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drug plan or in a MA-EFFS Rx plan 
whose adjusted gross income exceeds the 
income threshold as defined in clause (ii) 
for a year, the annual out-of-pocket thresh-
old otherwise determined under subpara-
graph (B) for such year shall be increased 
by an amount equal to the percentage 
specified in clause (iii), multiplied by the 
lesser of—
‘‘(I) the amount of such excess; 
or 
‘‘(II) the amount by which the 
income threshold limit exceeds the in-
come threshold. 
Any amount determined under the previous 
sentence that is not a multiple of $100 
shall be rounded to the nearest multiple of 
$100. 
‘‘(ii) INCOME THRESHOLD.—For pur-
poses of clause (i)—
‘‘(I) IN
GENERAL.—Subject to 
subclause (II), the term ‘income 
threshold’ means $60,000 and the 
term ‘income threshold limit’ means 
$200,000.
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‘‘(II) INCOME
INFLATION
AD-
JUSTMENT.—In the case of a year be-
ginning after 2006, each of the dollar 
amounts in subclause (I) shall be in-
creased by an amount equal to such 
dollar amount multiplied by the cost-
of-living adjustment determined under 
section 1(f)(3) of the Internal Rev-
enue Code of 1986 for such year, de-
termined by substituting ‘calendar 
year 2005’ for ‘calendar year 1992’. 
If any amount increased under the 
previous sentence is not a multiple of 
$100, such amount shall be rounded 
to the nearest multiple of $100. 
‘‘(iii) PERCENTAGE.—The percentage 
specified in this clause for a year is a frac-
tion (expressed as a percentage) equal to—
‘‘(I) the annual out-of-pocket 
threshold for a year under subpara-
graph (B) (determined without regard 
to this subparagraph), divided by 
‘‘(II) the income threshold under 
clause (ii) for that year.
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If any percentage determined under the 
previous sentence that is not a multiple of 
1⁄10th of 1 percentage point, such percent-
age shall be rounded to the nearest mul-
tiple of 1⁄10th of 1 percentage point. 
‘‘(iv) USE OF MOST RECENT RETURN 
INFORMATION.—For purposes of clause (i) 
for an enrollee for a year, except as pro-
vided in clause (v), the adjusted gross in-
come of an individual shall be based on the 
most recent information disclosed to the 
Secretary under section 6109(l)(19) of the 
Internal Revenue Code of 1986 before the 
beginning of that year. 
‘‘(v) 
INDIVIDUAL
ELECTION
TO 
PRESENT MOST RECENT INFORMATION RE-
GARDING
INCOME.—The Secretary shall 
provide, in coordination with the Secretary 
of the Treasury, a procedure under which, 
for purposes of applying this subparagraph 
for a calendar year, instead of using the 
information described in clause (iv), an en-
rollee may elect to use more recent infor-
mation, including information with respect
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to a taxable year ending in such calendar 
year. Such process shall—
‘‘(I) require the enrollee to pro-
vide the Secretary with a copy of the 
relevant portion of the more recent re-
turn to be used under this clause; 
‘‘(II) provide for the Medicare 
Beneficiary Ombudsman (under sec-
tion 1810) offering assistance to such 
enrollees in presenting such informa-
tion and the toll-free number under 
such section being a point of contact 
for beneficiaries to inquire as to how 
to present such information; 
‘‘(III) provide for the verification 
of the information in such return by 
the Secretary of the Treasury under 
section 6103(l)(19) of the Internal 
Revenue Code of 1986; and 
‘‘(IV) provide for the payment by 
the Secretary (in a manner specified 
by the Secretary) to the enrollee of an 
amount equal to the excess of the ben-
efit payments that would have been 
payable under the plan if the more re-
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cent return information were used, 
over the benefit payments that were 
made under the plan. 
In the case of a payment under subclause 
(III) for an enrollee under a prescription 
drug plan, the PDP sponsor of the plan 
shall pay to the Secretary the amount so 
paid, 
less 
the 
applicable 
reinsurance 
amount that would have applied under sec-
tion 1860D–8(c)(1)(B) if such payment 
had been treated as an allowable cost 
under such section. Such plan payment 
shall be deposited in the Treasury to the 
credit of the Medicare Prescription Drug 
Account in the Federal Supplementary 
Medical Insurance Trust Fund (under sec-
tion 1841). 
