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Union Calendar No. 330
107TH CONGRESS
2D SESSION
H. R. 4984
[Report No. 107–551, Part 1]
To amend title XVIII of the Social Security Act to provide for a medicare
prescription drug benefit.
IN THE HOUSE OF REPRESENTATIVES
JUNE 21, 2002
Mr. TAUZIN introduced the following bill; which was referred to the Committee
on Energy and Commerce, and in addition to the Committee on Ways
and Means, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned
JUNE 26, 2002
Reported from the Committee on Energy and Commerce
JUNE 26, 2002
Referral to the Committee on Ways and Means extended for a period ending
not later than June 28, 2002
JUNE 28, 2002
Committee on Ways and Means discharged; committed to the Committee of
the Whole House on the State of the Union and ordered to be printed
A BILL
To amend title XVIII of the Social Security Act to provide
for a medicare prescription drug benefit.
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
TITLE I—MEDICARE
PRESCRIPTION DRUG BENEFIT
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION
DRUG BENEFIT.
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new
part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND
COVERAGE PERIOD.
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject
to the succeeding provisions of this part, each individual
who is entitled to benefits under part A or is enrolled
under part B is entitled to obtain qualified prescription
drug coverage (described in section 1860B(a)) as follows:
‘‘(1) MEDICARE+CHOICE
PLAN.—If the indi-
vidual is eligible to enroll in a Medicare+Choice plan
that provides qualified prescription drug coverage
under section 1851(j), the individual may enroll in
the plan and obtain coverage through such plan.
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‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a Medicare+Choice plan
that provides qualified prescription drug coverage,
the individual may enroll under this part in a pre-
scription 
drug 
plan 
(as 
defined 
in 
section
1860J(a)(5)).
Such individuals shall have a choice of such plans under
section 1860E(d).
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN
GENERAL.—An individual eligible to
make an election under subsection (a) may elect to
enroll in a prescription drug plan under this part, or
elect the option of qualified prescription drug cov-
erage under a Medicare+Choice plan under part C,
and to change such election only in such manner
and form as may be prescribed by regulations of the
Administrator of the Medicare Benefits Administra-
tion (appointed under section 1808(b)) (in this part
referred to as the ‘Medicare Benefits Administrator’)
and only during an election period prescribed in or
under this subsection.
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, the election periods under this
subsection shall be the same as the coverage
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election periods under the Medicare+Choice
program under section 1851(e), including—
‘‘(i) annual coordinated election peri-
ods; and
‘‘(ii) special election periods.
In applying the last sentence of section
1851(e)(4) (relating to discontinuance of a
Medicare+Choice election during the first year
of eligibility) under this subparagraph, in the
case of an election described in such section in
which the individual had elected or is provided
qualified prescription drug coverage at the time
of such first enrollment, the individual shall be
permitted to enroll in a prescription drug plan
under this part at the time of the election of
coverage under the original fee-for-service plan.
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is
entitled to benefits under part A or en-
rolled under part B as of November 1,
2004, there shall be an initial election pe-
riod of 6 months beginning on that date.
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is
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first entitled to benefits under part A or
enrolled under part B after such date,
there shall be an initial election period
which is the same as the initial enrollment
period under section 1837(d).
‘‘(C) ADDITIONAL SPECIAL ELECTION PE-
RIODS.—The Administrator shall establish spe-
cial election periods—
‘‘(i) in cases of individuals who have
and involuntarily lose prescription drug
coverage described in subsection (c)(2)(C);
‘‘(ii) in cases described in section
1837(h) (relating to errors in enrollment),
in the same manner as such section applies
to part B;
‘‘(iii) in the case of an individual who
meets such exceptional conditions (includ-
ing conditions provided under section
1851(e)(4)(D)) as the Administrator may
provide; and
‘‘(iv) in cases of individuals (as deter-
mined by the Administrator) who become
eligible for prescription drug assistance
under title XIX under section 1935(d).
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‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual
who is eligible to elect qualified prescription
drug coverage under a prescription drug plan or
Medicare+Choice plan at a time during which
elections are accepted under this part with re-
spect to the plan shall not be denied enrollment
based on any health status-related factor (de-
scribed in section 2702(a)(1) of the Public
Health Service Act) or any other factor.
‘‘(B) 
MEDICARE+CHOICE
LIMITATIONS
PERMITTED.—The provisions of paragraphs (2)
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g)
(relating to priority and limitation on termi-
nation of election) shall apply to PDP sponsors
under this subsection.
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who maintains (as determined under sub-
paragraph (C)) continuous prescription drug
coverage since the date the individual first
qualifies to elect prescription drug coverage
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under 
this 
part, 
a 
PDP 
sponsor 
or
Medicare+Choice organization offering a pre-
scription drug plan or Medicare+Choice plan
that provides qualified prescription drug cov-
erage and in which the individual is enrolled
may not deny, limit, or condition the coverage
or provision of covered prescription drug bene-
fits or increase the premium under the plan
based on any health status-related factor de-
scribed in section 2702(a)(1) of the Public
Health Service Act or any other factor.
‘‘(B) LATE
ENROLLMENT
PENALTY.—In
the case of an individual who does not maintain
such continuous prescription drug coverage (as
described in subparagraph (C)), a PDP sponsor
or Medicare+Choice organization may (notwith-
standing any provision in this title) adjust the
premium otherwise applicable or impose a pre-
existing condition exclusion with respect to
qualified prescription drug coverage in a man-
ner that reflects additional actuarial risk in-
volved. Such a risk shall be established through
an appropriate actuarial opinion of the type de-
scribed in subparagraphs (A) through (C) of
section 2103(c)(4).
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‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG
COVERAGE.—An individual is considered for
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after
the date the individual first qualifies to elect
prescription drug coverage under this part if
the individual establishes that as of such date
the individual is covered under any of the fol-
lowing prescription drug coverage and before
the date that is the last day of the 63-day pe-
riod that begins on the date of termination of
the particular prescription drug coverage in-
volved (regardless of whether the individual
subsequently obtains any of the following pre-
scription drug coverage):
‘‘(i) COVERAGE UNDER PRESCRIPTION
DRUG
PLAN
OR
MEDICARE+CHOICE
PLAN.—Qualified prescription drug cov-
erage under a prescription drug plan or
under a Medicare+Choice plan.
‘‘(ii) MEDICAID PRESCRIPTION DRUG
COVERAGE.—Prescription drug coverage
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under
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section 1934, through a social health main-
tenance organization (referred to in section
4104(c) of the Balanced Budget Act of
1997), or through a Medicare+Choice
project that demonstrates the application
of capitation payment rates for frail elderly
medicare beneficiaries through the use of a
interdisciplinary team and through the
provision of primary care services to such
beneficiaries by means of such a team at
the nursing facility involved.
‘‘(iii) PRESCRIPTION DRUG COVERAGE
UNDER GROUP HEALTH PLAN.—Any out-
patient prescription drug coverage under a
group health plan, including a health bene-
fits plan under the Federal Employees
Health Benefit Plan under chapter 89 of
title 5, United States Code, and a qualified
retiree prescription drug plan as defined in
section 1860H(f)(1), but only if (subject to
subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the
benefits under a qualified prescription drug
plan.
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‘‘(iv) PRESCRIPTION DRUG COVERAGE
UNDER
CERTAIN
MEDIGAP
POLICIES.—
Coverage under a medicare supplemental
policy under section 1882 that provides
benefits for prescription drugs (whether or
not such coverage conforms to the stand-
ards for packages of benefits under section
1882(p)(1)), but only if the policy was in
effect on January 1, 2005, and if (subject
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the
benefits under a qualified prescription drug
plan.
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription
drugs under a State pharmaceutical assist-
ance program, but only if (subject to sub-
paragraph (E)(ii)) the coverage provides
benefits at least equivalent to the benefits
under a qualified prescription drug plan.
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17
of title 38, United States Code, but only if
(subject to subparagraph (E)(ii)) the cov-
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erage provides benefits at least equivalent
to the benefits under a qualified prescrip-
tion drug plan.
‘‘(D) CERTIFICATION.—For purposes of
carrying out this paragraph, the certifications
of the type described in sections 2701(e) of the
Public Health Service Act and in section
9801(e) of the Internal Revenue Code shall also
include a statement for the period of coverage
of whether the individual involved had prescrip-
tion drug coverage described in subparagraph
(C).
‘‘(E) DISCLOSURE.—
‘‘(i) IN GENERAL.—Each entity that
offers coverage of the type described in
clause (iii), (iv), (v), or (vi) of subpara-
graph (C) shall provide for disclosure, con-
sistent with standards established by the
Administrator, of whether such coverage
provides benefits at least equivalent to the
benefits under a qualified prescription drug
plan.
‘‘(ii) WAIVER
OF
LIMITATIONS.—An
individual may apply to the Administrator
to waive the requirement that coverage of
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such type provide benefits at least equiva-
lent to the benefits under a qualified pre-
scription drug plan, if the individual estab-
lishes that the individual was not ade-
quately informed that such coverage did
not provide such level of benefits.
‘‘(F) CONSTRUCTION.—Nothing in this
section shall be construed as preventing the
disenrollment of an individual from a prescrip-
tion drug plan or a Medicare+Choice plan
based on the termination of an election de-
scribed in section 1851(g)(3), including for non-
payment of premiums or for other reasons spec-
ified in subsection (d)(3), which takes into ac-
count a grace period described in section
1851(g)(3)(B)(i).
‘‘(3) NONDISCRIMINATION.—A PDP sponsor of-
fering a prescription drug plan shall not establish a
service area in a manner that would discriminate
based on health or economic status of potential en-
rollees.
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
section, the Administrator shall provide that elec-
tions under subsection (b) take effect at the same
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time as the Administrator provides that similar elec-
tions under section 1851(e) take effect under section
1851(f).
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2005.—
In no case shall any election take effect before Janu-
ary 1, 2005.
‘‘(3) TERMINATION.—The Administrator shall
provide for the termination of an election in the case
of—
‘‘(A) termination of coverage under both
part A and part B; and
‘‘(B) termination of elections described in
section 1851(g)(3) (including failure to pay re-
quired premiums).
‘‘SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE.
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part
and part C, the term ‘qualified prescription drug
coverage’ means either of the following:
‘‘(A) STANDARD COVERAGE WITH ACCESS
TO
NEGOTIATED
PRICES.—Standard coverage
(as defined in subsection (b)) and access to ne-
gotiated prices under subsection (d).
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‘‘(B) ACTUARIALLY
EQUIVALENT
COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Coverage of covered outpatient drugs
which meets the alternative coverage require-
ments of subsection (c) and access to negotiated
prices under subsection (d), but only if it is ap-
proved by the Administrator, as provided under
subsection (c).
‘‘(2) PERMITTING
ADDITIONAL
OUTPATIENT
PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug
coverage from including coverage of covered
outpatient drugs that exceeds the coverage re-
quired under paragraph (1), but any such addi-
tional coverage shall be limited to coverage of
covered outpatient drugs.
