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 
Administrator 
shall establish, by not later than October 1, 2004, 
financial solvency and capital adequacy standards 
that an entity that does not meet the requirements 
of subsection (a)(1) must meet to qualify as a PDP 
sponsor under this part. 
‘‘(2) COMPLIANCE
WITH
STANDARDS.—Each 
PDP sponsor that is not licensed by a State under 
subsection (a)(1) and for which a waiver application 
has been approved under subsection (c) shall meet 
solvency and capital adequacy standards established 
under paragraph (1). The Administrator shall estab-
lish certification procedures for such PDP sponsors
with respect to such solvency standards in the man-
ner described in section 1855(c)(2). 
‘‘(e) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established 
under this part shall supersede any State law or reg-
ulation (other than State licensing laws or State 
laws relating to plan solvency, except as provided in 
subsection (d)) with respect to prescription drug 
plans which are offered by PDP sponsors under this 
part. 
‘‘(2) PROHIBITION OF STATE IMPOSITION OF 
PREMIUM TAXES.—No State may impose a premium 
tax or similar tax with respect to premiums paid to 
PDP sponsors for prescription drug plans under this 
part, or with respect to any payments made to such 
a sponsor by the Administrator under this part. 
‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 
QUALIFIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) IN GENERAL.—The Administrator shall estab-
lish a process for the selection of the prescription drug 
plan or MA-EFFS Rx plan through which eligible individ-
uals 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 1860D–1(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 the entity offering a MA-EFFS Rx plan or a 
PDP sponsor, in the manner described in (and in co-
ordination with) section 1851(c)(2). 
‘‘(4) Informing each enrollee before the begin-
ning of each year of the annual out-of-pocket thresh-
old applicable to the enrollee for that year under sec-
tion 1860D–2(b)(4) at such time. 
‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OBTAIN 
BENEFITS THROUGH THE PLAN.—An individual who is 
enrolled under a MA-EFFS Rx plan 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 Administrator 
shall assure that each individual who is entitled 
to benefits under part A or enrolled under part 
B and who is residing in an area in the United 
States has available, consistent with subpara-
graph (B), a choice of enrollment in at least 
two qualifying plans (as defined in paragraph 
(5)) in the area in which the individual resides, 
at least one of which is a prescription drug 
plan. 
‘‘(B) 
REQUIREMENT
FOR
DIFFERENT 
PLAN SPONSORS.—The requirement in subpara-
graph (A) is not satisfied with respect to an 
area if only one PDP sponsor or one entity that 
offers a MA-EFFS Rx plan offers all the quali-
fying plans in the area. 
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—
In order to assure access under paragraph (1) and 
consistent with paragraph (3), the Administrator 
may provide partial underwriting of risk for a PDP 
sponsor to expand the service area under an existing
prescription drug plan to adjoining or additional 
areas or to establish 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 as-
sure the access guaranteed under paragraph (1). 
‘‘(3) LIMITATION
ON
AUTHORITY.—In exer-
cising authority under this subsection, the Adminis-
trator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor; 
and 
‘‘(B) shall seek to maximize the assump-
tion of financial risk by PDP sponsors or enti-
ties offering a MA-EFFS Rx plan. 
‘‘(4) REPORTS.—The Administrator shall, in 
each annual report to Congress under section 
1809(f), include information on the exercise of au-
thority under this subsection. The Administrator 
also shall include such recommendations as may be 
appropriate to minimize the exercise of such author-
ity, including minimizing the assumption of financial 
risk. 
‘‘(5) QUALIFYING
PLAN
DEFINED.—For pur-
poses of this subsection, the term ‘qualifying plan’
means a prescription drug plan or a MA-EFFS Rx 
plan. 
‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 
‘‘(a) SUBMISSION
OF BIDS, PREMIUMS, AND RE-
LATED INFORMATION.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall 
submit to the Administrator the information de-
scribed in paragraph (2) in the same manner as in-
formation is submitted by an organization under sec-
tion 1854(a)(1). 
‘‘(2) INFORMATION SUBMITTED.—The informa-
tion described in this paragraph is the following: 
‘‘(A) COVERAGE
PROVIDED.—Information 
on the qualified prescription drug coverage to 
be provided. 
