I
107TH CONGRESS
2D SESSION
H. R. 4751
To amend title XVIII of the Social Security Act to provide for a voluntary
outpatient prescription drug benefit program.
IN THE HOUSE OF REPRESENTATIVES
MAY 16, 2002
Mrs. CAPITO introduced the following bill; which was referred to the Com-
mittee 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 jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
for a voluntary outpatient prescription drug benefit program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘More Savings, More Choice Prescription Drug Act of
2002’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Establishment of a medicare prescription drug benefit.
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM
‘‘Sec. 1860A. Benefits; eligibility; enrollment; and coverage period.
‘‘Sec. 1860B. Requirements for qualified prescription drug coverage.
‘‘Sec. 1860C. Beneficiary protections for qualified prescription drug cov-
erage.
‘‘Sec. 1860D. Requirements for prescription drug plan (PDP) sponsors;
contracts; establishment of standards.
‘‘Sec. 1860E. Process for beneficiaries to select qualified prescription drug
coverage.
‘‘Sec. 1860F. Premiums.
‘‘Sec. 1860G. Premium and cost-sharing subsidies for low-income individ-
uals.
‘‘Sec. 1860H. Subsidies for all medicare beneficiaries through reinsurance
for qualified prescription drug coverage.
‘‘Sec. 1860I. Medicare Prescription Drug Account in federal Supple-
mentary Medical Insurance Trust Fund.
‘‘Sec. 1860J. Definitions; treatment of references to provisions in part C.
‘‘Sec. 1860K. Medicare Prescription Drug Advisory Committee.
Sec. 3. Offering 
of 
qualified 
prescription 
drug 
coverage 
under 
the
Medicare+Choice program.
Sec. 4. Medicaid amendments.
Sec. 5. Medigap transition provisions.
SEC. 2. ESTABLISHMENT OF A MEDICARE PRESCRIPTION
DRUG BENEFIT.
(a) IN GENERAL.—Title XVIII of the Social Security
Act 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.
‘‘(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 1860C(a)).
Such individuals shall have a choice of such plans under
section 1860E(d).
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN GENERAL.—An individual 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 change such election only in such manner and
form as may be prescribed by regulations of the Sec-
retary 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
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
first entitled to benefits under part A or
enrolled under part B after November 1,
2004, there shall be an initial election pe-
riod which is the same as the initial enroll-
ment period under section 1837(d).
‘‘(C) ADDITIONAL SPECIAL ELECTION PE-
RIODS.—The Secretary shall establish special
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; and
‘‘(iii) in the case of an individual who
meets such exceptional conditions (includ-
ing conditions recognized under section
1851(d)(4)(D)) as the Secretary may pro-
vide.
‘‘(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 first qualifying to elect prescrip-
tion drug coverage under this part, a PDP
sponsor or Medicare+Choice organization offer-
ing 
a 
prescription 
drug 
plan 
or
Medicare+Choice plan that provides qualified
prescription drug coverage and in which the in-
dividual is enrolled may not deny, limit, or con-
dition the coverage or provision of covered pre-
scription drug benefits or increase the premium
under the plan based on any health status-re-
lated factor described in section 2702(a)(1) of
the Public Health Service Act or any other fac-
tor.
‘‘(B) LATE
ENROLLMENT
PENALTY.—In
the case of an individual who does not maintain
such continuous prescription drug coverage, a
PDP sponsor or Medicare+Choice organization
may (notwithstanding any provision in this
title) increase the premium otherwise applicable
or impose a pre-existing condition exclusion
with respect to qualified prescription drug cov-
erage in a manner that reflects additional actu-
arial risk involved. Such a risk shall be estab-
lished through an appropriate actuarial opinion
of the type described in subparagraphs (A)
through (C) of section 2103(c)(4).
‘‘(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 a
date if the individual establishes that there is
no period of 63 days or longer on and after
such date (beginning not earlier than January
1, 2005) during all of which the individual did
not have any of the following prescription 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
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(e)(1).
‘‘(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 only until
the date such coverage is terminated.
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription
drugs under a State pharmaceutical assist-
ance program.
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17
of title 38, United States Code.
‘‘(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) 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 Secretary shall provide that elections
under subsection (b) take effect at the same time as
the Secretary provides that similar elections 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 Secretary shall pro-
vide for the termination of an election in the case
of—
‘‘(A) termination of coverage under part B
(in the case of an individual not entitled to ben-
efits under part A); 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).
‘‘(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).
‘‘(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
Secretary shall review the offering of qualified
prescription drug coverage under this part or
part C. If the Secretary 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 sponsor offering
the coverage is purposefully engaged in activi-
ties intended to result in favorable selection of
those eligible medicare beneficiaries obtaining
coverage through the plan, the Secretary may
terminate the contract with the sponsor or or-
ganization 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 that is equal to $100.
