph (3). 
‘‘(2) CATEGORIES
OF
LOANS
THAT
MAY
BE 
CONSOLIDATED.—The categories of loans that may 
be consolidated under paragraph (1) are— 
‘‘(A) loans made under this part; 
‘‘(B) loans purchased by the Secretary 
pursuant to section 459A; and 
‘‘(C) loans made under part B that are 
held by an eligible lender, as such term is de-
fined in section 435(d). 
‘‘(3) TIME PERIOD IN WHICH LOANS MAY BE 
CONSOLIDATED.—The Secretary may make a Fed-
eral Direct Consolidation Loan under this section to 
a borrower whose application for such Federal Di-
129 
rect Consolidation Loan is received on or after July 
1, 2010, and before July 1, 2011. 
‘‘(b) TERMS OF LOANS.—A Federal Direct Consoli-
dation Loan made under this section shall have the same 
terms and conditions as a Federal Direct Consolidation 
Loan made under section 455(g), except that— 
‘‘(1) in determining the applicable rate of inter-
est on the Federal Direct Consolidation Loan made 
under this section (other than on a Federal Direct 
Consolidation Loan described in paragraph (2)), sec-
tion 427A(l)(3) shall be applied without rounding 
the weighted average of the interest rate on the 
loans consolidated to the nearest higher one-eighth 
of 1 percent as described in subparagraph (A) of 
section 427A(l)(3); and 
‘‘(2) if a Federal Direct Consolidation Loan 
made under this section that repays a loan which is 
subject to an interest rate determined under section 
427A(g)(2), (j)(2), or (k)(2), then the interest rate 
for such Federal Direct Consolidation Loan shall be 
calculated— 
‘‘(A) by using the applicable rate of inter-
est described in section 427A(g)(2), (j)(2), or 
(k)(2), respectively; and
130 
‘‘(B) 
in 
accordance 
with 
section 
427A(l)(3).’’. 
SEC. 2207. TERMINATION OF UNSUBSIDIZED STAFFORD 
LOANS FOR MIDDLE-INCOME BORROWERS. 
Section 428H (20 U.S.C. 1078–8) is amended— 
(1) in subsection (a), by inserting ‘‘that are 
first disbursed before July 1, 2010,’’ after ‘‘under 
this part’’; 
(2) in subsection (b)— 
(A) by striking ‘‘Any student’’ and insert-
ing ‘‘Prior to July 1, 2010, any student’’; and 
(B) by inserting ‘‘for which the first dis-
bursement is made before such date’’ after ‘‘un-
subsidized Federal Stafford Loan’’; and 
(3) in subsection (h), by inserting ‘‘and that are 
first disbursed before July 1, 2010,’’ after ‘‘July 1, 
2006,’’. 
SEC. 2208. TERMINATION OF SPECIAL ALLOWANCES. 
Section 438 (20 U.S.C. 1087–1) is amended— 
(1) in subsection (b)(2)(I)— 
(A) in the subclause heading, by inserting 
‘‘, AND BEFORE JULY 1, 2010’’ after ‘‘2000’’; 
(B) in clause (i), by inserting ‘‘and before 
July 1, 2010,’’ after ‘‘2000,’’;
131 
(C) in clause (ii)(II), by inserting ‘‘and be-
fore July 1, 2010,’’ after ‘‘2006,’’; 
(D) in clause (iii), by inserting ‘‘and before 
July 1, 2010,’’ after ‘‘2000,’’; 
(E) in clause (iv), by inserting ‘‘and that 
is disbursed before July 1, 2010,’’ after 
‘‘2000,’’; 
(F) in clause (v)(I), by inserting ‘‘and be-
fore July 1, 2010,’’ after ‘‘2006,’’; and 
(G) in clause (vi)— 
(i) in the clause heading, by inserting 
‘‘, AND BEFORE JULY 1, 2010’’ after ‘‘2007’’; 
and 
(ii) in the matter preceding subclause 
(I), by inserting ‘‘and before July 1, 
2010,’’ after ‘‘2007,’’; 
(2) in subsection (c)— 
(A) in paragraph (2)(B)— 
(i) in clause (iii), by inserting ‘‘and’’ 
after the semicolon; 
(ii) in clause (iv), by striking ‘‘; and’’ 
and inserting a period; and 
(iii) by striking clause (v); and
132 
(B) in paragraph (6), by inserting ‘‘and 
first disbursed before July 1, 2010,’’ after 
‘‘1992,’’; and 
(3) in subsection (d)(2)(B), by inserting ‘‘, and 
before July 1, 2010’’ after ‘‘2007’’. 