‘‘(vi) DISSEMINATION
OF
INFORMA-
TION
ON
PROCESS.—The Secretary shall 
provide, through the annual medicare 
handbook under section 1804(a), for a 
general description of the adjustment of 
annual out-of-pocket thresholds provided 
under this subparagraph, including the 
process for adjustment based upon more
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recent information and the confidentiality 
provisions of subparagraph (F), and shall 
provide for dissemination of a table for 
each year that sets forth the amount of the 
adjustment that is made under clause (i) 
based on the amount of an enrollee’s ad-
justed gross income. 
‘‘(vii) ENROLLEE OPT-OUT.—The Sec-
retary shall provide a procedure whereby, 
if an enrollee elects to have the maximum 
annual out-of-pocket threshold applied 
under this subparagraph for a year, the 
Secretary shall not request any informa-
tion regarding the enrollee under subpara-
graph (E) for that year. 
‘‘(E) REQUESTING INFORMATION ON EN-
ROLLEES.—
‘‘(i) IN
GENERAL.—The Secretary 
shall, periodically as required to carry out 
subparagraph (D), transmit to the Sec-
retary of the Treasury a list of the names 
and TINs of enrollees in prescription drug 
plans (or in MA-EFFS Rx plans) and re-
quest that such Secretary disclose to the 
Secretary information under subparagraph
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(A) of section 6103(l)(19) of the Internal 
Revenue Code of 1986 with respect to 
those enrollees for a specified taxable year 
for application in a particular calendar 
year. 
‘‘(ii) DISCLOSURE
TO
PLAN
SPON-
SORS.—In the case of a specified taxpayer 
(as defined in section 6103(l)(19)(B) of 
the Internal Revenue Code of 1986) who is 
enrolled in a prescription drug plan or in 
an MA-EFFS Rx plan or an individual 
who makes an election under subparagraph 
(D)(vii), the Secretary shall disclose to the 
entity that offers the plan the annual out-
of-pocket threshold applicable to such indi-
vidual under subparagraph (D). 
‘‘(F) MAINTAINING CONFIDENTIALITY OF 
INFORMATION.—
‘‘(i) IN
GENERAL.—The amount of 
any increase in an annual out-of-pocket 
threshold under subparagraph (D) may not 
be disclosed by the Secretary except to a 
PDP sponsor or entity that offers a MA-
EFFS Rx plan to the extent necessary to 
carry out this part.
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‘‘(ii) CRIMINAL AND CIVIL PENALTIES 
FOR UNAUTHORIZED DISCLOSURE.—A per-
son who makes an unauthorized disclosure 
of information disclosed under section 
6103(l)(19) of the Internal Revenue Code 
of 1986 (including disclosure of any in-
crease in an annual out-of-pocket threshold 
under subparagraph (D)) shall be subject 
to penalty to the extent provided under—
‘‘(I) section 7213 of such Code 
(relating to criminal penalty for unau-
thorized disclosure of information); 
‘‘(II) section 7213A of such Code 
(relating to criminal penalty for unau-
thorized inspection of returns or re-
turn information); 
‘‘(III) section 7431 of such Code 
(relating to civil damages for unau-
thorized inspection or disclosure of re-
turns and return information); 
‘‘(IV) any other provision of the 
Internal Revenue Code of 1986; or 
‘‘(V) any other provision of law. 
‘‘(iii) APPLICATION
OF
ADDITIONAL 
CIVIL
MONETARY
PENALTY
FOR
UNAU-
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THORIZED
DISCLOSURES.—In addition to 
any penalty otherwise provided under law, 
any person who makes an unauthorized 
disclosure of such information shall be sub-
ject to a civil monetary penalty of not to 
exceed $10,000 for each such unauthorized 
disclosure. The provisions of section 1128A 
(other than subsections (a) and (b)) shall 
apply to civil money penalties under this 
subparagraph in the same manner as they 
apply to a penalty or proceeding under sec-
tion 1128A(a). 
‘‘(G) INFORMATION
REGARDING
THIRD-
PARTY REIMBURSEMENT.—In order to ensure 
compliance with the requirements of subpara-
graph (C)(ii), the Administrator is authorized 
to establish procedures, in coordination with the 
Secretary of Treasury and the Secretary of 
Labor, for determining whether costs for indi-
viduals are being reimbursed through insurance 
or otherwise, a group health plan, or other 
third-party payment arrangement, and for 
alerting the sponsors and organization that 
offer the plans in which such individuals are en-
rolled about such reimbursement arrangements.