‘‘(B) DISAPPROVAL AUTHORITY.—The Ad-
ministrator shall review the offering of qualified
prescription drug coverage under this part or
part C. If the Administrator finds that, in the
case of a qualified prescription drug coverage
under 
a 
prescription 
drug 
plan 
or 
a
Medicare+Choice plan, that the organization or
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sponsor offering the coverage is engaged in ac-
tivities intended to discourage enrollment of
classes of eligible medicare beneficiaries obtain-
ing coverage through the plan on the basis of
their higher likelihood of utilizing prescription
drug coverage, the Administrator may termi-
nate the contract with the sponsor or organiza-
tion under this part or part C.
‘‘(3) APPLICATION OF SECONDARY PAYOR PRO-
VISIONS.—The provisions of section 1852(a)(4) shall
apply under this part in the same manner as they
apply under part C.
‘‘(b) STANDARD COVERAGE.—For purposes of this
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the
following requirements:
‘‘(1) DEDUCTIBLE.—The coverage has an an-
nual deductible—
‘‘(A) for 2005, that is equal to $250; or
‘‘(B) for a subsequent year, that is equal
to the amount specified under this paragraph
for the previous year increased by the percent-
age specified in paragraph (5) for the year in-
volved.
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Any amount determined under subparagraph (B)
that is not a multiple of $10 shall be rounded to the
nearest multiple of $10.
‘‘(2) LIMITS ON COST-SHARING.—
‘‘(A) IN
GENERAL.—The coverage has
cost-sharing (for costs above the annual deduct-
ible specified in paragraph (1) and up to the
initial coverage limit under paragraph (3)) as
follows:
‘‘(i) FIRST COPAYMENT RANGE.—For
costs above the annual deductible specified
in paragraph (1) and up to amount speci-
fied in subparagraph (C), the cost-
sharing—
‘‘(I) is equal to 20 percent; or
‘‘(II) is actuarially equivalent
(using processes established under
subsection (e)) to an average expected
payment of 20 percent of such costs.
‘‘(ii) 
SECONDARY
COPAYMENT
RANGE.—For costs above the amount spec-
ified in subparagraph (C) and up to the
initial coverage limit, the cost-sharing—
‘‘(I) is equal to 50 percent; or
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‘‘(II) is actuarially consistent
(using processes established under
subsection (e)) with an average ex-
pected payment of 50 percent of such
costs.
‘‘(B) USE
OF
TIERED
COPAYMENTS.—
Nothing in this part shall be construed as pre-
venting a PDP sponsor from applying tiered co-
payments, so long as such tiered copayments
are consistent with subparagraph (A).
‘‘(C) INITIAL COPAYMENT THRESHOLD.—
The amount specified in this subparagraph—
‘‘(i) for 2005, is equal to $1,000; or
‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that
is not a multiple of $10 shall be rounded to the
nearest multiple of $10.
‘‘(3) INITIAL
COVERAGE
LIMIT.—Subject to
paragraph (4), the coverage has an initial coverage
limit on the maximum costs that may be recognized
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for payment purposes (above the annual deduct-
ible)—
‘‘(A) for 2005, that is equal to $2,000; or
‘‘(B) for a subsequent year, that is equal
to the amount specified in this paragraph for
the previous year, increased by the annual per-
centage increase described in paragraph (5) for
the year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $25 shall be rounded to the
nearest multiple of $25.
‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with
no cost-sharing after the individual has in-
curred costs (as described in subparagraph (C))
for covered outpatient drugs in a year equal to
the annual out-of-pocket threshold specified in
subparagraph (B).
‘‘(B) ANNUAL
OUT-OF-POCKET
THRESH-
OLD.—For purposes of this part, the ‘annual
out-of-pocket 
threshold’ 
specified 
in 
this
subparagraph—
‘‘(i) for 2005, is equal to $3,700; or
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‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that
is not a multiple of $100 shall be rounded to
the nearest multiple of $100.
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include
costs incurred for the annual deductible
(described in paragraph (1)), cost-sharing
(described in paragraph (2)), and amounts
for which benefits are not provided because
of the application of the initial coverage
limit described in paragraph (3); and
‘‘(ii) such costs shall be treated as in-
curred only if they are paid by the indi-
vidual (or by another individual, such as a
family member, on behalf of the indi-
vidual), under section 1860G, or under
title XIX and the individual (or other indi-
vidual) is not reimbursed through insur-
ance or otherwise, a group health plan, or
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other third-party payment arrangement for
such costs.
‘‘(5) ANNUAL
PERCENTAGE
INCREASE.—For
purposes of this part, the annual percentage increase
specified in this paragraph for a year is equal to the
annual percentage increase in average per capita ag-
gregate expenditures for covered outpatient drugs in
the United States for medicare beneficiaries, as de-
termined by the Administrator for the 12-month pe-
riod ending in July of the previous year.
‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A
prescription drug plan or Medicare+Choice plan may pro-
vide a different prescription drug benefit design from the
standard coverage described in subsection (b) so long as
the Administrator determines (based on an actuarial anal-
ysis by the Administrator) the following requirements are
met and the plan applies for, and receives, the approval
of the Administrator for such benefit design:
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV-
ALENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF
TOTAL COVERAGE.—The actuarial value of the
total coverage (as determined under subsection
(e)) is at least equal to the actuarial value (as
so determined) of standard coverage.
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‘‘(B) 
ASSURING
EQUIVALENT
UNSUB-
SIDIZED
VALUE
OF
COVERAGE.—The unsub-
sidized value of the coverage is at least equal to
the unsubsidized value of standard coverage.
For purposes of this subparagraph, the unsub-
sidized value of coverage is the amount by
which the actuarial value of the coverage (as
determined under subsection (e)) exceeds the
actuarial value of the subsidy payments under
section 1860H with respect to such coverage.
‘‘(C) ASSURING STANDARD PAYMENT FOR
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially
representative pattern of utilization (as deter-
mined under subsection (e)), to provide for the
payment, with respect to costs incurred that are
equal to the initial coverage limit under sub-
section (b)(3), of an amount equal to at least
the sum of the following products:
‘‘(i) FIRST COPAYMENT RANGE.—The
product of—
‘‘(I) the amount by which the ini-
tial copayment threshold described in
subsection (b)(2)(C) exceeds the de-
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ductible 
described 
in 
subsection
(b)(1); and
‘‘(II) 100 percent minus the cost-
sharing percentage specified in sub-
section (b)(2)(A)(i)(I).
‘‘(ii) 
SECONDARY
COPAYMENT
RANGE.—The product of—
‘‘(I) the amount by which the ini-
tial coverage limit described in sub-
section (b)(3) exceeds the initial co-
payment threshold described in sub-
section (b)(2)(C); and
‘‘(II) 100 percent minus the cost-
sharing percentage specified in sub-
section (b)(2)(A)(ii)(I).
‘‘(2) CATASTROPHIC
PROTECTION.—The cov-
erage provides for beneficiaries the catastrophic pro-
tection described in subsection (b)(4).
‘‘(d) ACCESS TO NEGOTIATED PRICES.—
‘‘(1) IN GENERAL.—Under qualified prescrip-
tion drug coverage offered by a PDP sponsor or a
Medicare+Choice organization, the sponsor or orga-
nization shall provide beneficiaries with access to ne-
gotiated prices (including applicable discounts) used
for payment for covered outpatient drugs, regardless
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of the fact that no benefits may be payable under
the coverage with respect to such drugs because of
the application of cost-sharing or an initial coverage
limit (described in subsection (b)(3)). Insofar as a
State elects to provide medical assistance under title
XIX for a drug based on the prices negotiated by a
prescription drug plan under this part, the require-
ments of section 1927 shall not apply to such drugs.
The prices negotiated by a prescription drug plan
under this part, by a Medicare+Choice plan with re-
spect to covered outpatient drugs, or by a qualified
retiree prescription drug plan (as defined in section
1860H(f)(1)) with respect to such drugs on behalf
of individuals entitled to benefits under part A or
enrolled under part B, shall (notwithstanding any
other provision of law) not be taken into account for
the purposes of establishing the best price under sec-
tion 1927(c)(1)(C).
‘‘(2) DISCLOSURE.—The PDP sponsor or
Medicare+Choice organization shall disclose to the
Administrator (in a manner specified by the Admin-
istrator) the extent to which discounts or rebates
made available to the sponsor or organization by a
manufacturer are passed through to enrollees
through pharmacies and other dispensers or other-
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wise. The provisions of section 1927(b)(3)(D) shall
apply to information disclosed to the Administrator
under this paragraph in the same manner as such
provisions apply to information disclosed under such
section.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF
ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section,
the Administrator shall establish processes and
methods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard
coverage and of the reinsurance subsidy
payments under section 1860H;
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and
‘‘(iii) applying the same methodology
for determinations of alternative coverage
under subsection (c) as is used with re-
spect to determinations of standard cov-
erage under subsection (b); and
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5).
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‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the
processes under paragraph (1)(A), PDP sponsors
and Medicare+Choice organizations may use actu-
arial opinions certified by independent, qualified ac-
tuaries to establish actuarial values, but the Admin-
istrator shall determine whether such actuarial val-
ues meet the requirements under subsection (c)(1).
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, for purposes of this part, the term ‘cov-
ered outpatient drug’ means—
‘‘(A) a drug that may be dispensed only
upon a prescription and that is described in
subparagraph (A)(i) or (A)(ii) of section
1927(k)(2); or
‘‘(B) a biological product described in
clauses (i) through (iii) of subparagraph (B) of
such section or insulin described in subpara-
graph (C) of such section,
and such term includes a vaccine licensed under sec-
tion 351 of the Public Health Service Act and any
use of a covered outpatient drug for a medically ac-
cepted indication (as defined in section 1927(k)(6)).
‘‘(2) EXCLUSIONS.—
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‘‘(A) IN GENERAL.—Such term does not
include drugs or classes of drugs, or their med-
ical uses, which may be excluded from coverage
or 
otherwise 
restricted 
under 
section
1927(d)(2), other than subparagraph (E) there-
of (relating to smoking cessation agents), or
under section 1927(d)(3).
‘‘(B) AVOIDANCE
OF
DUPLICATE
COV-
ERAGE.—A drug prescribed for an individual
that would otherwise be a covered outpatient
drug under this part shall not be so considered
if payment for such drug is available under part
A or B for an individual entitled to benefits
under part A and enrolled under part B.
‘‘(3) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an individual that
would otherwise be a covered outpatient drug under
this part shall not be so considered under a plan if
the plan excludes the drug under a formulary and
such exclusion is not successfully appealed under
section 1860C(f)(2).
‘‘(4) APPLICATION
OF
GENERAL
EXCLUSION
PROVISIONS.—A 
prescription 
drug 
plan 
or
Medicare+Choice plan may exclude from qualified
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prescription drug coverage any covered outpatient
drug—
‘‘(A) for which payment would not be
made if section 1862(a) applied to part D; or
‘‘(B) which are not prescribed in accord-
ance with the plan or this part.
Such exclusions are determinations subject to recon-
sideration and appeal pursuant to section 1860C(f).
‘‘SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED
PRESCRIPTION DRUG COVERAGE.