‘‘(2) LIMITS ON COST-SHARING.—The coverage
has cost-sharing (for incurred costs above the annual
deductible specified in paragraph (1))—
‘‘(A) of 25 percent to the extent that the
incurred expenses (including incurred out-of-
pocket expenses) for covered outpatient drugs
under this part in the year do not exceed
$2,000;
‘‘(B) of 50 percent to the extent such in-
curred expenses exceed $2,000 but the true out-
of-pocket expenses do not exceed $5,000; and
‘‘(C) of 0 percent to the extent such true
out-of-pocket expenses exceed $5,000.
‘‘(3) OUT-OF-POCKET
EXPENSES
DEFINED.—
For purposes of paragraph (2), the term ‘out-of-
pocket expenses’ means expenses incurred as a re-
sult of the application of the deductible under para-
graph (1) and the coinsurance required under this
subsection.
‘‘(4) TRUE
OUT-OF-POCKET
EXPENSES
DE-
FINED.—For purposes of paragraph (2), the term
‘true out-of-pocket expenses’ means out-of-pocket ex-
penses insofar as there is no third party reimburse-
ment made.
‘‘(5) INFLATION ADJUSTMENT.—
‘‘(A) IN GENERAL.—In the case of any cal-
endar year beginning after 2005, each of the
dollar amounts in paragraphs (1) and (2) shall
be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the percentage (if any) by which
the amount of average per capita expendi-
tures under this part in the preceding cal-
endar year exceeds the amount of such ex-
penditures in 2005.
‘‘(B) ROUNDING.—Any amount determined
under paragraph (1) or (2) that is not a mul-
tiple of $5 or $25, respectively, shall be round-
ed to the nearest multiple of $5 or $25, respec-
tively.
‘‘(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 following requirements are met:
‘‘(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 reinsurance subsidy pay-
ments under section 1860H with respect to
such coverage.
‘‘(C) ASSURING STANDARD PAYMENT FOR
COSTS IN INITIAL BENEFIT RANGE.—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 in the
range described in subsection (b)(2)(A), of an
amount equal to at least 75 percent of the ap-
plicable dollar amount under such subsection
(as adjusted under subsection (b)(5)).
‘‘(2) LIMITATION ON TRUE OUT-OF-POCKET EX-
PENDITURES
BY
BENEFICIARIES.—The coverage
provides the limitation on true out-of-pocket expend-
itures by beneficiaries described in subsection
(b)(2)(C).
‘‘(d) ACCESS
TO
NEGOTIATED
PRICES.—Under
qualified prescription drug coverage offered by a PDP
sponsor or a Medicare+Choice organization, the sponsor
or organization shall provide beneficiaries with access to
negotiated 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 limit (described in sub-
section (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 requirements of section 1927 shall not apply to such
drugs.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF
ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section,
the 
Secretary 
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).
‘‘(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.
‘‘(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 any use of a covered out-
patient drug for a medically accepted 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) and
except to the extent otherwise specifically pro-
vided by the Secretary with respect to a drug
in any of such classes.
‘‘(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 (but shall be so considered if such pay-
ment is not available because benefits under
part A or B have been exhausted), without re-
gard to whether the individual is entitled to
benefits under part A or 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 that
meets the requirements of section 1860C(f)(2) (in-
cluding providing an appeal process).
‘‘(4) APPLICATION
OF
GENERAL
EXCLUSION
PROVISIONS.—A 
prescription 
drug 
plan 
or
Medicare+Choice plan may exclude from qualified
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 AND NONDISCRIMINATION.—For provisions re-
quiring guaranteed issue, community-rated premiums, and
nondiscrimination, see sections 1860A(c)(1), 1860A(c)(2),
and 1860F(b).
‘‘(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 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.
‘‘(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, through an Internet 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
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 limit
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.—The PDP
sponsor of the prescription drug plan shall secure
the participation of sufficient numbers of pharmacies
(which may include mail order pharmacies) to en-
sure convenient access (including adequate emer-
gency access) for enrolled beneficiaries, in accord-
ance with standards established under section
1860D(e) that ensure such convenient access. Noth-
ing in this paragraph shall be construed as requiring
the participation of (or permitting the exclusion of)
all pharmacies in any area under a plan.
‘‘(2) PREFERRED PHARMACY NETWORKS.—
‘‘(A) IN
GENERAL.—If a PDP sponsor
uses a preferred pharmacy network to deliver
benefits under this part, such network shall
meet minimum access standards established by
the Secretary.
‘‘(B) STANDARDS.—In establishing stand-
ards under subparagraph (A), the Secretary
shall take into account reasonable distances to
pharmacy services in both urban and rural
areas.
‘‘(C) ASSURING PHARMACY ACCESS.—Such
standards shall require that each PDP sponsor
include in any preferred pharmacy network any
pharmacy that agrees to the terms and condi-
tions established by the sponsor for such par-
ticipation in such network.
‘‘(3) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION DRUGS.—The PDP sponsor of a prescrip-
tion drug plan shall issue such a card 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.
‘‘(4) REQUIREMENTS
ON
DEVELOPMENT
AND
APPLICATION OF FORMULARIES.—Insofar as a PDP
sponsor of a prescription drug plan uses a for-
mulary, the following requirements must be met:
‘‘(A) FORMULARY COMMITTEE.—The spon-
sor must establish a pharmaceutical and thera-
peutic committee that develops the formulary.
