Subtitle A Part 1
enrollment on the basis described in clause (i)
or (ii) section 1852(c)(3)(B));
‘‘(C) the individual demonstrates (in ac-
cordance with guidelines established by the Sec-
retary) that—
‘‘(i) the organization offering the
product substantially violated a material
provision of the organization’s contract
under part C in relation to the individual
and the product; or
‘‘(ii) the organization (or an agent or
other entity acting on the organization’s
behalf) materially misrepresented the prod-
uct’s provisions in marketing the product
to the individual; or
‘‘(D) the individual meets such other con-
ditions as the Secretary may provide.
‘‘(f) EFFECTIVENESS OF ELECTIONS.—
‘‘(1) DURING INITIAL COVERAGE ELECTION PE-
RIOD.—An election of coverage made during the ini-
tial coverage election period under subsection
(e)(1)(A) shall take effect upon the date the individ-
ual becomes entitled to benefits under part A and
enrolled under part B, except as the Secretary may
Subtitle A Part 1
provide (consistent with section 1838) in order to
prevent retroactive coverage.
‘‘(2) 
DURING
TRANSITION; 
90-DAY
DISENROLLMENT OPTION.—An election of coverage
made under subsection (e)(2) and an election to dis-
continue a Medicare Choice option under subsection
(e)(4) at any time shall take effect with the first cal-
endar month following the date on which the election
is made.
‘‘(3) ANNUAL, COORDINATED ELECTION PERIOD
AND MEDISAVE ELECTION.—An election of coverage
made during an annual, coordinated election period
(as defined in subsection (e)(3)(B)) in a year shall
take effect as of the first day of the following year.
‘‘(4) OTHER PERIODS.—An election of coverage
made during any other period under subsection
(e)(5) shall take effect in such manner as the Sec-
retary provides in a manner consistent (to the extent
practicable) with protecting continuity of health ben-
efit coverage.
‘‘(g) EFFECT OF ELECTION OF MEDICARE CHOICE
OPTION.—Subject to the provisions of section 1855(f),
payments under a contract with a Medicare Choice organi-
zation under section 1858(a) with respect to an individual
electing a Medicare Choice product offered by the organi-
Subtitle A Part 1
zation shall be instead of the amounts which (in the ab-
sence of the contract) would otherwise be payable under
parts A and B for items and services furnished to the indi-
vidual.
‘‘(h) DEMONSTRATION PROJECTS.—The Secretary
shall conduct demonstration projects to test alternative
approahces to coordinated open enrollments in different
markets, including different annual enrollment periods
and models of rolling open enrollment periods. The Sec-
retary may waive previous provisions of this section in
order to carry out such projects.’’.
SEC. 15002. MEDICARE CHOICE PROGRAM.
(a) IN GENERAL.—Title XVIII is amended by redes-
ignating part C as part D and by inserting after part B
the following new part:
‘‘PART C—PROVISIONS RELATING TO MEDICARE
CHOICE
‘‘REQUIREMENTS FOR MEDICARE CHOICE ORGANIZATIONS
‘‘SEC. 1851. (a) MEDICARE CHOICE ORGANIZATION
DEFINED.—In this part, subject to the succeeding provi-
sions of this section, the term ‘Medicare Choice organiza-
tion’ means a public or private entity that is certified
under section 1857 as meeting the requirements and
standards of this part for such an organization.
Subtitle A Part 1
‘‘(b) ORGANIZED
AND LICENSED UNDER STATE
LAW.—
‘‘(1) IN GENERAL.—A Medicare Choice organi-
zation shall be organized and licensed under State
law to offer health insurance or health benefits cov-
erage in each State in which it offers a Medicare
Choice product.
‘‘(2) EXCEPTION FOR UNION AND TAFT-HART-
LEY SPONSORS.—Paragraph (1) shall not apply to a
Medicare Choice organization that is a union spon-
sor or Taft-Hartley sponsor (as defined in section
1852(c)(4)).