SEC. 2209. ORIGINATION OF DIRECT LOANS AT INSTITU-
TIONS OUTSIDE THE UNITED STATES. 
(a) LOANS
FOR STUDENTS ATTENDING INSTITU-
TIONS OUTSIDE THE UNITED STATES.—Section 452 (20 
U.S.C. 1087b) is amended by adding at the end the fol-
lowing: 
‘‘(d) 
INSTITUTIONS
OUTSIDE
THE
UNITED 
STATES.—Loan funds for students (and parents of stu-
dents) attending institutions outside the United States 
shall be disbursed through a financial institution located 
or operating in the United States and designated by the 
Secretary to serve as the agent of such institutions with 
respect to the receipt of the disbursements of such loan 
funds and the transfer of such funds to such institutions. 
To be eligible to receive funds under this part, an institu-
tion outside the United States shall make arrangements 
with the agent designated by the Secretary under this sub-
section to receive funds under this part.’’. 
(b) CONFORMING AMENDMENTS.—
133 
(1) AMENDMENTS.—Section 102 (20 U.S.C. 
1002), as amended by section 102 of the Higher 
Education Opportunity Act (Public Law 110–315) 
and section 101 of Public Law 111–39, is amend-
ed— 
(A) by striking ‘‘part B’’ each place the 
term appears and inserting ‘‘part D’’; 
(B) in subsection (a)(1)(C), by inserting ‘‘, 
consistent with the requirements of section 
452(d)’’ before the period at the end; and 
(C) in subsection (a)(2)(A)— 
(i) in the second sentence of the mat-
ter preceding clause (i), by striking ‘‘made, 
insured, or guaranteed’’ and inserting 
‘‘made’’; and 
(ii) in clause (iii)— 
(I) in subclause (III), by striking 
‘‘only Federal Stafford’’ and all that 
follows through ‘‘section 428B’’ and 
inserting ‘‘only Federal Direct Staf-
ford 
Loans 
under 
section 
455(a)(2)(A), Federal Direct Unsub-
sidized Stafford Loans under section 
455(a)(2)(D), 
or 
Federal 
Direct
134 
PLUS 
Loans 
under 
section 
455(a)(2)(B)’’; and 
(II) in subclause (V), by striking 
‘‘a Federal Stafford’’ and all that fol-
lows through ‘‘section 428B’’ and in-
serting ‘‘a Federal Direct Stafford 
Loan under section 455(a)(2)(A), a 
Federal Direct Unsubsidized Stafford 
Loan under section 455(a)(2)(D), or a 
Federal Direct PLUS Loan under 
section 455(a)(2)(B)’’. 
(2) EFFECTIVE DATE.—The amendments made 
by subparagraph (C) of paragraph (1) shall be effec-
tive on July 1, 2010, as if enacted as part of section 
102(a)(1) of the Higher Education Opportunity Act 
(Public Law 110–315) and subject to section 102(e) 
of such Act as amended by section 101(a)(2) of 
Public Law 111–39 (20 U.S.C. 1002 note). 
SEC. 2210. CONFORMING AMENDMENTS. 