Such committee shall include at least one physi-
cian and at least one pharmacist.
‘‘(B) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within all therapeutic categories
and classes of covered outpatient drugs (al-
though not necessarily for all drugs within such
categories and classes).
‘‘(C) APPEALS AND EXCEPTIONS TO APPLI-
CATION.—The PDP sponsor must have, as part
of the appeals process under subsection (f)(2),
a process for appeals for denials of coverage
based on such application of the formulary.
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT
PROGRAM.—
‘‘(1) IN
GENERAL.—The PDP sponsor shall
have in place—
‘‘(A) an effective cost and drug utilization
management program, including appropriate in-
centives to use generic drugs, 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
‘‘(C) a program to control fraud, abuse,
and waste.
‘‘(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 that covered outpatient drugs
under the prescription drug plan are appro-
priately used to achieve therapeutic goals and
reduce the risk of adverse events, including ad-
verse 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; and
‘‘(ii) increased beneficiary adherence
with 
prescription 
medication 
regimens
through medication refill reminders, special
packaging, and other appropriate means.
‘‘(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) 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).
‘‘(B) Subsection (c)(1) (relating to access
to covered benefits).
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(4) PUBLIC DISCLOSURE OF PHARMACEUTICAL
PRICES FOR GENERIC EQUIVALENT DRUGS.—Each
PDP sponsor shall provide that each pharmacy or
other dispenser that arranges for the dispensing of
a covered outpatient drug shall inform the bene-
ficiary at the time of purchase of the drug of any
differential between the price of the prescribed drug
to the enrollee and the price of the lowest cost ge-
neric drug that is therapeutically and pharmaceuti-
cally equivalent and bioequivalent.
‘‘(e) GRIEVANCE MECHANISM.—Each PDP sponsor
shall provide meaningful procedures for hearing and re-
solving grievances between the organization (including any
entity or individual through which the sponsor provides
covered benefits) and enrollees with prescription drug
plans of the sponsor under this part in accordance with
section 1852(f).
‘‘(f) COVERAGE
DETERMINATIONS, RECONSIDER-
ATIONS, AND APPEALS.—
‘‘(1) IN GENERAL.—A PDP sponsor shall meet
the requirements 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.
‘‘(2) APPEALS
OF
FORMULARY
DETERMINA-
TIONS.—Under the appeals process under paragraph
(1) an individual who is enrolled in a prescription
drug plan offered by a PDP sponsor may appeal to
obtain coverage for a covered outpatient drug that
is not on the formulary of the sponsor (established
under subsection (c)) if the prescribing physician de-
termines that the therapeutically similar drug that is
on the formulary is not as effective for the enrollee
or has significant adverse effects for the enrollee.
‘‘(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:
‘‘(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 FULL 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 reinsurance
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 Secretary under sub-
section (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Secretary shall not
permit the election under section 1860A of a pre-
scription drug plan offered by a PDP sponsor under
this part, and the sponsor shall not be eligible for
payments under section 1860G or 1860H, unless the
Secretary has entered into a contract under this sub-
section with the sponsor with respect to the offering
of such plan. Such a contract with a sponsor may
cover more than one prescription drug plan. Such
contract shall provide that the sponsor agrees to
comply with the applicable requirements and stand-
ards of this part and the terms and conditions of
payment as provided for in this part.
‘‘(2) NEGOTIATION
REGARDING
TERMS
AND
CONDITIONS.—The Secretary shall have the same
authority to negotiate the terms and conditions of
prescription drug plans under this part as the Direc-
tor 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 infor-
mation is submitted under section 1860F(a)(2), the
Secretary shall take into account the reinsurance
subsidy 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.—
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
‘‘(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 Secretary shall waive the requirement of
subsection (a)(1) that the entity be licensed in that
State if the Secretary determines, based on the ap-
plication and other evidence presented to the Sec-
retary, that any of the grounds for approval 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-
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 Secretary shall es-
tablish, by not later than October 1, 2003, financial
solvency and capital adequacy standards that an en-
tity that does not meet the requirements of sub-
section (a)(1) must meet to qualify as a PDP spon-
sor 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 Secretary shall establish
certification procedures for such PDP sponsors with
respect to such solvency standards in the manner de-
scribed in section 1855(c)(2).
‘‘(e) OTHER STANDARDS.—The Secretary shall es-
tablish by regulation other standards (not described in
subsection (d)) for PDP sponsors and plans consistent
with, and to carry out, this part. The Secretary shall pub-
lish such regulations by October 1, 2003. In order to carry
out this requirement in a timely manner, the Secretary
may promulgate regulations that take effect on an interim
basis, after notice and pending opportunity for public com-
ment.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established
under this section shall supersede any State law or
regulation (including standards described in para-
graph (2)) with respect to prescription drug plans
which are offered by PDP sponsors under this part
to the extent such law or regulation is inconsistent
with such standards.
‘‘(2) 
STANDARDS
SPECIFICALLY
SUPER-
SEDED.—State standards relating to the following
are superseded under this subsection:
‘‘(A) Benefit requirements.
