(B) the State shall demonstrate to the sat-
isfaction of the Secretary of Health and Human 
Services that any savings in State expenditures 
under title XIX or XXI of the Social Security 
Act that results from children enrolling under 
title XXII of such Act shall be used in a man-
ner that improves services to beneficiaries 
under title XIX of such Act, such as through 
expansion of eligibility, improved nurse and 
nurse aide staffing and improved inspections of 
nursing facilities, and coverage of additional 
services. 
(2) MEDIKIDS AS PRIMARY PAYOR.—In apply-
ing title XIX of the Social Security Act, the 
MediKids program under title XXII of such Act 
shall be treated as a primary payor in cases in which 
the election described in section 2207(b)(2) of such 
Act, as added by subsection (a), has been made. 
(d) EXPANSION OF MEDPAC MEMBERSHIP TO 19.—
(1) IN GENERAL.—Section 1805(c) of the So-
cial Security Act (42 U.S.C. 1395b–6(c)) is amend-
ed—
(A) in paragraph (1), by striking ‘‘17’’ and 
inserting ‘‘19’’; and
(B) in paragraph (2)(B), by inserting ‘‘ex-
perts in children’s health,’’ after ‘‘other health 
professionals,’’. 
(2) INITIAL
TERMS
OF
ADDITIONAL
MEM-
BERS.—
(A) IN GENERAL.—For purposes of stag-
gering the initial terms of members of the 
Medicare Payment Advisory Commission under 
section 1805(c)(3) of the Social Security Act 
(42 U.S.C. 1395b–6(c)(3)), the initial terms of 
the 2 additional members of the Commission 
provided for by the amendment under sub-
section (a)(1) are as follows: 
(i) One member shall be appointed for 
1 year. 
(ii) One member shall be appointed 
for 2 years. 
(B) COMMENCEMENT
OF
TERMS.—Such 
terms shall begin on January 1, 2006. 
(3) DUTIES.—Section 1805(b)(1)(A) of such 
Act (42 U.S.C. 1395b–6(b)(1)(A)) is amended by in-
serting before the semicolon at the end the following: 
‘‘and payment policies under title XXII’’.
SEC. 3. MEDIKIDS PREMIUM. 
(a) GENERAL RULE.—Subchapter A of chapter 1 of 
the Internal Revenue Code of 1986 (relating to determina-
tion of tax liability) is amended by adding at the end the 
following new part: 
‘‘PART VIII—MEDIKIDS PREMIUM
‘‘Sec. 59B. MediKids premium.
‘‘SEC. 59B. MEDIKIDS PREMIUM. 
‘‘(a) IMPOSITION OF TAX.—In the case of a taxpayer 
to whom this section applies, there is hereby imposed (in 
addition to any other tax imposed by this subtitle) a 
MediKids premium for the taxable year. 
‘‘(b) INDIVIDUALS SUBJECT TO PREMIUM.—
‘‘(1) IN GENERAL.—This section shall apply to 
a taxpayer if a MediKid is a dependent of the tax-
payer for the taxable year. 
‘‘(2) MEDIKID.—For purposes of this section, 
the term ‘MediKid’ means any individual enrolled in 
the MediKids program under title XXII of the Social 
Security Act. 
‘‘(c) AMOUNT OF PREMIUM.—For purposes of this 
section, the MediKids premium for a taxable year is the 
sum of the monthly premiums (for months in the taxable 
year) determined under section 2203 of the Social Secu-
rity Act with respect to each MediKid who is a dependent 
of the taxpayer for the taxable year.
‘‘(d) EXCEPTIONS BASED ON ADJUSTED GROSS IN-
COME.—
‘‘(1) EXEMPTION FOR VERY LOW-INCOME TAX-
PAYERS.—
‘‘(A) IN GENERAL.—No premium shall be 
imposed by this section on any taxpayer having 
an adjusted gross income not in excess of the 
exemption amount. 
‘‘(B) EXEMPTION AMOUNT.—For purposes 
of this paragraph, the exemption amount is—
‘‘(i) $19,245 in the case of a taxpayer 
having 1 MediKid, 
‘‘(ii) $24,135 in the case of a tax-
payer having 2 MediKids, 
‘‘(iii) $29,025 in the case of a tax-
payer having 3 MediKids, and 
‘‘(iv) $33,915 in the case of a tax-
payer having 4 or more MediKids. 