(a) AMENDMENTS.—Section 454 (20 U.S.C. 1087d) 
is amended— 
(1) in subsection (a)— 
(A) by striking paragraph (4); and
135 
(B) 
by 
redesignating 
paragraphs 
(5) 
through (7) as paragraphs (4) through (6), re-
spectively; and 
(2) in subsection (b)(2), by striking ‘‘(5), (6), 
and (7)’’ and inserting ‘‘(5), and (6)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall take effect on July 1, 2010. 
SEC. 2211. TERMS AND CONDITIONS OF LOANS. 
(a) IN GENERAL.—Section 455 (20 U.S.C. 1087e) is 
amended— 
(1) in subsection (a)(1), by inserting ‘‘, and 
first disbursed on June 30, 2010,’’ before ‘‘under 
sections 428’’; and 
(2) in subsection (g)— 
(A) by inserting ‘‘, including any loan 
made under part B and first disbursed before 
July 1, 2010’’ after ‘‘section 428C(a)(4)’’; and 
(B) by striking the third sentence. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a)(1) shall apply with respect to loans first dis-
bursed under part D of title IV of the Higher Education 
Act of 1965 (20 U.S.C. 1087a et seq.) on or after July 
1, 2010.
136 
SEC. 2212. CONTRACTS; MANDATORY FUNDS. 
(a) CONTRACTS.—Section 456 (20 U.S.C. 1087f) is 
amended— 
(1) in subsection (a)— 
(A) by inserting after paragraph (3) the 
following new paragraph: 
‘‘(4) SERVICING BY ELIGIBLE NOT-FOR-PROFIT 
SERVICERS.— 
‘‘(A) SERVICING CONTRACTS.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall contract with each eligible not-for- 
profit servicer to service loans originated 
under this part, if the servicer— 
‘‘(I) meets the standards for 
servicing Federal assets that apply to 
contracts awarded pursuant to para-
graph (1); and 
‘‘(II) has the capacity to service 
the applicable loan volume allocation 
described in subparagraph (B). 
‘‘(ii) COMPETITIVE MARKET RATE DE-
TERMINATION
FOR
FIRST
100,000
BOR-
ROWER
ACCOUNTS.—The Secretary shall 
establish a separate pricing tier for each of 
the first 100,000 borrower loan accounts 
at a competitive market rate.
137 
‘‘(iii) INELIGIBILITY.—An eligible not- 
for-profit servicer shall no longer be eligi-
ble for a contract under this paragraph 
after July 1, 2014, if— 
‘‘(I) the servicer has not been 
awarded such a contract before that 
date; or 
‘‘(II) the servicer’s contract was 
terminated, and the servicer had not 
reapplied for, and been awarded, a 
contract under this paragraph. 
‘‘(B) ALLOCATIONS.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall (except as provided in clause (ii)) al-
locate to an eligible not-for-profit servicer, 
subject to the contract of such servicer de-
scribed in subparagraph (A), the servicing 
rights for the loan accounts of 100,000 
borrowers (including borrowers who bor-
rowed loans in a prior year that were serv-
iced by the servicer). 