‘‘(B) Requirements relating to inclusion or
treatment of providers.
‘‘(C) Coverage determinations (including
related appeals and grievance processes).
‘‘(D) Establishment and regulation of pre-
miums.
‘‘(3) 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 Secretary under this part.
‘‘SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) IN GENERAL.—The Secretary shall establish,
based upon and consistent with the procedures used under
part C (including section 1851), a process for the selection
of the prescription drug plan or Medicare+Choice plan
which offer qualified prescription drug coverage through
which eligible individuals elect qualified prescription drug
coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing:
‘‘(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.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH
AREA.—
‘‘(A) IN
GENERAL.—The Secretary shall
assure that each individual who is entitled to
benefits under part A or is enrolled under part
B and who is residing in an area has available,
consistent with subparagraph (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 Secretary may
provide financial incentives (including partial under-
writing 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 such
a plan (including offering such a plan on a regional
or nationwide basis), but only so long as (and to the
extent) necessary to assure the access guaranteed
under paragraph (1).
‘‘(3) LIMITATION
ON
AUTHORITY.—In exer-
cising 
authority 
under 
this 
subsection, 
the
Secretary—
‘‘(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 Secretary shall, in each
annual report to Congress under section 1807(f), in-
clude information on the exercise of authority under
this subsection. The Secretary also shall include
such recommendations as may be appropriate to
minimize the exercise of such authority, including
minimizing the assumption of financial risk.
‘‘(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. PREMIUMS.
‘‘(a) SUBMISSION OF PREMIUMS AND RELATED IN-
FORMATION.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall
submit to the Secretary information of the type de-
scribed in paragraph (2) in the same manner as in-
formation is submitted by a Medicare+Choice orga-
nization 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 monthly premium
to be charged for the coverage, including an ac-
tuarial certification of—
‘‘(i) the actuarial basis for such pre-
mium;
‘‘(ii) the portion of such premium at-
tributable to benefits in excess of standard
coverage; and
‘‘(iii) the reduction in such premium
resulting from the reinsurance subsidy
payments provided under section 1860H.
‘‘(D) Such other information as the Sec-
retary may require to carry out this part.
‘‘(3) REVIEW.—The Secretary shall review the
information filed under paragraph (2) for the pur-
pose of conducting negotiations under section
1860D(b)(2).
‘‘(4) LIMITATIONS ON PREMIUMS.—
‘‘(A) $35 MONTHLY PREMIUM FOR 2005.—
In no case may the monthly premium of a PDP
plan for months in 2005 exceed $35.
‘‘(B) MONTHLY PREMIUM LIMITATION FOR
SUBSEQUENT
YEARS.—In no case may the
monthly premium of a PDP plan for months in
a year after 2005 exceed the dollar limitation
specified in this paragraph for the preceding
year adjusted by the annual percentage change
in the increase in the consumer price index for
all urban consumers (U.S. city average) as esti-
mated by the Secretary for the 12-month period
ending with the midpoint of previous year. If
any dollar amount after being adjusted under
this subparagraph is not a multiple of $1, such
dollar amount shall be rounded to the nearest
multiple of $1.
‘‘(b) UNIFORM PREMIUM.—The premium for a pre-
scription drug plan charged under this section may not
vary among individuals enrolled in the plan in the same
service area, except as is permitted under section
1860A(c)(2)(B) (relating to late enrollment penalties).
‘‘(c) TERMS AND CONDITIONS FOR IMPOSING PRE-
MIUMS.—The provisions of section 1854(d) shall apply
under this part in the same manner as they apply under
part C, and, for this purpose, the reference in such section
to section 1851(g)(3)(B)(i) is deemed a reference to sec-
tion 1860A(d)(3)(B) (relating to failure to pay premiums
required under this part).
‘‘(d) ACCEPTANCE
OF REFERENCE PREMIUM
AS
FULL PREMIUM
IF NO STANDARD (OR EQUIVALENT)
COVERAGE IN AN AREA.—
‘‘(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 
reference 
premium 
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) IN GENERAL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION
OF COST-SHARING FOR INDIVIDUALS WITH INCOME
BELOW
135
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 a 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 section 1860B(b)(2)) of amounts
that are nominal.
‘‘(2) PREMIUM
SUBSIDY
ONLY
FOR
INDIVID-
UALS
WITH
INCOME
ABOVE
150, BUT
BELOW
175
PERCENT, OF FEDERAL POVERTY LEVEL.—In the
case of a subsidy eligible individual who is deter-
mined to have income that exceeds 150 percent, but
does not exceed 175 percent, of the Federal poverty
level, the individual is entitled under this section to
a premium subsidy equal to 100 percent of the
amount described in subsection (b)(1).