‘‘(a) GUARANTEED
ISSUE, COMMUNITY-RELATED
PREMIUMS, ACCESS TO NEGOTIATED PRICES, AND NON-
DISCRIMINATION.—For provisions requiring guaranteed
issue, community-rated premiums, access to negotiated
prices, and nondiscrimination, see sections 1860A(c)(1),
1860A(c)(2), 1860B(d), and 1860F(b), respectively.
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—A PDP sponsor
shall disclose, in a clear, accurate, and standardized
form to each enrollee with a prescription drug plan
offered by the sponsor under this part at the time
of enrollment and at least annually thereafter, the
information described in section 1852(c)(1) relating
to such plan. Such information includes the fol-
lowing:
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‘‘(A) Access to covered outpatient drugs,
including access through pharmacy networks.
‘‘(B) How any formulary used by the spon-
sor functions.
‘‘(C) Co-payments and deductible require-
ments, including the identification of the tiered
or other co-payment level applicable to each
drug (or class of drugs).
‘‘(D) Grievance and appeals procedures.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP spon-
sor shall provide the information described in section
1852(c)(2) (other than subparagraph (D)) to such
individual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall
make available on a timely basis, through an Inter-
net website and in writing upon request, information
on specific changes in its formulary.
‘‘(4) CLAIMS INFORMATION.—Each PDP spon-
sor offering a prescription drug plan must furnish to
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enrolled individuals in a form easily understandable
to such individuals an explanation of benefits (in ac-
cordance with section 1806(a) or in a comparable
manner) and a notice of the benefits in relation to
initial coverage limit and annual out-of-pocket
threshold for the current year, whenever prescription
drug benefits are provided under this part (except
that such notice need not be provided more often
than monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—
‘‘(A) IN GENERAL.—The PDP sponsor of
the prescription drug plan shall secure the par-
ticipation in its network of a sufficient number
of pharmacies that dispense (other than by mail
order) drugs directly to patients to ensure con-
venient access (as determined by the Adminis-
trator and including adequate emergency ac-
cess) for enrolled beneficiaries, in accordance
with 
standards 
established 
under 
section
1860D(e) that ensure such convenient access.
‘‘(B) USE
OF
POINT-OF-SERVICE
SYS-
TEM.—A PDP sponsor shall establish an op-
tional point-of-service method of operation
under which—
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‘‘(i) the plan provides access to any or
all pharmacies that are not participating
pharmacies in its network; and
‘‘(ii) the plan may charge beneficiaries
through adjustments in premiums and co-
payments any additional costs associated
with the point-of-service option.
The additional copayments so charged shall not
count 
toward 
the 
application 
of 
section
1860B(b).
‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
‘‘(A) IN GENERAL.—The PDP sponsor of
a prescription drug plan shall issue (and re-
issue, as appropriate) such a card (or other
technology) that may be used by an enrolled
beneficiary to assure access to negotiated prices
under section 1860B(d) for the purchase of
prescription drugs for which coverage is not
otherwise provided under the prescription drug
plan.
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of
national standards relating to a standard-
ized format for the card or other tech-
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nology referred to in subparagraph (A).
Such standards shall be compatible with
standards established under part C of title
XI.
‘‘(ii) APPLICATION OF ADVISORY TASK
FORCE.—The advisory task force estab-
lished under subsection (d)(3)(B)(ii) shall
provide recommendations to the Adminis-
trator under such subsection regarding the
standards developed under clause (i).
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT
AND
APPLICATION OF FORMULARIES.—If a PDP sponsor
of a prescription drug plan uses a formulary, the fol-
lowing requirements must be met:
‘‘(A) PHARMACY AND THERAPEUTIC (P&T)
COMMITTEE.—The sponsor must establish a
pharmacy and therapeutic committee that de-
velops and reviews the formulary. Such com-
mittee shall include at least one physician and
at least one pharmacist both with expertise in
the care of elderly or disabled persons and a
majority of its members shall consist of individ-
uals who are a physician or a pharmacist (or
both).
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‘‘(B) FORMULARY DEVELOPMENT.—In de-
veloping and reviewing the formulary, the com-
mittee shall base clinical decisions on the
strength of scientific evidence and standards of
practice, including assessing peer-reviewed med-
ical literature, such as randomized clinical
trials, pharmacoeconomic studies, outcomes re-
search data, and such other information as the
committee determines to be appropriate.
‘‘(C) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within each therapeutic category
and class of covered outpatient drugs (although
not necessarily for all drugs within such cat-
egories and classes).
‘‘(D) PROVIDER
EDUCATION.—The com-
mittee shall establish policies and procedures to
educate and inform health care providers con-
cerning the formulary.
‘‘(E) NOTICE BEFORE REMOVING DRUGS
FROM
FORMULARY.—Any removal of a drug
from a formulary shall take effect only after ap-
propriate notice is made available to bene-
ficiaries and physicians.
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‘‘(F) GRIEVANCES AND APPEALS RELAT-
ING TO APPLICATION OF FORMULARIES.—For
provisions relating to grievances and appeals of
coverage, see subsections (e) and (f).
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT
PROGRAM.—
‘‘(1) IN
GENERAL.—The PDP sponsor shall
have in place with respect to covered outpatient
drugs—
‘‘(A) an effective cost and drug utilization
management program, including medically ap-
propriate incentives to use generic drugs and
therapeutic interchange, when appropriate;
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug
interactions, including a medication therapy
management program described in paragraph
(2) and for years beginning with 2006, an elec-
tronic prescription program described in para-
graph (3); and
‘‘(C) a program to control fraud, abuse,
and waste.
Nothing in this section shall be construed as impair-
ing a PDP sponsor from applying cost management
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tools (including differential payments) under all
methods of operation.
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy
management program described in this para-
graph is a program of drug therapy manage-
ment and medication administration that is de-
signed to assure, with respect to beneficiaries
with chronic diseases (such as diabetes, asthma,
hypertension, and congestive heart failure) or
multiple prescriptions, that covered outpatient
drugs under the prescription drug plan are ap-
propriately used to achieve therapeutic goals
and reduce the risk of adverse events, including
adverse drug interactions.
‘‘(B) ELEMENTS.—Such program may
include—
‘‘(i) 
enhanced 
beneficiary 
under-
standing of such appropriate use through
beneficiary 
education, 
counseling, 
and
other appropriate means;
‘‘(ii) increased beneficiary adherence
with 
prescription 
medication 
regimens
through medication refill reminders, special
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packaging, and other appropriate means;
and
‘‘(iii) detection of patterns of overuse
and underuse of prescription drugs.
‘‘(C) DEVELOPMENT OF PROGRAM IN CO-
OPERATION
WITH
LICENSED
PHARMACISTS.—
The program shall be developed in cooperation
with licensed pharmacists and physicians.
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY
FEES.—The PDP sponsor of a prescription
drug program shall take into account, in estab-
lishing fees for pharmacists and others pro-
viding services under the medication therapy
management program, the resources and time
used in implementing the program.
‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—
‘‘(A) IN GENERAL.—An electronic prescrip-
tion drug program described in this paragraph
is a program that includes at least the following
components, consistent with national standards
established under subparagraph (B):
‘‘(i) ELECTRONIC
TRANSMITTAL
OF
PRESCRIPTIONS.—Prescriptions are only
received electronically, except in emergency
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cases and other exceptional circumstances
recognized by the Administrator.
‘‘(ii) PROVISION OF INFORMATION TO
PRESCRIBING
HEALTH
CARE
PROFES-
SIONAL.—The program provides, upon
transmittal of a prescription by a pre-
scribing health care professional, for trans-
mittal by the pharmacist to the profes-
sional of information that includes—
‘‘(I) information (to the extent
available and feasible) on the drugs
being prescribed for that patient and
other information relating to the med-
ical history or condition of the patient
that may be relevant to the appro-
priate prescription for that patient;
‘‘(II) cost-effective alternatives (if
any) for the use of the drug pre-
scribed; and
‘‘(III) information on the drugs
included in the applicable formulary.
To the extent feasible, such program shall
permit the prescribing health care profes-
sional to provide (and be provided) related
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information on an interactive, real-time
basis.
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of
national standards relating to the elec-
tronic prescription drug program described
in subparagraph (A). Such standards shall
be compatible with standards established
under part C of title XI.
‘‘(ii) ADVISORY TASK FORCE.—In de-
veloping such standards and the standards
described in subsection (c)(2)(B)(i) the Ad-
ministrator shall establish a task force that
includes representatives of physicians, hos-
pitals, pharmacists, and technology experts
and representatives of the Departments of
Veterans Affairs and Defense and other
appropriate Federal agencies to provide
recommendations to the Administrator on
such standards, including recommenda-
tions relating to the following:
‘‘(I) The range of available com-
puterized prescribing software and
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hardware and their costs to develop
and implement.
‘‘(II) The extent to which such
systems reduce medication errors and
can be readily implemented by physi-
cians and hospitals.
‘‘(III) Efforts to develop a com-
mon software platform for computer-
ized prescribing.
‘‘(IV) The cost of implementing
such systems in the range of hospital
and physician office settings, includ-
ing hardware, software, and training
costs.
‘‘(V) Implementation issues as
they relate to part C of title XI, and
current Federal and State prescribing
laws and regulations and their impact
on implementation of computerized
prescribing.
‘‘(iii) DEADLINES.—
‘‘(I) The Administrator shall con-
stitute the task force under clause (ii)
by not later than April 1, 2003.
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‘‘(II) Such task force shall sub-
mit recommendations to Adminis-
trator by not later than January 1,
2004.
‘‘(III) The Administrator shall
develop and promulgate the national
standards referred to in clause (ii) by
not later than July 1, 2004.
‘‘(C) REFERENCE
TO
AVAILABILITY
OF
GRANT
FUNDS.—Grant funds are authorized
under section 399O of the Public Health Serv-
ice Act to provide assistance to health care pro-
viders in implementing electronic prescription
drug programs.
‘‘(4) TREATMENT OF ACCREDITATION.—Section
1852(e)(4) (relating to treatment of accreditation)
shall apply to prescription drug plans under this
part with respect to the following requirements, in
the same manner as they apply to Medicare+Choice
plans under part C with respect to the requirements
described in a clause of section 1852(e)(4)(B):
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2).
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‘‘(B) Subsection (c)(1) (relating to access
to covered benefits).
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL
PRICES FOR EQUIVALENT DRUGS.—Each PDP spon-
sor shall provide that each pharmacy or other dis-
penser that arranges for the dispensing of a covered
outpatient drug shall inform the beneficiary at the
time of purchase of the drug of any differential be-
tween the price of the prescribed drug to the enrollee
and the price of the lowest cost generic drug covered
under the plan that is therapeutically equivalent and
bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETER-
MINATIONS, AND RECONSIDERATIONS.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall
provide meaningful procedures for hearing and re-
solving grievances between the organization (includ-
ing any entity or individual through which the spon-
sor provides covered benefits) and enrollees with pre-
scription drug plans of the sponsor under this part
in accordance with section 1852(f).