‘‘(ii) SERVICER
ALLOCATION.—The 
Secretary may reallocate, increase, reduce, 
or terminate an eligible not-for-profit 
servicer’s allocation of servicing rights
138 
under clause (i) based on the performance 
of such servicer, on the same terms as loan 
allocations provided by contracts awarded 
pursuant to paragraph (1).’’; and 
(2) by adding at the end the following: 
‘‘(c) DEFINITION
OF ELIGIBLE NOT-FOR-PROFIT 
SERVICER.—In this section: 
‘‘(1) IN GENERAL.—The term ‘eligible not-for- 
profit servicer’ means an entity— 
‘‘(A) that is not owned or controlled in 
whole or in part by— 
‘‘(i) a for-profit entity; or 
‘‘(ii) a nonprofit entity having its 
principal place of business in another 
State; and 
‘‘(B) that— 
‘‘(i) as of July 1, 2009— 
‘‘(I) meets the definition of an el-
igible not-for-profit holder under sec-
tion 435(p), except that such term 
does not include eligible lenders de-
scribed in paragraph (1)(D) of such 
section; and 
‘‘(II) was performing, or had en-
tered into a contract with a third
139 
party servicer (as such term is defined 
in section 481(c)) who was per-
forming, student loan servicing func-
tions for loans made under part B of 
this title; 
‘‘(ii) notwithstanding clause (i), as of 
July 1, 2009— 
‘‘(I) is the sole beneficial owner 
of a loan for which the special allow-
ance rate is calculated under section 
438(b)(2)(I)(vi)(II) because the loan 
is held by an eligible lender trustee 
that is an eligible not-for-profit holder 
as 
defined 
under 
section 
435(p)(1)(D); and 
‘‘(II) was performing, or had en-
tered into a contract with a third 
party servicer (as such term is defined 
in section 481(c)) who was per-
forming, student loan servicing func-
tions for loans made under part B of 
this title; or 
‘‘(iii) is an affiliated entity of an eligi-
ble not-for-profit servicer described in 
clause (i) or (ii) that—
140 
‘‘(I) directly employs, or will di-
rectly employ (on or before the date 
the entity begins servicing loans under 
a contract awarded by the Secretary 
pursuant to subsection (a)(3)(A)), the 
majority of individuals who perform 
borrower-specific student loan serv-
icing functions; and 
‘‘(II) as of July 1, 2009, was 
performing, or had entered into a con-
tract with a third party servicer (as 
such term is defined in section 
481(c)) who was performing, student 
loan servicing functions for loans 
made under part B of this title. 
‘‘(2) AFFILIATED ENTITY.—For the purposes of 
paragraph (1), the term ‘affiliated entity’— 
‘‘(A) means an entity contracted to per-
form services for an eligible not-for-profit 
servicer that— 
‘‘(i) is a nonprofit entity or is wholly 
owned by a nonprofit entity; and 
‘‘(ii) is not owned or controlled, in 
whole or in part, by— 
‘‘(I) a for-profit entity; or
141 
‘‘(II) an entity having its prin-
cipal place of business in another 
State; and 
‘‘(B) may include an affiliated entity that 
is established by an eligible not-for-profit 
servicer after the date of enactment of the 
SAFRA Act, if such affiliated entity is other-
wise described in paragraph (1)(B)(iii)(I) and 
subparagraph (A) of this paragraph.’’. 
(b) MANDATORY FUNDS.— 
(1) AMENDMENTS.—Section 458(a) (20 U.S.C. 
1087h(a)) is amended— 
(A) by redesignating paragraph (5) as 
paragraph (8); 
(B) 
by 
redesignating 
paragraphs 
(2) 
through (4) as paragraphs (3) through (5), re-
spectively; 
(C) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) MANDATORY FUNDS FOR ELIGIBLE NOT- 
FOR-PROFIT
SERVICERS.—For fiscal years 2010 
through 2019, there shall be available to the Sec-
retary, in addition to any other amounts appro-
priated to carry out this paragraph and out of any 
money in the Treasury not otherwise appropriated,
142 
funds to be obligated for administrative costs of 
servicing 
contracts 
with 
eligible 
not-for-profit 
servicers as described in section 456.’’; and 
(D) by inserting after paragraph (5), as 
redesignated by subparagraph (B) of this para-
graph, the following: 
‘‘(6) TECHNICAL ASSISTANCE TO INSTITUTIONS 
OF HIGHER EDUCATION.— 
‘‘(A) PROVISION
OF
ASSISTANCE.—The 
Secretary shall provide institutions of higher 
education participating, or seeking to partici-
pate, in the loan programs under this part with 
technical assistance in establishing and admin-
istering such programs. 