‘‘(3) EXCEPTION
FOR
PROVIDER-SPONSORED
ORGANIZATIONS.—Paragraph (1) shall not apply to
a Medicare Choice organization that is a provider-
sponsored organization (as defined in section
1854(a)) except to the extent provided under section
1857(b).
‘‘(4) EXCEPTION
FOR
QUALIFIED
ASSOCIA-
TIONS.—Paragraph (1) shall not apply to a Medi-
care Choice organization that is a qualified associa-
tion (as defined in section 1852(c)(4)(B)).
‘‘(c) PREPAID PAYMENT.—A Medicare Choice orga-
nization shall be compensated (except for deductibles, co-
insurance, and copayments) for the provision of health
Subtitle A Part 1
care services to enrolled members by a payment which is
paid on a periodic basis without regard to the date the
health care services are provided and which is fixed with-
out regard to the frequency, extent, or kind of health care
service actually provided to a member.
‘‘(d) ASSUMPTION OF FULL FINANCIAL RISK.—The
Medicare Choice organization shall assume full financial
risk on a prospective basis for the provision of the health
care services (other than hospice care) for which benefits
are required to be provided under section 1852(a)(1), ex-
cept that the organization—
‘‘(1) may obtain insurance or make other ar-
rangements for the cost of providing to any enrolled
member such services the aggregate value of which
exceeds $5,000 in any year,
‘‘(2) may obtain insurance or make other ar-
rangements for the cost of such services provided to
its enrolled members other than through the organi-
zation because medical necessity required their pro-
vision before they could be secured through the orga-
nization,
‘‘(3) may obtain insurance or make other ar-
rangements for not more than 90 percent of the
amount by which its costs for any of its fiscal years
Subtitle A Part 1
exceed 115 percent of its income for such fiscal year,
and
‘‘(4) may make arrangements with physicians
or other health professionals, health care institu-
tions, or any combination of such individuals or in-
stitutions to assume all or part of the financial risk
on a prospective basis for the provision of basic
health services by the physicians or other health pro-
fessionals or through the institutions.
In the case of a Medicare Choice organization that is a
union sponsor or Taft-Hartley sponsor (as defined in sec-
tion 1852(c)(4)) or a qualified association (as defined in
section 1852(c)(4)(B)), this subsection shall not apply
with respect to Medicare Choice products offered by such
organization and issued by an organization to which sub-
section (b)(1) applies or by a provider-sponsored organiza-
tion (as defined in section 1854(a)).
‘‘(e) PROVISION AGAINST RISK OF INSOLVENCY.—
‘‘(1) IN GENERAL.—Each Medicare Choice or-
ganization shall meet standards under section 1856
relating to the financial solvency and capital ade-
quacy of the organization. Such standards shall take
into account the nature and type of Medicare Choice
products offered by the organization.
Subtitle A Part 1
‘‘(2) TREATMENT
OF
TAFT-HARTLEY
SPON-
SORS.—An entity that is a Taft-Hartley sponsor is
deemed to meet the requirement of paragraph (1).
‘‘(3) TREATMENT OF CERTAIN QUALIFIED ASSOCIA-
TIONS.—An entity that is a qualified association is deemed
to meet the requirement of paragraph (1) with respect to
Medicare Choice products offered by such association and
issued by an organization to which subsection (b)(1) ap-
plies or by a provider-sponsored organization.
‘‘(f) ORGANIZATIONS TREATED AS MEDICAREPLUS
ORGANIZATIONS DURING TRANSITION.—Any of the fol-
lowing organizations shall be considered to qualify as a
MedicarePlus organization for contract years beginning
before January 1, 1997:
‘‘(1) 
HEALTH
MAINTENANCE
ORGANIZA-
TIONS.—An organization that is organized under the
laws of any State and that is a qualified health
maintenance organization (as defined in section
1310(d) of the Public Health Service Act), an orga-
nization recognized under State law as a health
maintenance organization, or a similar organization
regulated under State law for solvency in the same
manner and to the same extent as such a health
maintenance organization.