‘‘(3) SLIDING
SCALE
PREMIUM
SUBSIDY
FOR
INDIVIDUALS WITH INCOME ABOVE 175, BUT BELOW
200
PERCENT, OF
FEDERAL
POVERTY
LEVEL.—In
the case of a subsidy eligible individual who is deter-
mined to have income that exceeds 175 percent, but
does not exceed 200 percent, of the Federal poverty
level, the individual is entitled under this section to
a premium subsidy determined on a linear sliding
scale ranging from 100 percent of the amount de-
scribed in subsection (b)(1) for individuals with in-
comes at 175 percent of such level to 0 percent of
such amount for individuals with incomes at 200
percent of such level.
‘‘(4) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE-
FINED.—For purposes of this section, subject
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; and
‘‘(ii) has income below 200 percent of
the Federal poverty line.
‘‘(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 Secretary.
‘‘(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
‘‘(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).
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN
GENERAL.—The premium subsidy
amount described in this subsection for an individual
residing in an area is the reference premium (as de-
fined 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) REFERENCE
PREMIUM
DEFINED.—For
purposes of this subsection, the term ‘reference pre-
mium’ means, with respect to qualified prescription
drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the
actuarial value is equivalent to that of
standard coverage), the premium imposed
for enrollment under the plan under this
part (determined without regard to any
subsidy under this section or any late en-
rollment 
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 premium described in clause (i) multi-
plied by the ratio of (I) the actuarial value
of standard coverage, to (II) the actuarial
value of the alternative coverage; or
‘‘(B) a Medicare+Choice plan, the stand-
ard 
premium 
computed 
under 
section
1851(j)(5)(A)(iii), determined without regard to
any 
reduction 
effected 
under 
section
1851(j)(5)(B).
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsection
(a)(1)(B)—
‘‘(A) the maximum amount of subsidy that
may be provided with respect to an enrollee for
a year may not exceed 95 percent of the max-
imum cost-sharing described in such subsection
that may be incurred for standard coverage;
‘‘(B) the Secretary shall determine what is
‘nominal’ taking into account the rules applied
under section 1916(a)(3); and
‘‘(C) nothing in this part shall be con-
strued as preventing a plan or provider from
waiving or reducing the amount of cost-sharing
otherwise applicable.
‘‘(2) LIMITATION ON CHARGES.—In the case of
an individual receiving cost-sharing subsidies under
subsection (a)(1)(B), the PDP sponsor may not
charge more than a nominal amount in cases in
which the cost-sharing subsidy is provided under
such subsection.
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The
Secretary 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 Secretary provides for a notification of
the PDP sponsor or Medicare+Choice organization
involved that the individual is eligible for a subsidy
and the amount of the subsidy under subsection (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
submits to the Secretary information on the amount
of such reduction; and
‘‘(3) the Secretary 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.
‘‘SEC. 
1860H. 
SUBSIDIES 
FOR 
ALL 
MEDICARE 
BENE-
FICIARIES 
THROUGH 
REINSURANCE 
FOR
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) REINSURANCE SUBSIDY PAYMENT.—In order to
reduce premium levels applicable to qualified prescription
drug coverage for all medicare beneficiaries, to reduce ad-
verse selection 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 Secretary shall provide in
accordance with this section for payment to a qualifying
entity (as defined in subsection (b)) of the reinsurance
payment amount (as defined in subsection (c)) for excess
costs incurred in providing qualified prescription drug
coverage—
‘‘(1) for individuals enrolled with a prescription
drug plan under this part;
‘‘(2) 
for 
individuals 
enrolled 
with 
a
Medicare+Choice plan that provides qualified pre-
scription drug coverage under part C; and
‘‘(3) for medicare primary individuals (de-
scribed in subsection (e)(3)(D)) 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 Sec-
retary to provide for the payment of amounts provided
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
Secretary to provide the Secretary with such information
as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription
drug plan under this part.
‘‘(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 (e)).
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN GENERAL.—Subject to paragraph (3),
the reinsurance payment amount under this sub-
section for a qualifying covered individual (as de-
fined in subsection (f)(1)) for a coverage year (as
defined in subsection (f)(2)) is equal to such per-
centages, at such attachment points, as the Sec-
retary may specify in order to provide that the total
of the payments made for the year under this sec-
tion is equal to 65 percent of the total payments de-
scribed in paragraph (2)(B) during the year. The
Secretary shall adjust such percentages and attach-
ment points each year.
‘‘(2) PAYMENT COMPUTATIONS.—The Secretary
shall estimate—
‘‘(A) the total payments to be made (with-
out regard to this subsection) during a year
under this section; and
‘‘(B) the total payments to be made by
qualifying entities for standard coverage under
plans described in subsection (b) during the
year.
‘‘(3) ADJUSTMENT OF PAYMENTS.—In lieu of,
or in addition to, the adjustment made under para-
graph (1), the Secretary may provide for such pay-
ment adjustments (or direct subsidy payments) to
PDP sponsors as the Secretary may specify in order
to assure participation of PDP sponsors under this
part consistent with the limitations on premiums
under section 1860F(a)(4).
‘‘(d) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Sec-
retary determines. The Secretary may establish a
payment method by which interim payments of
amounts under this section are made during a year
based on the Secretary’s best estimate of amounts
that will be payable after obtaining all of the infor-
mation.