‘‘(B) FUNDS.—There are authorized to be 
appropriated, and there are appropriated, to 
carry out this paragraph (in addition to any 
other amounts appropriated to carry out this 
paragraph and out of any money in the Treas-
ury not otherwise appropriated), $50,000,000 
for fiscal year 2010. 
‘‘(C) DEFINITION.—In this paragraph, the 
term ‘assistance’ means the provision of tech-
nical support, training, materials, technical as-
sistance, and financial assistance.
143 
‘‘(7) ADDITIONAL PAYMENTS.— 
‘‘(A) PROVISION
OF
ASSISTANCE.—The 
Secretary shall provide payments to loan 
servicers for retaining jobs at locations in the 
United States where such servicers were oper-
ating under part B on January 1, 2010. 
‘‘(B) FUNDS.—There are authorized to be 
appropriated, and there are appropriated, to 
carry out this paragraph (in addition to any 
other amounts appropriated to carry out this 
paragraph and out of any money in the Treas-
ury not otherwise appropriated), $25,000,000 
for each of the fiscal years 2010 and 2011.’’. 
(2) CONFORMING
AMENDMENT.—Section 458 
(20 U.S.C. 1087h) is further amended by striking 
‘‘subsection (a)(3)’’ in subsection (b) and inserting 
‘‘subsection (a)(4)’’. 
SEC. 2213. INCOME-BASED REPAYMENT. 
Section 493C (20 U.S.C. 1098e) is amended by add-
ing at the end the following new subsection: 
‘‘(e) SPECIAL TERMS FOR NEW BORROWERS ON AND 
AFTER JULY 1, 2014.—With respect to any loan made 
to a new borrower on or after July 1, 2014— 
‘‘(1) subsection (a)(3)(B) shall be applied by 
substituting ‘10 percent’ for ‘15 percent’; and
144 
‘‘(2) subsection (b)(7)(B) shall be applied by 
substituting ‘20 years’ for ‘25 years’.’’. 
Subtitle B—Health 
SEC. 2301. INSURANCE REFORMS. 
(a) EXTENDING CERTAIN INSURANCE REFORMS TO 
GRANDFATHERED PLANS.—Section 1251(a) of the Pa-
tient Protection and Affordable Care Act, as added by sec-
tion 10103(d) of such Act, is amended by adding at the 
end the following: 
‘‘(4) APPLICATION OF CERTAIN PROVISIONS.— 
‘‘(A) IN GENERAL.—The following provi-
sions of the Public Health Service Act (as 
added by this title) shall apply to grandfathered 
health plans for plan years beginning with the 
first plan year to which such provisions would 
otherwise apply: 
‘‘(i) Section 2708 (relating to exces-
sive waiting periods). 
‘‘(ii) Those provisions of section 2711 
relating to lifetime limits. 
‘‘(iii) Section 2712 (relating to rescis-
sions). 
‘‘(iv) Section 2714 (relating to exten-
sion of dependent coverage).
145 
‘‘(B) PROVISIONS
APPLICABLE
ONLY
TO 
GROUP HEALTH PLANS.— 
‘‘(i) PROVISIONS DESCRIBED.—Those 
provisions of section 2711 relating to an-
nual limits and the provisions of section 
2704 (relating to pre-existing condition ex-
clusions) of the Public Health Service Act 
(as added by this subtitle) shall apply to 
grandfathered health plans that are group 
health plans for plan years beginning with 
the first plan year to which such provisions 
otherwise apply. 
‘‘(ii) ADULT CHILD COVERAGE.—For 
plan years beginning before January 1, 
2014, the provisions of section 2714 of the 
Public Health Service Act (as added by 
this subtitle) shall apply in the case of an 
adult child with respect to a grandfathered 
health plan that is a group health plan 
only if such adult child is not eligible to 
enroll in an eligible employer-sponsored 
health 
plan 
(as 
defined 
in 
section 
5000A(f)(2) of the Internal Revenue Code 
of 1986) other than such grandfathered 
health plan.’’.