‘‘(2) APPLICATION OF COVERAGE DETERMINA-
TION AND RECONSIDERATION PROVISIONS.—A PDP
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sponsor shall meet the requirements of paragraphs
(1) through (3) of section 1852(g) with respect to
covered benefits under the prescription drug plan it
offers under this part in the same manner as such
requirements apply to a Medicare+Choice organiza-
tion with respect to benefits it offers under a
Medicare+Choice plan under part C.
‘‘(3) REQUEST FOR REVIEW OF TIERED FOR-
MULARY DETERMINATIONS.—In the case of a pre-
scription drug plan offered by a PDP sponsor that
provides for tiered cost-sharing for drugs included
within a formulary and provides lower cost-sharing
for preferred drugs included within the formulary,
an individual who is enrolled in the plan may re-
quest coverage of a nonpreferred drug under the
terms applicable for preferred drugs if the pre-
scribing physician determines that the preferred
drug for treatment of the same condition is not as
effective for the individual or has adverse effects for
the individual.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a
PDP sponsor shall meet the requirements of para-
graphs (4) and (5) of section 1852(g) with respect
to drugs not included on any formulary in the same
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manner 
as 
such 
requirements 
apply 
to 
a
Medicare+Choice organization with respect to bene-
fits it offers under a Medicare+Choice plan under
part C.
‘‘(2) FORMULARY DETERMINATIONS.—An indi-
vidual who is enrolled in a prescription drug plan of-
fered by a PDP sponsor may appeal to obtain cov-
erage for a covered outpatient drug that is not on
a formulary of the sponsor if the prescribing physi-
cian determines that the formulary drug for treat-
ment of the same condition is not as effective for the
individual or has adverse effects for the individual.
‘‘(g) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—A PDP sponsor shall meet the re-
quirements of section 1852(h) with respect to enrollees
under this part in the same manner as such requirements
apply to a Medicare+Choice organization with respect to
enrollees under part C.
‘‘SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG
PLAN (PDP) SPONSORS; CONTRACTS; ESTAB-
LISHMENT OF STANDARDS.
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor
of a prescription drug plan shall meet the following re-
quirements:
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‘‘(1) LICENSURE.—Subject to subsection (c),
the sponsor is organized and licensed under State
law as a risk-bearing entity eligible to offer health
insurance or health benefits coverage in each State
in which it offers a prescription drug plan.
‘‘(2) ASSUMPTION OF FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860E(d)(2), the entity
assumes full financial risk on a prospective
basis for qualified prescription drug coverage
that it offers under a prescription drug plan
and that is not covered under section 1860H.
‘‘(B) REINSURANCE PERMITTED.—The en-
tity may obtain insurance or make other ar-
rangements for the cost of coverage provided to
any enrolled member under this part.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—
In the case of a sponsor that is not described in
paragraph (1), the sponsor shall meet solvency
standards established by the Administrator under
subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Administrator shall
not permit the election under section 1860A of a
prescription drug plan offered by a PDP sponsor
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under this part, and the sponsor shall not be eligible
for payments under section 1860G or 1860H, unless
the Administrator has entered into a contract under
this subsection with the sponsor with respect to the
offering of such plan. Such a contract with a spon-
sor may cover more than one prescription drug plan.
Such contract shall provide that the sponsor agrees
to comply with the applicable requirements and
standards of this part and the terms and conditions
of payment as provided for in this part.
‘‘(2) NEGOTIATION
REGARDING
TERMS
AND
CONDITIONS.—The Administrator shall have the
same authority to negotiate the terms and conditions
of prescription drug plans under this part as the Di-
rector of the Office of Personnel Management has
with respect to health benefits plans under chapter
89 of title 5, United States Code. In negotiating the
terms and conditions regarding premiums for which
information is submitted under section 1860F(a)(2),
the Administrator shall take into account the sub-
sidy payments under section 1860H and the ad-
justed community rate (as defined in section
1854(f)(3)) for the benefits covered.
‘‘(3) 
INCORPORATION
OF
CERTAIN
MEDICARE+CHOICE
CONTRACT
REQUIREMENTS.—
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The following provisions of section 1857 shall apply,
subject to subsection (c)(5), to contracts under this
section in the same manner as they apply to con-
tracts under section 1857(a):
‘‘(A) 
MINIMUM
ENROLLMENT.—Para-
graphs (1) and (3) of section 1857(b).
‘‘(B) CONTRACT PERIOD AND EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of
section 1857(c).
‘‘(C) PROTECTIONS AGAINST FRAUD AND
BENEFICIARY PROTECTIONS.—Section 1857(d).
‘‘(D) ADDITIONAL
CONTRACT
TERMS.—
Section 1857(e); except that in applying section
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from
costs under part C);
‘‘(ii) in no case shall the amount of
the fee established under this subpara-
graph for a plan exceed 20 percent of the
maximum amount of the fee that may be
established under subparagraph (B) of
such section; and
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‘‘(iii) no fees shall be applied under
this 
subparagraph 
with 
respect 
to
Medicare+Choice plans.
‘‘(E) INTERMEDIATE SANCTIONS.—Section
1857(g).
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h).
‘‘(4) RULES
OF
APPLICATION
FOR
INTER-
MEDIATE
SANCTIONS.—In 
applying 
paragraph
(3)(E)—
‘‘(A) 
the 
reference 
in 
section
1857(g)(1)(B) to section 1854 is deemed a ref-
erence to this part; and
‘‘(B) 
the 
reference 
in 
section
1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall
not be applied.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EX-
PAND CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity
that seeks to offer a prescription drug plan in a
State, the Administrator shall waive the requirement
of subsection (a)(1) that the entity be licensed in
that State if the Administrator determines, based on
the application and other evidence presented to the
Administrator, that any of the grounds for approval
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of the application described in paragraph (2) has
been met.
‘‘(2) GROUNDS FOR APPROVAL.—The grounds
for approval under this paragraph are the grounds
for approval described in subparagraph (B), (C),
and (D) of section 1855(a)(2), and also include the
application by a State of any grounds other than
those required under Federal law.
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a
waiver granted) under this subsection, the provisions
of subparagraphs (E), (F), and (G) of section
1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
entity is licensed in accordance with subsection
(a)(1) does not deem the entity to meet other re-
quirements imposed under this part for a PDP spon-
sor.
‘‘(5) REFERENCES TO CERTAIN PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application
under section 1855 shall be treated as a ref-
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erence to a waiver application under paragraph
(1); and
‘‘(B) any reference to solvency standards
shall be treated as a reference to solvency
standards established under subsection (d).
‘‘(d) SOLVENCY STANDARDS
FOR NON-LICENSED
SPONSORS.—
‘‘(1) 
ESTABLISHMENT.—The 
Administrator
shall establish, by not later than October 1, 2003,
financial solvency and capital adequacy standards
that an entity that does not meet the requirements
of subsection (a)(1) must meet to qualify as a PDP
sponsor under this part.
‘‘(2) COMPLIANCE
WITH
STANDARDS.—Each
PDP sponsor that is not licensed by a State under
subsection (a)(1) and for which a waiver application
has been approved under subsection (c) shall meet
solvency and capital adequacy standards established
under paragraph (1). The Administrator shall estab-
lish certification procedures for such PDP sponsors
with respect to such solvency standards in the man-
ner described in section 1855(c)(2).
‘‘(e) OTHER STANDARDS.—The Administrator shall
establish by regulation other standards (not described in
subsection (d)) for PDP sponsors and plans consistent
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with, and to carry out, this part. The Administrator shall
publish such regulations by October 1, 2003.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established
under this part shall supersede any State law or reg-
ulation (other than State licensing laws or State
laws relating to plan solvency, except as provided in
subsection (d)) with respect to prescription drug
plans which are offered by PDP sponsors under this
part.
‘‘(2) PROHIBITION OF STATE IMPOSITION OF
PREMIUM TAXES.—No State may impose a premium
tax or similar tax with respect to premiums paid to
PDP sponsors for prescription drug plans under this
part, or with respect to any payments made to such
a sponsor by the Administrator under this part.
‘‘SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) IN GENERAL.—The Administrator shall estab-
lish a process for the selection of the prescription drug
plan or Medicare+Choice plan which offer qualified pre-
scription drug coverage through which eligible individuals
elect qualified prescription drug coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing:
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‘‘(1) Annual, coordinated election periods, in
which such individuals can change the qualifying
plans through which they obtain coverage, in accord-
ance with section 1860A(b)(2).
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans
based upon price, quality, and other features, in the
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-Federal entities.
‘‘(3) Coordination of elections through filing
with a Medicare+Choice organization or a PDP
sponsor, in the manner described in (and in coordi-
nation with) section 1851(c)(2).
‘‘(c) MEDICARE+CHOICE ENROLLEE IN PLAN OF-
FERING PRESCRIPTION DRUG COVERAGE MAY ONLY OB-
TAIN BENEFITS THROUGH
THE PLAN.—An individual
who is enrolled under a Medicare+Choice plan that offers
qualified prescription drug coverage may only elect to re-
ceive qualified prescription drug coverage under this part
through such plan.
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED
PRESCRIPTION DRUG COVERAGE.—
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‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH
AREA.—
‘‘(A) IN
GENERAL.—The Administrator
shall assure that each individual who is entitled
to benefits under part A or enrolled under part
B and who is residing in an area in the United
States has available, consistent with subpara-
graph (B), a choice of enrollment in at least
two qualifying plans (as defined in paragraph
(5)) in the area in which the individual resides,
at least one of which is a prescription drug
plan.
‘‘(B) 
REQUIREMENT
FOR
DIFFERENT
PLAN SPONSORS.—The requirement in subpara-
graph (A) is not satisfied with respect to an
area 
if 
only 
one 
PDP 
sponsor 
or
Medicare+Choice organization offers all the
qualifying plans in the area.
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—
In order to assure access under paragraph (1) and
consistent with paragraph (3), the Administrator
may provide financial incentives (including partial
underwriting of risk) for a PDP sponsor to expand
the service area under an existing prescription drug
plan to adjoining or additional areas or to establish
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such a plan (including offering such a plan on a re-
gional or nationwide basis), but only so long as (and
to the extent) necessary to assure the access guaran-
teed under paragraph (1).
‘‘(3) LIMITATION
ON
AUTHORITY.—In exer-
cising 
authority 
under 
this 
subsection, 
the
Administrator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor;
‘‘(B) shall not provide for any under-
writing of financial risk for a public PDP spon-
sor with respect to the offering of a nationwide
prescription drug plan; and
‘‘(C) shall seek to maximize the assump-
tion of financial risk by PDP sponsors or
Medicare+Choice organizations.
‘‘(4) REPORTS.—The Administrator shall, in
each annual report to Congress under section
1808(f), include information on the exercise of au-
thority under this subsection. The Administrator
also shall include such recommendations as may be
appropriate to minimize the exercise of such author-
ity, including minimizing the assumption of financial
risk.
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‘‘(5) QUALIFYING
PLAN
DEFINED.—For pur-
poses of this subsection, the term ‘qualifying plan’
means 
a 
prescription 
drug 
plan 
or 
a
Medicare+Choice plan that includes qualified pre-
scription drug coverage.
‘‘SEC. 1860F. SUBMISSION OF BIDS.