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A PDP sponsor or Medicare Advantage or 
EFFS organization may also periodically ask 
individuals enrolled in a prescription drug plan 
or MA-EFFS Rx plan offered by the sponsor or 
organization whether the individuals have or ex-
pect to receive such third-party reimbursement. 
A material misrepresentation of the information 
described in the preceding sentence by an indi-
vidual (as defined in standards set by the Ad-
ministrator and determined through a process 
established by the Administrator) shall con-
stitute grounds for termination of enrollment 
under section 1860D–1(d)(3).
‘‘(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 MA-EFFS Rx plan may provide 
a different prescription drug benefit design from the 
standard coverage described in subsection (b) so long as
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the Administrator determines (based on an actuarial anal-
ysis approved by the Administrator) that the following re-
quirements 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. 
‘‘(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 1860D–8 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-
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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 product of—
‘‘(i) the amount by which the initial 
coverage limit described in subsection 
(b)(3) exceeds the deductible described in 
subsection (b)(1); and 
‘‘(ii) 100 percent minus the cost-shar-
ing percentage specified in subsection 
(b)(2)(A)(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 an 
entity offering a MA-EFFS Rx plan, the sponsor or 
entity shall provide beneficiaries with access to nego-
tiated prices (including applicable discounts) used 
for payment for covered outpatient drugs, regardless 
of the fact that no benefits may be payable under 
the coverage with respect to such drugs because of 
the application of cost-sharing or an initial coverage
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limit (described in subsection (b)(3)). Insofar as a 
State elects to provide medical assistance under title 
XIX to a beneficiary enrolled under such title and 
under a prescription drug plan or MA-EFFS Rx 
plan for a drug based on the prices negotiated by a 
prescription drug plan or MA-EFFS Rx plan under 
this part, the requirements of section 1927 shall not 
apply to such drugs. The prices negotiated by a pre-
scription drug plan under this part, by a MA-EFFS 
Rx plan with respect to covered outpatient drugs, or 
by a qualified retiree prescription drug plan (as de-
fined in section 1860D–8(f)(1)) with respect to such 
drugs on behalf of individuals entitled to benefits 
under part A or enrolled under part B, shall (not-
withstanding any other provision of law) not be 
taken into account for the purposes of establishing 
the best price under section 1927(c)(1)(C). 
‘‘(2) DISCLOSURE.—The PDP sponsor or entity 
offering a MA-EFFS Rx plan shall disclose to the 
Administrator (in a manner specified by the Admin-
istrator) the extent to which discounts or rebates or 
other remuneration or price concessions made avail-
able to the sponsor or organization by a manufac-
turer are passed through to enrollees through phar-
macies and other dispensers or otherwise. The provi-
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sions of section 1927(b)(3)(D) shall apply to infor-
mation disclosed to the Administrator under this 
paragraph in the same manner as such provisions 
apply to information disclosed under such section. 
‘‘(3) 
AUDITS
AND
REPORTS.—To 
protect 
against fraud and abuse and to ensure proper disclo-
sures and accounting under this part, in addition to 
any protections against fraud and abuse provided 
under section 1860D–4(b)(3)(C), the Administrator 
may periodically audit the financial statements and 
records of PDP sponsor or entities offering a MA-
EFFS Rx plan.
‘‘(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 1860D–8; 
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and
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‘‘(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). 
Such methods for determining actuarial valuation 
shall take into account effects of alternative coverage 
on drug utilization. 
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 
processes under paragraph (1)(A), PDP sponsors 
and entities offering MA-EFFS Rx plans may use 
actuarial opinions certified by independent, qualified 
actuaries to establish actuarial values, but the Ad-
ministrator shall determine whether such actuarial 
values 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
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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 medical supplies 
associated with the injection of insulin (as de-
fined in regulations of the Secretary), 
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.—
‘‘(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
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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 1860D–3(f)(2). 
‘‘(4) APPLICATION
OF
GENERAL
EXCLUSION 
PROVISIONS.—A prescription drug plan or MA-
EFFS Rx plan may exclude from qualified prescrip-
tion 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 1860D–
3(f). 
‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALI-
FIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE-
MIUMS, ACCESS
TO NEGOTIATED PRICES, AND NON-
DISCRIMINATION.—For provisions requiring guaranteed
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issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860D–
1(c)(1), 1860D–1(c)(2), 1860D–2(d), and 1860D–6(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: 
‘‘(A) Access to specific covered outpatient 
drugs, including access through pharmacy net-
works. 
‘‘(B) How any formulary used by the spon-
sor functions, including the drugs included in 
the formulary. 
‘‘(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.