‘‘(2) SOURCE OF PAYMENTS.—Payments under
this section shall be made from the Medicare Pre-
scription Drug Account.
‘‘(e) 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-
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 Secretary may require, that the
coverage meets the requirements for qualified
prescription drug coverage.
‘‘(B) AUDITS.—The sponsor (and the plan)
shall maintain, and afford the Secretary access
to, such records as the Secretary may require
for purposes of audits and other oversight ac-
tivities necessary to ensure the adequacy of pre-
scription drug coverage, the accuracy of pay-
ments made, and such other matters as may be
appropriate.
‘‘(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).
‘‘(D) OTHER REQUIREMENTS.—The spon-
sor of the plan shall comply with such other re-
quirements as the Secretary finds necessary to
administer the program under this section.
‘‘(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 a medicare primary individual who—
‘‘(A) is covered under the plan; and
‘‘(B) 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 medicare primary individuals (or for such
individuals and their spouses and dependents)
based on their status as former employees or
labor union members.
‘‘(B) EMPLOYER.—The term ‘employer’
has the meaning given such term by section
3(5) of the Employee Retirement Income Secu-
rity Act of 1974 (except that such term shall
include only employers of two or more employ-
ees).
‘‘(C) 
SPONSOR.—The 
term 
‘sponsor’
means a plan sponsor, as defined in section
3(16)(B) of the Employee Retirement Income
Security Act of 1974.
‘‘(D) MEDICARE PRIMARY INDIVIDUAL.—
The term ‘medicare primary individual’ means,
with respect to a plan, an individual who is cov-
ered under the plan and with respect to whom
the plan is not a primary plan (as defined in
section 1862(b)(2)(A)).
‘‘(f) GENERAL DEFINITIONS.—For purposes of this
section:
‘‘(1) QUALIFYING COVERED INDIVIDUAL.—The
term ‘qualifying covered individual’ means an indi-
vidual who—
‘‘(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 covered as a medicare primary in-
dividual under a qualified retiree prescription
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 ACCOUNT IN
FEDERAL SUPPLEMENTARY MEDICAL INSUR-
ANCE TRUST FUND.
‘‘(a) IN GENERAL.—There is created within the Fed-
eral Supplementary Medical Insurance Trust Fund estab-
lished by section 1841 an account to be known as the
‘Medicare Prescription Drug Account’ (in this section re-
ferred to as the ‘Account’). The Account 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.
Funds provided under this part to the Account shall be
kept separate from all other funds within the Federal Sup-
plementary Medical Insurance Trust Fund.
‘‘(b) PAYMENTS FROM ACCOUNT.—
‘‘(1) IN
GENERAL.—The Managing Trustee
shall pay from time to time from the Account such
amounts as the Secretary certifies are necessary to
make—
‘‘(A) payments under section 1860G (relat-
ing to low-income subsidy payments);
‘‘(B) payments under section 1860H (re-
lating to reinsurance 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 Account to the Grants to States for Medicaid ac-
count amounts the Secretary certifies are attrib-
utable to increases in payment resulting from the
application of a higher Federal matching percentage
under section 1935(b).
‘‘(3) TREATMENT IN RELATION TO PART B PRE-
MIUM.—Amounts payable from the Account shall not
be taken into account in computing actuarial rates
or premium amounts under section 1839.
‘‘(c) DEPOSITS INTO ACCOUNT.—
‘‘(1) MEDICAID
TRANSFER.—There is hereby
transferred to the Account, from amounts appro-
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 Ac-
count, an amount equivalent to the amount of pay-
ments made from the Account under subsection (b),
reduced by the amount transferred to the Account
under paragraph (1).
‘‘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 the such limit as estab-
lished under section 1860B(b)(3), or, in the case of
coverage that is not standard coverage, the com-
parable limit (if any) established under the coverage.
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
AC-
COUNT.—The term ‘Medicare Prescription Drug Ac-
count’ means the Account in the Federal Supple-
mentary Medical Insurance 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 Secretary
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).
‘‘(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.
‘‘MEDICARE PRESCRIPTION DRUG ADVISORY COMMITTEE
‘‘SEC. 1860K. (a) ESTABLISHMENT
OF
COM-
MITTEE.—There is established a Medicare Prescription
Drug Advisory Committee (in this section referred to as
the ‘Committee’).
‘‘(b) FUNCTIONS OF COMMITTEE.—The Committee
shall advise the Secretary on policies related to the devel-
opment of standards and guidelines for the implementa-
tion and administration of the outpatient prescription
drug benefit program under this part.
‘‘(c) STRUCTURE AND MEMBERSHIP OF THE COM-
MITTEE.—
‘‘(1) STRUCTURE.—The Committee shall be
composed of 19 members, of whom—
‘‘(A) 12 shall be appointed by the Sec-
retary;
‘‘(B) 3 shall be appointed by the President;
‘‘(C) 2 shall be appointed by the Speaker
of the House of Representatives; and
‘‘(D) 2 shall be appointed by the Majority
Leader of the Senate.