‘‘(a) SUBMISSION OF BIDS AND RELATED INFORMA-
TION.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall
submit to the Administrator information of the type
described in paragraph (2) in the same manner as
information is submitted by a Medicare+Choice or-
ganization under section 1854(a)(1).
‘‘(2) TYPE OF INFORMATION.—The information
described in this paragraph is the following:
‘‘(A) Information on the qualified prescrip-
tion drug coverage to be provided.
‘‘(B) Information on the actuarial value of
the coverage.
‘‘(C) Information on the bid for the cov-
erage, including an actuarial certification of—
‘‘(i) the actuarial basis for such bid;
‘‘(ii) the portion of such bid attrib-
utable to benefits in excess of standard
coverage; and
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‘‘(iii) the reduction in such bid result-
ing from the subsidy payments provided
under section 1860H.
‘‘(D) Such other information as the Ad-
ministrator may require to carry out this part.
‘‘(3) REVIEW.—The Administrator shall review
the information filed under paragraph (2) for the
purpose of conducting negotiations under section
1860D(b)(2).
‘‘(b) UNIFORM BID.—
‘‘(1) IN GENERAL.—The bid for a prescription
drug plan under this section may not vary among in-
dividuals enrolled in the plan in the same service
area.
‘‘(2) CONSTRUCTION.—Nothing in paragraph
(1) shall be construed as preventing the imposition
of 
a 
late 
enrollment 
penalty 
under 
section
1860A(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) USE OF ELECTRONIC FUNDS TRANSFER
MECHANISM OR, AT BENEFICIARY’S OPTION, WITH-
HOLDING FROM SOCIAL SECURITY PAYMENT.—In ac-
cordance with regulations, a PDP sponsor may en-
courage that enrollees under a plan make payment
of the premium established by the plan under this
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part through an electronic funds transfer mecha-
nism, such as automatic charges of an account at a
financial institution or a credit or debit card ac-
count, or, at the option of an enrollee, through with-
holding from benefit payments in the manner pro-
vided under section 1840 with respect to monthly
premiums under section 1839. All such amounts
shall be credited to the Medicare Prescription Drug
Trust Fund.
‘‘(2) OFFSETTING.—Reductions in premiums
for coverage under parts A and B as a result of a
selection of a Medicare+Choice plan may be used to
reduce the premium otherwise imposed under para-
graph (1).
‘‘(3) PAYMENT OF PLANS.—PDP plans shall re-
ceive payment based on bid amounts in the same
manner as Medicare+Choice organizations receive
payment based on bid amounts under section
1853(a)(1)(A)(ii) except that such payment shall be
made from the Medicare Prescription Drug Trust
Fund.
‘‘(d) ACCEPTANCE
OF BENCHMARK AMOUNT
AS
FULL PREMIUM FOR SUBSIDIZED LOW-INCOME INDIVID-
UALS IF NO STANDARD (OR EQUIVALENT) COVERAGE IN
AN AREA.—
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‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph
(2)) offered in an area, in the case of an individual
who is eligible for a premium subsidy under section
1860G and resides in the area, the PDP sponsor of
any prescription drug plan offered in the area (and
any Medicare+Choice organization that offers quali-
fied prescription drug coverage in the area) shall ac-
cept the benchmark bid amount (under section
1860G(b)(2)) as payment in full for the premium
charge for qualified prescription drug coverage.
‘‘(2) STANDARD
PRESCRIPTION
DRUG
COV-
ERAGE DEFINED.—For purposes of this subsection,
the term ‘standard prescription drug coverage’
means qualified prescription drug coverage that is
standard coverage or that has an actuarial value
equivalent to the actuarial value for standard cov-
erage.
‘‘SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR
LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS
WITH INCOME BELOW 150 PERCENT OF FEDERAL POV-
ERTY LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION
OF COST-SHARING FOR INDIVIDUALS WITH INCOME
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BELOW
150
PERCENT
OF
FEDERAL
POVERTY
LEVEL.—In the case of a subsidy eligible individual
(as defined in paragraph (4)) who is determined to
have income that does not exceed 150 percent of the
Federal poverty level, the individual is entitled under
this section—
‘‘(A) to an income-related premium subsidy
equal to 100 percent of the amount described in
subsection (b)(1); and
‘‘(B) subject to subsection (c), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section
1860B(b) (up to the initial coverage limit speci-
fied in paragraph (3) of such section) of
amounts that do not exceed $2 for a multiple
source or generic drug (as described in section
1927(k)(7)(A)) and $5 for a non-preferred
drug.
‘‘(2) SLIDING SCALE PREMIUM SUBSIDY AND
REDUCTION
OF
COST-SHARING
FOR
INDIVIDUALS
WITH INCOME ABOVE 150, BUT BELOW 175 PERCENT,
OF FEDERAL POVERTY LEVEL.—In the case of a
subsidy eligible individual who is determined to have
income that exceeds 150 percent, but does not ex-
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ceed 175 percent, of the Federal poverty level, the
individual is entitled under this section to—
‘‘(A) an income-related premium subsidy
determined on a linear sliding scale ranging
from 100 percent of the amount described in
subsection (b)(1) for individuals with incomes
at 150 percent of such level to 0 percent of
such amount for individuals with incomes at
175 percent of such level; and
‘‘(B) subject to subsection (c), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section
1860B(b) (up to the initial coverage limit speci-
fied in paragraph (3) of such section) of
amounts that do not exceed $2 for a multiple
source or generic drug (as described in section
1927(k)(7)(A)) and $5 for a non-preferred
drug.
‘‘(3) CONSTRUCTION.—Nothing in this section
shall be construed as preventing a PDP sponsor
from reducing to 0 the cost-sharing otherwise appli-
cable to generic drugs.
‘‘(4) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE-
FINED.—For purposes of this section, subject
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to subparagraph (D), the term ‘subsidy eligible
individual’ means an individual who—
‘‘(i) is eligible to elect, and has elect-
ed, to obtain qualified prescription drug
coverage under this part;
‘‘(ii) has income below 175 percent of
the Federal poverty line; and
‘‘(iii) meets the resources requirement
described in section 1905(p)(1)(C).
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State
is a subsidy eligible individual and the amount
of such individual’s income shall be determined
under the State medicaid plan for the State
under section 1935(a). In the case of a State
that does not operate such a medicaid plan (ei-
ther under title XIX or under a statewide waiv-
er granted under section 1115), such deter-
mination shall be made under arrangements
made by the Administrator.
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the
manner 
described 
in 
section
1905(p)(1)(B); and
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‘‘(ii) the term ‘Federal poverty line’
means the official poverty line (as defined
by the Office of Management and Budget,
and revised annually in accordance with
section 673(2) of the Omnibus Budget
Reconciliation Act of 1981) applicable to a
family of the size involved.
‘‘(D) TREATMENT OF TERRITORIAL RESI-
DENTS.—In the case of an individual who is not
a resident of the 50 States or the District of
Columbia, the individual is not eligible to be a
subsidy eligible individual but may be eligible
for financial assistance with prescription drug
expenses under section 1935(e).
‘‘(E) 
TREATMENT
OF
CONFORMING
MEDIGAP POLICIES.—For purposes of this sec-
tion, the term ‘qualified prescription drug cov-
erage’ includes a medicare supplemental policy
described in section 1860H(b)(4).
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) FOR 2006.—The dollar amounts ap-
plied under paragraphs (1)(B) and (2)(B) for
2006 shall be the dollar amounts specified in
such paragraph increased by the annual per-
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centage 
increase 
described 
in 
section
1860B(b)(5) for 2006.
‘‘(B) FOR SUBSEQUENT YEARS.—The dol-
lar amounts applied under paragraphs (1)(B)
and (2)(B) for a year after 2006 shall be the
amounts (under this paragraph) applied under
paragraph (1)(B) or (2)(B) for the preceding
year increased by the annual percentage in-
crease described in section 1860B(b)(5) (relat-
ing to growth in medicare prescription drug
costs per beneficiary) for the year involved.
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN
GENERAL.—The premium subsidy
amount described in this subsection for an individual
residing in an area is the benchmark bid amount (as
defined in paragraph (2)) for qualified prescription
drug coverage offered by the prescription drug plan
or the Medicare+Choice plan in which the individual
is enrolled.
‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For
purposes of this subsection, the term ‘benchmark bid
amount’ means, with respect to qualified prescrip-
tion drug coverage offered under—
‘‘(A) a prescription drug plan that—
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‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the
actuarial value is equivalent to that of
standard coverage), the bid amount for en-
rollment under the plan under this part
(determined without regard to any subsidy
under this section or any late enrollment
penalty under section 1860A(c)(2)(B)); or
‘‘(ii) provides alternative prescription
drug coverage the actuarial value of which
is greater than that of standard coverage,
the bid amount described in clause (i) mul-
tiplied by the ratio of (I) the actuarial
value of standard coverage, to (II) the ac-
tuarial value of the alternative coverage; or
‘‘(B) a Medicare+Choice plan, the portion
of the bid amount that is attributable to statu-
tory 
drug 
benefits 
(described 
in 
section
1853(a)(1)(A)(ii)(II)).
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsections
(a)(1)(B) and (a)(2)(B), nothing in this part shall
be construed as preventing a plan or provider from
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waiving or reducing the amount of cost-sharing oth-
erwise applicable.
‘‘(2) LIMITATION ON CHARGES.—In the case of
an individual receiving cost-sharing subsidies under
subsection (a)(1)(B) or (a)(2)(B), the PDP sponsor
may not charge more than $5 per prescription.
‘‘(3) APPLICATION OF INDEXING RULES.—The
provisions of subsection (a)(4) shall apply to the dol-
lar amount specified in paragraph (2) in the same
manner as they apply to the dollar amounts specified
in subsections (a)(1)(B) and (a)(2)(B).
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The
Administrator shall provide a process whereby, in the case
of an individual who is determined to be a subsidy eligible
individual and who is enrolled in prescription drug plan
or is enrolled in a Medicare+Choice plan under which
qualified prescription drug coverage is provided—
‘‘(1) the Administrator provides for a notifica-
tion of the PDP sponsor or Medicare+Choice orga-
nization involved that the individual is eligible for a
subsidy and the amount of the subsidy under sub-
section (a);
‘‘(2) the sponsor or organization involved re-
duces the premiums or cost-sharing otherwise im-
posed by the amount of the applicable subsidy and
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submits to the Administrator information on the
amount of such reduction; and
‘‘(3) the Administrator periodically and on a
timely basis reimburses the sponsor or organization
for the amount of such reductions.
The reimbursement under paragraph (3) with respect to
cost-sharing subsidies may be computed on a capitated
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved.
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN
GENERAL.—For provisions providing
for eligibility determinations, and additional financ-
ing, under the medicaid program, see section 1935.
‘‘(2) MEDICAID PROVIDING WRAP AROUND BEN-
EFITS.—The coverage provided under this part is
primary payor to benefits for prescribed drugs pro-
vided under the medicaid program under title XIX.
‘‘(3) COORDINATION.—The Administrator shall
develop and implement a plan for the coordination
of prescription drug benefits under this part with
the benefits provided under the medicaid program
under title XIX, with particular attention to insur-
ing coordination of payments and prevention of
fraud and abuse. In developing and implementing
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such plan, the Administrator shall involve the Sec-
retary, the States, the data processing industry,
pharmacists, and pharmaceutical manufacturers,
and other experts.