‘‘(B) ACTUARIAL VALUE.—Information on 
the actuarial value of the coverage. 
‘‘(C) BID AND PREMIUM.—Information on 
the bid and the premium for the coverage, in-
cluding an actuarial certification of—
‘‘(i) the actuarial basis for such bid 
and premium; 
‘‘(ii) the portion of such bid and pre-
mium attributable to benefits in excess of 
standard coverage;
‘‘(iii) the reduction in such bid result-
ing from the reinsurance subsidy payments 
provided under section 1860D–8(a)(2); 
and 
‘‘(iv) the reduction in such premium 
resulting from the direct and reinsurance 
subsidy payments provided under section 
1860D–8. 
‘‘(D) ADDITIONAL
INFORMATION.—Such 
other information as the Administrator may re-
quire to carry out this part. 
‘‘(3) REVIEW OF INFORMATION; NEGOTIATION 
AND APPROVAL OF PREMIUMS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Administrator shall review the 
information filed under paragraph (2) for the 
purpose of conducting negotiations under sec-
tion 1860D–4(b)(2) (relating to using OPM-like 
authority under the FEHBP). The Adminis-
trator, using the information provided (includ-
ing the actuarial certification under paragraph 
(2)(C)) shall approve the premium submitted 
under this subsection only if the premium accu-
rately reflects both (i) the actuarial value of the 
benefits provided, and (ii) the 73 percent aver-
age subsidy provided under section 1860D–8 
for the standard benefit. The Administrator 
shall apply actuarial principles to approval of a 
premium under this part in a manner similar to 
the manner in which those principles are ap-
plied in establishing the monthly part B pre-
mium under section 1839. 
‘‘(B) EXCEPTION.—In the case of a plan 
described in section 1851(a)(2)(C), the provi-
sions of subparagraph (A) shall not apply and 
the provisions of paragraph (5)(B) of section 
1854(a), prohibiting the review, approval, or 
disapproval of amounts described in such para-
graph, shall apply to the negotiation and rejec-
tion of the monthly bid amounts and proportion 
referred to in subparagraph (A). 
‘‘(b) UNIFORM BID AND PREMIUM.—
‘‘(1) IN GENERAL.—The bid and premium for 
a prescription drug plan under this section may not 
vary among enrollees in the plan in the same service 
area. 
‘‘(2) CONSTRUCTION.—Nothing in paragraph 
(1) shall be construed as preventing the imposition 
of a late enrollment penalty under section 1860D–
1(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) BENEFICIARY’S
OPTION
OF
PAYMENT 
THROUGH
WITHHOLDING
FROM
SOCIAL
SECURITY 
PAYMENT OR USE OF ELECTRONIC FUNDS TRANS-
FER MECHANISM.—In accordance with regulations, a 
PDP sponsor shall permit each enrollee, at the en-
rollee’s option, to make payment of premiums under 
this part to the sponsor through withholding from 
benefit payments in the manner provided under sec-
tion 1840 with respect to monthly premiums under 
section 1839 or through an electronic funds transfer 
mechanism (such as automatic charges of an ac-
count at a financial institution or a credit or debit 
card account) or otherwise. All premium payments 
that are withheld under this paragraph shall be 
credited to the Medicare Prescription Drug Trust 
Fund and shall be paid to the PDP sponsor in-
volved. 
‘‘(2) OFFSETTING.—Reductions in premiums 
for coverage under parts A and B as a result of a 
selection of a MA-EFFS Rx plan may be used to re-
duce the premium otherwise imposed under para-
graph (1). 
‘‘(d) 
ACCEPTANCE
OF
REFERENCE
PREMIUM 
AMOUNT AS FULL PREMIUM FOR SUBSIDIZED LOW-IN-
COME INDIVIDUALS 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 
1860D–7 and resides in the area, the PDP sponsor 
of any prescription drug plan offered in the area 
(and any entity offering a MA-EFFS Rx plan in the 
area) shall accept the reference premium amount 
(under paragraph (3)) as payment in full for the 
premium charge for qualified prescription drug cov-
erage. 