‘‘(2) MEMBERSHIP.—
‘‘(A) IN GENERAL.—The members of the
Committee shall be chosen on the basis of their
integrity, impartiality, and good judgment, and
shall be individuals who are, by reason of their
education, experience, and attainments, excep-
tionally qualified to perform the duties of mem-
bers of the Committee.
‘‘(B) SPECIFIC MEMBERS.—Of the mem-
bers appointed under paragraph (1)(A)—
‘‘(i) 4 shall be chosen to represent
physicians;
‘‘(ii) 3 shall be chosen to represent
pharmacists;
‘‘(iii) 1 shall be chosen to represent
the Centers for Medicare & Medicaid Serv-
ices;
‘‘(iv) 3 shall be chosen to represent
actuaries, pharmacoeconomists, research-
ers, and other appropriate experts; and
‘‘(v) 1 shall be chosen to represent
emerging drug technologies.
‘‘(d) TERMS OF APPOINTMENT.—Each member of
the Committee shall serve for a term determined appro-
priate by the Secretary. The terms of service of the mem-
bers initially appointed shall begin on January 1, 2003.
‘‘(e) CHAIRPERSON.—The Secretary shall designate
a member of the Committee as Chairperson. The term as
Chairperson shall be for a 1-year period.
‘‘(f) COMMITTEE PERSONNEL MATTERS.—
‘‘(1) MEMBERS.—
‘‘(A) COMPENSATION.—Each member of
the Committee who is not an officer or em-
ployee of the Federal Government shall be com-
pensated at a rate equal to the daily equivalent
of the annual rate of basic pay prescribed for
level IV of the Executive Schedule under section
5315 of title 5, United States Code, for each
day (including travel time) during which such
member is engaged in the performance of the
duties of the Committee. All members of the
Committee who are officers or employees of the
United States shall serve without compensation
in addition to that received for their services as
officers or employees of the United States.
‘‘(B) TRAVEL
EXPENSES.—The members
of the Committee shall be allowed travel ex-
penses, including per diem in lieu of subsist-
ence, at rates authorized for employees of agen-
cies under subchapter I of chapter 57 of title 5,
United States Code, while away from their
homes or regular places of business in the per-
formance of services for the Committee.
‘‘(2) STAFF.—The Committee may appoint
such personnel as the Committee considers appro-
priate.
‘‘(g) OPERATION OF THE COMMITTEE.—
‘‘(1) MEETINGS.—The Committee shall meet at
the call of the Chairperson (after consultation with
the other members of the Committee) not less often
than quarterly to consider a specific agenda of
issues, as determined by the Chairperson after such
consultation.
‘‘(2) QUORUM.—Ten members of the Com-
mittee shall constitute a quorum for purposes of
conducting business.
‘‘(h) FEDERAL ADVISORY COMMITTEE ACT.—Section
14 of the Federal Advisory Committee Act (5 U.S.C.
App.) shall not apply to the Committee.
‘‘(i) TRANSFER OF PERSONNEL, RESOURCES, AND
ASSETS.—For purposes of carrying out its duties, the Sec-
retary and the Committee may provide for the transfer
to the Committee of such civil service personnel in the em-
ploy of the Department of Health and Human Services
(including the Centers for Medicare & Medicaid Services),
and such resources and assets of the Department used in
carrying out this title, as the Committee requires.
‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as may be
necessary to carry out the purposes of this section.’’.
(b) CONFORMING AMENDMENTS TO FEDERAL SUP-
PLEMENTARY MEDICAL INSURANCE TRUST FUND.—Sec-
tion 1841 of the Social Security Act (42 U.S.C. 1395t)
is amended—
(1) in the last sentence of subsection (a)—
(A) by striking ‘‘and’’ before ‘‘such
amounts’’; and
(B) by inserting before the period the fol-
lowing: ‘‘and such amounts as may be deposited
in, or appropriated to, the Medicare Prescrip-
tion Drug Account established by section
1860I’’; and
(2) in subsection (g), by inserting after ‘‘by this
part,’’ the following: ‘‘the payments provided for
under part D (in which case the payments shall
come from the Medicare Prescription Drug Account
in the Trust Fund),’’.
(c) 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).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 6 months after the date
of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the ap-
propriate committees of Congress a legislative pro-
posal providing for such technical and conforming
amendments in the law as are required by the provi-
sions of this subtitle.
SEC. 3. OFFERING OF QUALIFIED PRESCRIPTION DRUG
COVERAGE UNDER THE MEDICARE+CHOICE
PROGRAM.
(a) IN GENERAL.—Section 1851 of the Social Secu-
rity Act (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) IN GENERAL.—A Medicare+Choice orga-
nization 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 coverage is at least qualified prescription
drug coverage and unless the requirements of this
subsection with respect to such coverage are met.
‘‘(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. The Secretary
shall waive such requirements to the extent the Sec-
retary determines that such requirements duplicate
requirements otherwise applicable to the organiza-
tion or plan under this part.
‘‘(3) TREATMENT
OF
COVERAGE.—Except as
provided in this subsection, qualified prescription
drug coverage offered under this subsection shall be
treated under this part in the same manner as sup-
plemental health care benefits described in section
1852(a)(3)(A).
premium shall be established consistent
with the limitations described in section
1860F(a)(4).