‘‘SEC. 
1860H. 
SUBSIDIES 
FOR 
ALL 
MEDICARE 
BENE-
FICIARIES FOR QUALIFIED PRESCRIPTION
DRUG COVERAGE.
‘‘(a) SUBSIDY PAYMENT.—In order to reduce pre-
mium levels applicable to qualified prescription drug cov-
erage for all medicare beneficiaries consistent with an
overall subsidy level of 66 percent, to reduce adverse selec-
tion among prescription drug plans and Medicare+Choice
plans that provide qualified prescription drug coverage,
and to promote the participation of PDP sponsors under
this part, the Administrator shall provide in accordance
with this section for payment to a qualifying entity (as
defined in subsection (b)) of the following subsidies:
‘‘(1) DIRECT SUBSIDY.—In the case of an indi-
vidual enrolled in a prescription drug plan,
Medicare+Choice plan that provides qualified pre-
scription drug coverage, or qualified retiree prescrip-
tion drug plan, a direct subsidy equal to 36 percent
of the total payments made by a qualifying entity
for standard drug coverage provided under the re-
spective plan.
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‘‘(2) SUBSIDY
THROUGH
REINSURANCE.—The
reinsurance payment amount (as defined in sub-
section (c)), which in the aggregate is 30 percent of
such total payments, for excess costs incurred in
providing qualified prescription drug coverage—
‘‘(A) for individuals enrolled with a pre-
scription drug plan under this part;
‘‘(B) for individuals enrolled with a
Medicare+Choice plan that provides qualified
prescription drug coverage under part C; and
‘‘(C) for individuals who are enrolled in a
qualified retiree prescription drug plan.
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts pro-
vided under this section.
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes
of this section, the term ‘qualifying entity’ means any of
the following that has entered into an agreement with the
Administrator to provide the Administrator with such in-
formation as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription
drug plan under this part.
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‘‘(2) A Medicare+Choice organization that pro-
vides qualified prescription drug coverage under a
Medicare+Choice plan under part C.
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)).
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN
GENERAL.—Subject to subsection
(d)(2) and paragraph (4), the reinsurance payment
amount under this subsection for a qualifying cov-
ered individual (as defined in subsection (g)(1)) for
a coverage year (as defined in subsection (g)(2)) is
equal to the sum of the following:
‘‘(A) For the portion of the individual’s
gross covered prescription drug costs (as de-
fined in paragraph (3)) for the year that ex-
ceeds the initial copayment threshold specified
in section 1860B(b)(2)(C), but does not exceed
the initial coverage limit specified in section
1860B(b)(3), an amount equal to 30 percent of
the allowable costs (as defined in paragraph
(2)) attributable to such gross covered prescrip-
tion drug costs.
‘‘(B) For the portion of the individual’s
gross covered prescription drug costs for the
year that exceeds the annual out-of-pocket
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threshold specified in 1860B(b)(4)(B), an
amount equal to 80 percent of the allowable
costs attributable to such gross covered pre-
scription drug costs.
‘‘(2) ALLOWABLE COSTS.—For purposes of this
section, the term ‘allowable costs’ means, with re-
spect to gross covered prescription drug costs under
a plan described in subsection (b) offered by a quali-
fying entity, the part of such costs that are actually
paid (net of average percentage rebates) under the
plan, but in no case more than the part of such
costs that would have been paid under the plan if
the prescription drug coverage under the plan were
standard coverage.
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG
COSTS.—For purposes of this section, the term
‘gross covered prescription drug costs’ means, with
respect to an enrollee with a qualifying entity under
a plan described in subsection (b) during a coverage
year, the costs incurred under the plan (including
costs attributable to administrative costs) for cov-
ered prescription drugs dispensed during the year,
including costs relating to the deductible, whether
paid by the enrollee or under the plan, regardless of
whether the coverage under the plan exceeds stand-
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ard coverage and regardless of when the payment
for such drugs is made.
‘‘(4) INDEXING DOLLAR AMOUNTS.—
‘‘(A) AMOUNTS
FOR
2005.—The dollar
amounts applied under paragraph (1) for 2005
shall be the dollar amounts specified in such
paragraph.
‘‘(B) FOR 2006.—The dollar amounts ap-
plied under paragraph (1) for 2006 shall be the
dollar amounts specified in such paragraph in-
creased by the annual percentage increase de-
scribed in section 1860B(b)(5) for 2006.
‘‘(C) FOR SUBSEQUENT YEARS.—The dol-
lar amounts applied under paragraph (1) for a
year after 2006 shall be the amounts (under
this paragraph) applied under paragraph (1)
for the preceding year increased by the annual
percentage 
increase 
described 
in 
section
1860B(b)(5) (relating to growth in medicare
prescription drug costs per beneficiary) for the
year involved.
‘‘(D) ROUNDING.—Any amount, deter-
mined under the preceding provisions of this
paragraph for a year, which is not a multiple of
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$10 shall be rounded to the nearest multiple of
$10.
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) ADJUSTMENT
OF
REINSURANCE
PAY-
MENTS TO ASSURE 30 PERCENT LEVEL OF SUBSIDY
THROUGH REINSURANCE.—
‘‘(A) ESTIMATION
OF
PAYMENTS.—The
Administrator shall estimate—
‘‘(i) the total payments to be made
(without regard to this subsection) during
a year under subsections (a)(2) and (c);
and
‘‘(ii) the total payments to be made by
qualifying entities for standard coverage
under plans described in subsection (b)
during the year.
‘‘(B) ADJUSTMENT.—The Administrator
shall proportionally adjust the payments made
under subsections (a)(2) and (c) for a coverage
year in such manner so that the total of the
payments made under such subsections for the
year is equal to 30 percent of the total pay-
ments described in subparagraph (A)(ii).
‘‘(2) RISK
ADJUSTMENT
FOR
DIRECT
SUB-
SIDIES.—To the extent the Administrator deter-
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mines it appropriate to avoid risk selection, the pay-
ments made for direct subsidies under subsection
(a)(1) are subject to adjustment based upon risk
factors specified by the Administrator. Any such risk
adjustment shall be designed in a manner as to not
result in a change in the aggregate payments made
under such subsection.
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Admin-
istrator determines. The Administrator may estab-
lish a payment method by which interim payments
of amounts under this section are made during a
year based on the Administrator’s best estimate of
amounts that will be payable after obtaining all of
the information.
‘‘(2) SOURCE OF PAYMENTS.—Payments under
this section shall be made from the Medicare Pre-
scription Drug Trust Fund.
‘‘(f) QUALIFIED
RETIREE
PRESCRIPTION
DRUG
PLAN DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified retiree prescription drug
plan’ means employment-based retiree health cov-
erage (as defined in paragraph (3)(A)) if, with re-
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spect to an individual enrolled (or eligible to be en-
rolled) under this part who is covered under the
plan, the following requirements are met:
‘‘(A) ASSURANCE.—The sponsor of the
plan shall annually attest, and provide such as-
surances as the Administrator may require,
that the coverage meets or exceeds the require-
ments for qualified prescription drug coverage.
‘‘(B) AUDITS.—The sponsor (and the plan)
shall maintain, and afford the Administrator
access to, such records as the Administrator
may require for purposes of audits and other
oversight activities necessary to ensure the ade-
quacy of prescription drug coverage, and the ac-
curacy of payments made.
‘‘(C) PROVISION
OF
CERTIFICATION
OF
PRESCRIPTION DRUG COVERAGE.—The sponsor
of the plan shall provide for issuance of certifi-
cations of the type described in section
1860A(c)(2)(D).
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—
No payment shall be provided under this section
with respect to an individual who is enrolled under
a qualified retiree prescription drug plan unless the
individual is—
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‘‘(A) enrolled under this part;
‘‘(B) is covered under the plan; and
‘‘(C) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860A but did
not elect such coverage under this part (either
through a prescription drug plan or through a
Medicare+Choice plan).
‘‘(3) DEFINITIONS.—As used in this section:
‘‘(A) 
EMPLOYMENT-BASED
RETIREE
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs
for individuals enrolled under this part (or for
such individuals and their spouses and depend-
ents) based on their status as former employees
or labor union members.
‘‘(B) 
SPONSOR.—The 
term 
‘sponsor’
means a plan sponsor, as defined in section
3(16)(B) of the Employee Retirement Income
Security Act of 1974.
‘‘(g) GENERAL DEFINITIONS.—For purposes of this
section:
‘‘(1) QUALIFYING COVERED INDIVIDUAL.—The
term ‘qualifying covered individual’ means an indi-
vidual who—
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‘‘(A) is enrolled with a prescription drug
plan under this part;
‘‘(B) is enrolled with a Medicare+Choice
plan that provides qualified prescription drug
coverage under part C; or
‘‘(C) is enrolled for benefits under this title
and is covered under a qualified retiree pre-
scription drug plan.
‘‘(2) COVERAGE
YEAR.—The term ‘coverage
year’ means a calendar year in which covered out-
patient drugs are dispensed if a claim for payment
is made under the plan for such drugs, regardless of
when the claim is paid.
‘‘SEC. 1860I. MEDICARE PRESCRIPTION DRUG TRUST FUND.
‘‘(a) IN GENERAL.—There is created on the books
of the Treasury of the United States a trust fund to be
known as the ‘Medicare Prescription Drug Trust Fund’
(in this section referred to as the ‘Trust Fund’). The
Trust Fund shall consist of such gifts and bequests as
may be made as provided in section 201(i)(1), and such
amounts as may be deposited in, or appropriated to, such
fund as provided in this part. Except as otherwise pro-
vided in this section, the provisions of subsections (b)
through (i) of section 1841 shall apply to the Trust Fund
in the same manner as they apply to the Federal Supple-
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mentary Medical Insurance Trust Fund under such sec-
tion.
‘‘(b) PAYMENTS FROM TRUST FUND.—
‘‘(1) IN
GENERAL.—The Managing Trustee
shall pay from time to time from the Trust Fund
such amounts as the Administrator certifies are nec-
essary to make—
‘‘(A) payments under section 1860G (relat-
ing to low-income subsidy payments);
‘‘(B) payments under section 1860H (re-
lating to subsidy payments); and
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with
section 201(g).
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR
INCREASED
ADMINISTRATIVE
COSTS.—The Man-
aging Trustee shall transfer from time to time from
the Trust Fund to the Grants to States for Medicaid
account amounts the Administrator certifies are at-
tributable to increases in payment resulting from the
application of a higher Federal matching percentage
under section 1935(b).
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is hereby
transferred to the Trust Fund, from amounts appro-
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priated for Grants to States for Medicaid, amounts
equivalent to the aggregate amount of the reductions
in payments under section 1903(a)(1) attributable to
the application of section 1935(c).
‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT
CONTRIBUTIONS.—There are authorized to be appro-
priated from time to time, out of any moneys in the
Treasury not otherwise appropriated, to the Trust
Fund, an amount equivalent to the amount of pay-
ments made from the Trust Fund under subsection
(b), reduced by the amount transferred to the Trust
Fund under paragraph (1).