‘‘(C) PHASEOUT OF EXEMPTION.—In the 
case of a taxpayer having an adjusted gross in-
come which exceeds the exemption amount but 
does not exceed twice the exemption amount, 
the premium shall be the amount which bears 
the same ratio to the premium which would 
(but for this subparagraph) apply to the tax-
payer as such excess bears to the exemption 
amount. 
‘‘(D) INFLATION ADJUSTMENT OF EXEMP-
TION
AMOUNTS.—In the case of any taxable 
year beginning in a calendar year after 2005, 
each dollar amount contained in subparagraph 
(C) shall be increased by an amount equal to 
the product of—
‘‘(i) such dollar amount, and 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar 
year 2004’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof. 
If any increase determined under the preceding 
sentence is not a multiple of $50, such increase 
shall be rounded to the nearest multiple of $50. 
‘‘(2) PREMIUM LIMITED TO 5 PERCENT OF AD-
JUSTED GROSS INCOME.—In no event shall any tax-
payer be required to pay a premium under this sec-
tion in excess of an amount equal to 5 percent of the 
taxpayer’s adjusted gross income. 
‘‘(e) COORDINATION WITH OTHER PROVISIONS.—
‘‘(1) NOT TREATED AS MEDICAL EXPENSE.—
For purposes of this chapter, any premium paid 
under this section shall not be treated as expense for 
medical care. 
‘‘(2) NOT TREATED AS TAX FOR CERTAIN PUR-
POSES.—The premium paid under this section shall 
not be treated as a tax imposed by this chapter for 
purposes of determining—
‘‘(A) the amount of any credit allowable 
under this chapter, or 
‘‘(B) the amount of the minimum tax im-
posed by section 55. 
‘‘(3) TREATMENT
UNDER
SUBTITLE
F.—For 
purposes of subtitle F, the premium paid under this 
section shall be treated as if it were a tax imposed 
by section 1.’’. 
(b) TECHNICAL AMENDMENTS.—
(1) Subsection (a) of section 6012 of such Code 
is amended by inserting after paragraph (9) the fol-
lowing new paragraph: 
‘‘(10) Every individual liable for a premium 
under section 59B.’’. 
(2) The table of parts for subchapter A of chap-
ter 1 of such Code is amended by adding at the end 
the following new item:
‘‘PART VIII. MEDIKIDS PREMIUM’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to months beginning after Decem-
ber 2006, in taxable years ending after such date. 
SEC. 4. REFUNDABLE CREDIT FOR CERTAIN COST-SHARING 
EXPENSES UNDER MEDIKIDS PROGRAM. 
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to refundable credits) is amended by redes-
ignating section 36 as section 37 and by inserting after 
section 35 the following new section: 
‘‘SEC. 36. CATASTROPHIC LIMIT ON COST-SHARING EX-
PENSES UNDER MEDIKIDS PROGRAM. 
‘‘(a) IN GENERAL.—In the case of a taxpayer who 
has a MediKid (as defined in section 59B) at any time 
during the taxable year, there shall be allowed as a credit 
against the tax imposed by this subtitle an amount equal 
to the excess of—
‘‘(1) the amount paid by the taxpayer during 
the taxable year as cost-sharing under section 
2202(b)(4) of the Social Security Act, over 
‘‘(2) 5 percent of the taxpayer’s adjusted gross 
income for the taxable year.’’. 
(b) COORDINATION WITH OTHER PROVISIONS.—The 
excess described in subsection (a) shall not be taken into
account in computing the amount allowable to the tax-
payer as a deduction under section 162(l) or 213(a). 
(c) TECHNICAL AMENDMENTS.—
(1) The table of sections for subpart C of part 
IV of subchapter A of chapter 1 of such Code is 
amended by redesignating the item relating to sec-
tion 36 as an item relating to section 37 and by in-
serting before such item the following new item:
‘‘Sec. 36. Catastrophic limit on cost-sharing expenses under MediKids pro-
gram.’’.
(2) Paragraph (2) of section 1324(b) of title 
31, United States Code, is amended by inserting ‘‘or 
36’’ after ‘‘section 35’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 5. REPORT ON LONG-TERM REVENUES. 
Within one year after the date of the enactment of 
this Act, the Secretary of the Treasury shall propose a 
gradual schedule of progressive tax changes to fund the 
program under title XXII of the Social Security Act, as 
the number of enrollees grows in the out-years.
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