‘‘(ii) PORTION OF COVERAGE ATTRIB-
UTABLE
TO
STANDARD
BENEFITS.—The
ratio of the actuarial value of standard
coverage to the actuarial value of the
qualified prescription drug coverage offered
under the plan.
‘‘(iii) PORTION OF PREMIUM ATTRIB-
UTABLE
TO
STANDARD
BENEFITS.—A
standard premium equal to the product of
the premium described in clause (i) and
the ratio under clause (ii).
The premium under clause (i) shall be compute
without regard to any reduction in the premium
permitted under subparagraph (B).
‘‘(B) 
REDUCTION
OF
PREMIUMS
AL-
LOWED.—Nothing in this subsection shall be
construed as preventing a Medicare+Choice or-
ganization from reducing the amount of a pre-
mium charged for prescription drug coverage
because 
of 
the 
application 
of 
section
1854(f)(1)(A) to other coverage.
‘‘(C) ACCEPTANCE
OF
REFERENCE
PRE-
MIUM AS FULL PREMIUM IF NO STANDARD (OR
EQUIVALENT) COVERAGE IN AN AREA.—For re-
quirement to accept reference premium as full
premium if there is no standard (or equivalent)
coverage in the area of a Medicare+Choice
plan, see section 1860F(d).
‘‘(6) 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.
‘‘(7) 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.’’.
(b) CONFORMING AMENDMENTS.—Section 1851 of
such Act (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. 4. MEDICAID AMENDMENTS.
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) REQUIREMENT.—Section 1902 of the Social
Security Act (42 U.S.C. 1396a) is amended—
(A) in subsection (a)—
(i) by striking ‘‘and’’ at the end of
paragraph (64);
(ii) by striking the period at the end
of paragraph (65) and inserting ‘‘; and’’;
and
(iii) 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 of such Act 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 Secretary of such determina-
tions in cases in which such eligibility is established;
and
‘‘(3) otherwise provide such Secretary with such
information as may be required to carry out part D
of title XVIII (including section 1860G).
‘‘(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:
‘‘(A) For expenditures attributable to costs
incurred during 2005, the otherwise applicable
Federal matching rate shall be increased by 20
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(B) For expenditures attributable to costs
incurred during 2006, the otherwise applicable
Federal matching rate shall be increased by 40
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(C) For expenditures attributable to costs
incurred during 2007, the otherwise applicable
Federal matching rate shall be increased by 60
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(D) For expenditures attributable to costs
incurred during 2008, the otherwise applicable
Federal matching rate shall be increased by 80
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(E) For expenditures attributable to costs
incurred after 2009, the otherwise applicable
Federal matching rate shall be increased to 100
percent.
‘‘(2) COORDINATION.—The State shall provide
the Secretary with such information as may be nec-
essary to properly allocate administrative expendi-
tures 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) of the
Social Security Act (42 U.S.C. 1396b(a)(1)) is
amended by inserting before the semicolon the fol-
lowing: ‘‘, reduced by the amount computed under
section 1935(c)(1) for the State and the quarter’’.
(2) AMOUNT
DESCRIBED.—Section 1935 of
such Act, as inserted by subsection (a)(2), is amend-
ed by adding at the end the following new sub-
section:
‘‘(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.
‘‘(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 80 percent;
‘‘(B) 2006 is 60 percent;
‘‘(C) 2007 is 40 percent;
‘‘(D) 2008 is 20 percent; or
‘‘(E) a year after 2008 is 0 percent.’’.
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935 of such Act, as so inserted and
amended, is further amended by adding at the end the
following new subsection:
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the
case of an individual dually 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-
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 of such Act, 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—
‘‘(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—
‘‘(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 Secretary shall submit to
Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Secretary deems appropriate.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1108(f) of such Act is amended by inserting ‘‘and
section 1935(e)(1)(B)’’ after ‘‘Subject to subsection
(g)’’.
SEC. 5. MEDIGAP TRANSITION PROVISIONS.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, no new medicare supplemental policy that pro-
vides coverage of expenses for prescription drugs may be
issued under section 1882 of the Social Security Act on
or after January 1, 2005, to an individual unless it re-
places a medicare supplemental policy that was issued to
that individual and that provided some coverage of ex-
penses for prescription drugs.
(b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN
PRESCRIPTION DRUG COVERAGE THROUGH MEDICARE.—
(1) IN
GENERAL.—The issuer of a medicare
supplemental policy—
(A) may not deny or condition the issuance
or effectiveness of a medicare supplemental pol-
icy that has a benefit package classified as ‘‘A’’,
‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the
standards established under subsection (p)(2) of
section 1882 of the Social Security Act, 42
U.S.C. 1395ss) and that is offered and is avail-
able for issuance to new enrollees by such
issuer;
(B) may not discriminate in the pricing of
such policy, because of health status, claims ex-
perience, receipt of health care, or medical con-
dition; and
(C) may not impose an exclusion of bene-
fits based on a pre-existing condition under
such policy,