‘‘(d) RELATION
TO SOLVENCY REQUIREMENTS.—
Any provision of law that relates to the solvency of the
Trust Fund under this part shall take into account the
Trust Fund and amounts receivable by, or payable from,
the Trust Fund.
‘‘SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES
TO PROVISIONS IN PART C.
‘‘(a) DEFINITIONS.—For purposes of this part:
‘‘(1) COVERED OUTPATIENT DRUGS.—The term
‘covered outpatient drugs’ is defined in section
1860B(f).
‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means such limit as established
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under section 1860B(b)(3), or, in the case of cov-
erage that is not standard coverage, the comparable
limit (if any) established under the coverage.
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
TRUST
FUND.—The term ‘Medicare Prescription Drug
Trust Fund’ means the Trust Fund created under
section 1860I(a).
‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’
means an entity that is certified under this part as
meeting the requirements and standards of this part
for such a sponsor.
‘‘(5) PRESCRIPTION
DRUG
PLAN.—The term
‘prescription drug plan’ means health benefits cov-
erage that—
‘‘(A) is offered under a policy, contract, or
plan by a PDP sponsor pursuant to, and in ac-
cordance with, a contract between the Adminis-
trator and the sponsor under section 1860D(b);
‘‘(B) provides qualified prescription drug
coverage; and
‘‘(C) meets the applicable requirements of
the section 1860C for a prescription drug plan.
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860B(a).
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‘‘(7) STANDARD COVERAGE.—The term ‘stand-
ard coverage’ is defined in section 1860B(b).
‘‘(b) APPLICATION OF MEDICARE+CHOICE PROVI-
SIONS UNDER THIS PART.—For purposes of applying pro-
visions of part C under this part with respect to a pre-
scription drug plan and a PDP sponsor, unless otherwise
provided in this part such provisions shall be applied as
if—
‘‘(1) any reference to a Medicare+Choice plan
included a reference to a prescription drug plan;
‘‘(2) any reference to a provider-sponsored or-
ganization included a reference to a PDP sponsor;
‘‘(3) any reference to a contract under section
1857 included a reference to a contract under sec-
tion 1860D(b); and
‘‘(4) any reference to part C included a ref-
erence to this part.’’.
(b) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART D.—Any reference in law (in effect before the
date of the enactment of this Act) to part D of title
XVIII of the Social Security Act is deemed a ref-
erence to part E of such title (as in effect after such
date).
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(2) CONFORMING
AMENDMENT
PERMITTING
WAIVER
OF
COST-SHARING.—Section 1128B(b)(3)
(42 U.S.C. 1320a–7b(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (E);
(B) by striking the period at the end of
subparagraph (F) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(G) the waiver or reduction of any cost-shar-
ing imposed under part D of title XVIII.’’.
(3) SUBMISSION OF LEGISLATIVE PROPOSAL.—
Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and
Human Services shall submit to the appropriate
committees of Congress a legislative proposal pro-
viding for such technical and conforming amend-
ments in the law as are required by the provisions
of this subtitle.
(c) STUDY ON TRANSITIONING PART B PRESCRIP-
TION DRUG COVERAGE.—Not later than January 1, 2004,
the Medicare Benefits Administrator shall submit a report
to Congress that makes recommendations regarding meth-
ods for providing benefits under part D of title XVIII of
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the Social Security Act for outpatient prescription drugs
for which benefits are provided under part B of such title.
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG
COVERAGE UNDER THE MEDICARE+CHOICE
PROGRAM.
(a) IN GENERAL.—Section 1851 (42 U.S.C. 1395w–
21) is amended by adding at the end the following new
subsection:
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS.—
‘‘(1) OFFER
OF
QUALIFIED
PRESCRIPTION
DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—A Medicare+Choice
organization may not offer prescription drug
coverage (other than that required under parts
A 
and 
B) 
to 
an 
enrollee 
under 
a
Medicare+Choice plan unless such drug cov-
erage is at least qualified prescription drug cov-
erage and unless the requirements of this sub-
section with respect to such coverage are met.
‘‘(B) CONSTRUCTION.—Nothing in this
subsection shall be construed as—
‘‘(i) requiring a Medicare+Choice
plan to include coverage of qualified pre-
scription drug coverage; or
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‘‘(ii) permitting a Medicare+Choice
organization from providing such coverage
to an individual who has not elected such
coverage under section 1860A(b).
For purposes of this part, an individual who
has not elected qualified prescription drug cov-
erage under section 1860A(b) shall be treated
as 
being 
ineligible 
to 
enroll 
in 
a
Medicare+Choice plan under this part that of-
fers such coverage.
‘‘(2) COMPLIANCE
WITH
ADDITIONAL
BENE-
FICIARY PROTECTIONS.—With respect to the offer-
ing of qualified prescription drug coverage by a
Medicare+Choice 
organization 
under 
a
Medicare+Choice plan, the organization and plan
shall meet the requirements of section 1860C, in-
cluding requirements relating to information dis-
semination and grievance and appeals, in the same
manner as they apply to a PDP sponsor and a pre-
scription drug plan under part D and shall submit
to the Administrator the information described in
section 1860F(a)(2). The Administrator shall waive
such requirements to the extent the Administrator
determines that such requirements duplicate require-
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ments otherwise applicable to the organization or
plan under this part.
‘‘(3) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES FOR LOW-INCOME ENROLLEES
AND DIRECT AND REINSURANCE SUBSIDY PAYMENTS
FOR ORGANIZATIONS.—For provisions—
‘‘(A) providing premium and cost-sharing
subsidies to low-income individuals receiving
qualified prescription drug coverage through a
Medicare+Choice plan, see section 1860G; and
‘‘(B) providing a Medicare+Choice organi-
zation with direct and insurance subsidy pay-
ments for providing qualified prescription drug
coverage under this part, see section 1860H.
‘‘(4) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this
part, the annual, coordinated election period under
subsection (e)(3)(B) for 2005 shall be the 6-month
period beginning with November 2004.
‘‘(5) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE; STANDARD
COVERAGE.—For purposes of
this part, the terms ‘qualified prescription drug cov-
erage’ and ‘standard coverage’ have the meanings
given such terms in section 1860B.’’.
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(b) CONFORMING AMENDMENTS.—Section 1851 (42
U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’;
(B) by striking the period at the end of
subparagraph (B) and inserting a comma; and
(C) by adding after and below subpara-
graph (B) the following:
‘‘and may elect qualified prescription drug coverage
in accordance with section 1860A.’’; and
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860A(c)(2)(B)’’ after ‘‘in this subsection’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to coverage provided on or after January
1, 2005.
SEC. 103. MEDICAID AMENDMENTS.
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) 
REQUIREMENT.—Section 
1902(a) 
(42
U.S.C. 1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64);
(B) by striking the period at the end of
paragraph (65) and inserting ‘‘; and’’; and
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(C) by inserting after paragraph (65) the
following new paragraph:
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’.
(2) NEW
SECTION.—Title XIX is further
amended—
(A) by redesignating section 1935 as sec-
tion 1936; and
(B) by inserting after section 1934 the fol-
lowing new section:
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE
PRESCRIPTION DRUG BENEFIT
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—As a condition of its State plan under this title
under section 1902(a)(66) and receipt of any Federal fi-
nancial assistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860G;
‘‘(2) inform the Administrator of the Medicare
Benefits Administration of such determinations in
cases in which such eligibility is established; and
‘‘(3) otherwise provide such Administrator with
such information as may be required to carry out
part D of title XVIII (including section 1860G).
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‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by
a State in carrying out subsection (a) are, subject to
paragraph (2), expenditures reimbursable under the
appropriate paragraph of section 1903(a); except
that, notwithstanding any other provision of such
section, the applicable Federal matching rates with
respect to such expenditures under such section shall
be increased as follows (but in no case shall the rate
as so increased exceed 100 percent):
‘‘(A) For expenditures attributable to costs
incurred during 2005, the otherwise applicable
Federal matching rate shall be increased by 10
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(B)(i) For expenditures attributable to
costs incurred during 2006 and each subse-
quent year through 2013, the otherwise applica-
ble Federal matching rate shall be increased by
the applicable percent (as defined in clause (ii))
of the percentage otherwise payable (but for
this subsection) by the State.
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
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‘‘(I) 2006 is 20 percent; or
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 10 percentage
points.
‘‘(C) For expenditures attributable to costs
incurred after 2013, the otherwise applicable
Federal matching rate shall be increased to 100
percent.
‘‘(2) COORDINATION.—The State shall provide
the Administrator with such information as may be
necessary to properly allocate administrative expend-
itures described in paragraph (1) that may otherwise
be made for similar eligibility determinations.’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN
GENERAL.—Section 1903(a)(1) (42
U.S.C. 1396b(a)(1)) is amended by inserting before
the semicolon the following: ‘‘, reduced by the
amount computed under section 1935(c)(1) for the
State and the quarter’’.
(2) AMOUNT DESCRIBED.—Section 1935, as in-
serted by subsection (a)(2), is amended by adding at
the end the following new subsection:
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‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section
1903(a)(1), for a State that is one of the 50 States
or the District of Columbia for a calendar quarter
in a year (beginning with 2005) the amount com-
puted under this subsection is equal to the product
of the following:
‘‘(A) MEDICARE
SUBSIDIES.—The total
amount of payments made in the quarter under
section 1860G (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the
State and are entitled to benefits with respect
to prescribed drugs under the State plan under
this title (including such a plan operating under
a waiver under section 1115).
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent
the Federal medical assistance percentage (as
defined in section 1905(b)) applicable to the
State and the quarter.
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‘‘(C) 
PHASE-OUT
PROPORTION.—The
phase-out proportion (as defined in paragraph
(2)) for the quarter.
‘‘(2) PHASE-OUT PROPORTION.—For purposes
of paragraph (1)(C), the ‘phase-out proportion’ for
a calendar quarter in—
‘‘(A) 2005 is 90 percent;
‘‘(B) a subsequent year before 2014, is the
phase-out proportion for calendar quarters in
the previous year decreased by 10 percentage
points; or
‘‘(C) a year after 2013 is 0 percent.’’.
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935, as so inserted and amended, is fur-
ther amended by adding at the end the following new sub-
section:
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the
case of an individual who is entitled to qualified pre-
scription drug coverage under a prescription drug
plan under part D of title XVIII (or under a
Medicare+Choice plan under part C of such title)
and medical assistance for prescribed drugs under
this title, medical assistance shall continue to be pro-
vided under this title for prescribed drugs to the ex-
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tent payment is not made under the prescription
drug plan or the Medicare+Choice plan selected by
the individual.
‘‘(2) CONDITION.—A State may require, as a
condition for the receipt of medical assistance under
this title with respect to prescription drug benefits
for an individual eligible to obtain qualified prescrip-
tion drug coverage described in paragraph (1), that
the individual elect qualified prescription drug cov-
erage under section 1860A.’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935, as so inserted
and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to
subsection (e)’’ after ‘‘section 1903(a)’’;
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and
(C) by adding at the end the following new
subsection:
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN
GENERAL.—In the case of a State,
other than the 50 States and the District of
Columbia—
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‘‘(A) the previous provisions of this section
shall not apply to residents of such State; and
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the
amount otherwise determined under section
1108(f) (as increased under section 1108(g))
for the State shall be increased by the amount
specified in paragraph (3).
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient
drugs (as defined in section 1860B(f)) to low-
income medicare beneficiaries; and
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the
operation of this subsection are used only for
such assistance.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified
in this paragraph for a State for a year is equal
to the product of—
HR 4984 RH1S
‘‘(i) the aggregate amount specified in
subparagraph (B); and
‘‘(ii) the amount specified in section
1108(g)(1) for that State, divided by the
sum of the amounts specified in such sec-
tion for all such States.
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph
for—
‘‘(i) 2005, is equal to $20,000,000; or
‘‘(ii) a subsequent year, is equal to the
aggregate amount specified in this sub-
paragraph for the previous year increased
by annual percentage increase specified in
section 1860B(b)(5) for the year involved.
‘‘(4) REPORT.—The Administrator shall submit
to Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Administrator deems appro-
priate.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1108(f) (42 U.S.C. 1308(f)) is amended by inserting
‘‘and section 1935(e)(1)(B)’’ after ‘‘Subject to sub-
section (g)’’.
HR 4984 RH1S
(e) 
AMENDMENT
TO
BEST
PRICE.—Section
1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) 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 inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
clause:
‘‘(V) any prices charged which
are negotiated by a prescription drug
plan under part D of title XVIII, by
a Medicare+Choice plan under part C
of such title with respect to covered
outpatient drugs, or by a qualified re-
tiree prescription drug plan (as de-
fined in section 1860H(f)(1)) with re-
spect to such drugs on behalf of indi-
viduals entitled to benefits under part
A or enrolled under part B of such
title.’’.
SEC. 104. MEDIGAP TRANSITION.
(a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss)
is amended by adding at the end the following new sub-
section:
HR 4984 RH1S
‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, except as provided in paragraph (3)
no new medicare supplemental policy that provides
coverage of expenses for prescription drugs may be
issued under this section on or after January 1,
2005, to an individual unless it replaces a medicare
supplemental policy that was issued to that indi-
vidual and that provided some coverage of expenses
for prescription drugs.
‘‘(2) ISSUANCE
OF
SUBSTITUTE
POLICIES
IF
OBTAIN
PRESCRIPTION
DRUG
COVERAGE
UNDER
PART D.—
‘‘(A) IN GENERAL.—The issuer of a medi-
care supplemental policy—
‘‘(i) may not deny or condition the
issuance or effectiveness of a medicare
supplemental policy that has a benefit
package classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’,
‘F’, or ‘G’ (under the standards estab-
lished under subsection (p)(2)) and that is
offered and is available for issuance to new
enrollees by such issuer;
‘‘(ii) may not discriminate in the pric-
ing of such policy, because of health sta-
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tus, claims experience, receipt of health
care, or medical condition; and
‘‘(iii) may not impose an exclusion of
benefits based on a pre-existing condition
under such policy,
in the case of an individual described in sub-
paragraph (B) who seeks to enroll under the
policy not later than 63 days after the date of
the termination of enrollment described in such
paragraph and who submits evidence of the
date of termination or disenrollment along with
the application for such medicare supplemental
policy.
‘‘(B) INDIVIDUAL
COVERED.—An indi-
vidual described in this subparagraph is an in-
dividual who—
‘‘(i) enrolls in a prescription drug plan
under part D; and
‘‘(ii) at the time of such enrollment
was enrolled and terminates enrollment in
a medicare supplemental policy which has
a benefit package classified as ‘H’, ‘I’, or
‘J’ under the standards referred to in sub-
paragraph (A)(i) or terminates enrollment
in a policy to which such standards do not
HR 4984 RH1S
apply but which provides benefits for pre-
scription drugs.
‘‘(C) ENFORCEMENT.—The provisions of
paragraph (4) of subsection (s) shall apply with
respect to the requirements of this paragraph in
the same manner as they apply to the require-
ments of such subsection.
‘‘(3) NEW STANDARDS.—In applying subsection
(p)(1)(E) (including permitting the NAIC to revise
its model regulations in response to changes in law)
with respect to the change in benefits resulting from
title I of the Medicare Modernization and Prescrip-
tion Drug Act of 2002, with respect to policies
issued to individuals who are enrolled under part D,
the changes in standards shall provide only provide
for substituting for the benefit packages that in-
cluded coverage for prescription drugs two benefit
packages that may provide for coverage of cost-shar-
ing with respect to qualified prescription drug cov-
erage under such part, except that such coverage
may not cover the prescription drug deductible
under such part. The two benefit packages shall be
consistent with the following:
‘‘(A) FIRST NEW POLICY.—The policy de-
scribed in this subparagraph has the following
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benefits, notwithstanding any other provision of
this section relating to a core benefit package:
‘‘(i) Coverage of 50 percent of the
cost-sharing otherwise applicable, except
coverage of 100 percent of any cost-shar-
ing otherwise applicable for preventive ben-
efits.
‘‘(ii) No coverage of the part B de-
ductible.
‘‘(iii) Coverage for all hospital coin-
surance for long stays (as in the current
core benefit package).
‘‘(iv) A limitation on annual out-of-
pocket expenditures to $4,000 in 2005 (or,
in a subsequent year, to such limitation for
the previous year increased by an appro-
priate inflation adjustment specified by the
Secretary).
‘‘(B) SECOND
NEW
POLICY.—The policy
described in this subparagraph has the same
benefits as the policy described in subparagraph
(A), except as follows:
‘‘(i) Substitute ‘75 percent’ for ‘50
percent’ in clause (i) of such subpara-
graph.
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‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’
in clause (iv) of such subparagraph.
‘‘(4) CONSTRUCTION.—Any provision in this
section or in a medicare supplemental policy relating
to guaranteed renewability of coverage shall be
deemed to have been met through the offering of
other coverage under this subsection.’’.
SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT
CARD ENDORSEMENT PROGRAM.
Title XVIII is amended by inserting after section
1806 the following new section:
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD
ENDORSEMENT PROGRAM
‘‘SEC. 1807. (a) IN GENERAL.—The Secretary (or
the Medicare Benefits Administrator pursuant to section
1808(c)(3)(C)) shall establish a program—
‘‘(1) to endorse prescription drug discount card
programs that meet the requirements of this section;
and
‘‘(2) to make available to medicare beneficiaries
information regarding such endorsed programs.
‘‘(b) REQUIREMENTS
FOR
ENDORSEMENT.—The
Secretary may not endorse a prescription drug discount
card program under this section unless the program meets
the following requirements:
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‘‘(1) SAVINGS TO MEDICARE BENEFICIARIES.—
The program passes on to medicare beneficiaries
who enroll in the program discounts on prescription
drugs, including discounts negotiated with manufac-
turers.
‘‘(2) PROHIBITION ON APPLICATION ONLY TO
MAIL ORDER.—The program applies to drugs that
are available other than solely through mail order.
‘‘(3) BENEFICIARY
SERVICES.—The program
provides pharmaceutical support services, such as
education and counseling, and services to prevent
adverse drug interactions.
‘‘(4) 
INFORMATION.—The 
program 
makes
available to medicare beneficiaries through the Inter-
net and otherwise information, including information
on enrollment fees, prices charged to beneficiaries,
and services offered under the program, that the
Secretary identifies as being necessary to provide for
informed choice by beneficiaries among endorsed
programs.
‘‘(5) DEMONSTRATED EXPERIENCE.—The enti-
ty operating the program has demonstrated experi-
ence and expertise in operating such a program or
a similar program.
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‘‘(6) QUALITY ASSURANCE.—The entity has in
place adequate procedures for assuring quality serv-
ice under the program.
‘‘(7) 
ADDITIONAL
BENEFICIARY
PROTEC-
TIONS.—The program meets such additional require-
ments as the Secretary identifies to protect and pro-
mote the interest of medicare beneficiaries, including
requirements that ensure that beneficiaries are not
charged more than the lower of the negotiated retail
price or the usual and customary price.
‘‘(c) PROGRAM OPERATION.—The Secretary shall op-
erate the program under this section consistent with the
following:
‘‘(1) PROMOTION
OF
INFORMED
CHOICE.—In
order to promote informed choice among endorsed
prescription drug discount card programs, the Sec-
retary shall provide for the dissemination of infor-
mation which compares the costs and benefits of
such programs in a manner coordinated with the
dissemination 
of 
educational 
information 
on
Medicare+Choice plans under part C.
‘‘(2) OVERSIGHT.—The Secretary shall provide
appropriate oversight to ensure compliance of en-
dorsed programs with the requirements of this sec-
100
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tion, including verification of the discounts and serv-
ices provided.
‘‘(3) USE OF MEDICARE TOLL-FREE NUMBER.—
The Secretary shall provide through the 1-800-medi-
care toll free telephone number for the receipt and
response to inquiries and complaints concerning the
program and programs endorsed under this section.
‘‘(4) DISQUALIFICATION
FOR
ABUSIVE
PRAC-
TICES.—The Secretary shall revoke the endorsement
of a program that the Secretary determines no
longer meets the requirements of this section or that
has engaged in false or misleading marketing prac-
tices.
‘‘(5) ENROLLMENT
PRACTICES.—A medicare
beneficiary may not be enrolled in more than one en-
dorsed program at any time.
‘‘(d) TRANSITION.—The Secretary shall provide for
an appropriate transition and discontinuation of the pro-
gram under this section at the time prescription drug ben-
efits first become available under part D.
‘‘(e) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as may be
necessary to carry out the program under this section.’’.
101
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SEC. 106. GAO STUDY OF THE EFFECTIVENESS OF THE NEW
PRESCRIPTION DRUG PROGRAM.
(a) STUDY.—The Comptroller General of the United
States shall conduct a study on the effectiveness of the
prescription drug program provided under part D of title
XVIII of the Social Security Act. Such study shall—
(1) report—
(A) the percentage of eligible individuals
who enrolled in the program;
(B) the demographic characteristics (in-
cluding health status) of such enrollees;
(C) the number and type of qualified pre-
scription drug coverage available to such indi-
viduals (including the percentage of enrollees
who had access to single or multiple plans); and
(D) the premiums imposed for enrollment
in different areas;
(2) evaluate the processes and methods devel-
oped by the Administrator and the decisions reached
by outside actuaries to determine the actuarial valu-
ation of prescription drug coverage; and
(3) assess whether the subsidy payments under
such part accomplished its stated goals of reducing
premium levels for all beneficiaries, reducing adverse
selection, and promoting participation of PDP spon-
sors.
102
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(b) REPORT.—Not later January 1, 2006, the Comp-
troller General shall submit a report to Congress on the
study conducted under subsection (a).
Union Calendar No. 330
107TH CONGRESS
2D SESSION
H. R. 4984
[Report No. 107–551, Part 1]
A BILL
To amend title XVIII of the Social Security Act to
provide for a medicare prescription drug benefit.
JUNE 28, 2002
Committee on Ways and Means discharged; committed to
the Committee of the Whole House on the State of the
Union and ordered to be printed