‘‘(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. 
‘‘(3) 
REFERENCE
PREMIUM
AMOUNT
DE-
FINED.—For purposes of this subsection, the term 
‘reference premium amount’ 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 plan’s PDP pre-
mium; or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage, 
the plan’s PDP premium multiplied by the 
ratio of (I) the actuarial value of standard 
coverage, to (II) the actuarial value of the 
alternative coverage; 
‘‘(B) an EFFS plan, the EFFS monthly 
prescription drug beneficiary premium (as de-
fined in section 1860E–4(a)(3)(B)); or 
‘‘(C) a Medicare Advantage, the Medicare 
Advantage monthly prescription drug bene-
ficiary 
premium 
(as 
defined 
in 
section 
1854(b)(2)(B)). 
For purposes of subparagraph (A), the term ‘PDP 
premium’ means, with respect to a prescription drug 
plan, the premium amount for enrollment under the 
plan under this part (determined without regard to 
any low-income subsidy under section 1860D–7 or
any late enrollment penalty under section 1860D–
1(c)(2)(B)).
‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 
FOR LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS 
WITH INCOME BELOW 150 PERCENT OF FEDERAL POV-
ERTY LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION 
OF COST-SHARING FOR INDIVIDUALS WITH INCOME 
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 135 percent of the 
Federal poverty level, the individual is entitled under 
this section—
‘‘(A) to an income-related premium subsidy 
equal to 100 percent of the amount described in 
subsection (b)(1); and 
‘‘(B) subject to subsection (c), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section 
1860D–2(b) (up to the initial coverage limit 
specified in paragraph (3) of such section) of 
amounts that do not exceed $2 for a multiple 
source or generic drug (as described in section
1927(k)(7)(A)) and $5 for a non-preferred 
drug.
‘‘(2) SLIDING
SCALE
PREMIUM
SUBSIDY
FOR 
INDIVIDUALS WITH INCOME ABOVE 135, BUT BELOW 
150
PERCENT, OF
FEDERAL
POVERTY
LEVEL.—In 
the case of a subsidy eligible individual who is deter-
mined to have income that exceeds 135 percent, but 
does not exceed 150 percent, of the Federal poverty 
level, the individual is entitled under this section to 
an income-related premium subsidy determined on a 
linear sliding scale ranging from 100 percent of the 
amount described in subsection (b)(1) for individuals 
with incomes at 135 percent of such level to 0 per-
cent of such amount for individuals with incomes at 
150 percent of such level. 
‘‘(3) CONSTRUCTION.—Nothing in this section 
shall be construed as preventing a PDP sponsor or 
entity offering a MA-EFFS Rx plan from reducing 
to 0 the cost-sharing otherwise applicable to generic 
drugs. 
‘‘(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; 
‘‘(ii) has income below 150 percent of 
the Federal poverty line; and 
‘‘(iii) meets the resources requirement 
described in subparagraph (D). 
‘‘(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) or by the Social Security 
Administration. In the case of a State that does 
not operate such a medicaid plan (either under 
title XIX or under a statewide waiver granted 
under section 1115), such determination shall 
be made under arrangements made by the Ad-
ministrator. There are authorized to be appro-
priated to the Social Security Administration 
such sums as may be necessary for the deter-
mination of eligibility under this subparagraph. 
‘‘(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) RESOURCE
STANDARD
APPLIED
TO 
BE
BASED
ON
THREE
TIMES
SSI
RESOURCE 
STANDARD.—The resource requirement of this 
subparagraph is that an individual’s resources 
(as determined under section 1613 for purposes 
of the supplemental security income program) 
do not exceed—
‘‘(i) for 2006 three times the max-
imum amount of resources that an indi-
vidual may have and obtain benefits under 
that program; and 
‘‘(ii) for a subsequent year the re-
source limitation established under this 
clause for the previous year increased by 
the annual percentage increase in the con-
sumer price index (all items; U.S. city av-
erage) as of September of such previous 
year. 
Any resource limitation established under clause 
(ii) that is not a multiple of $10 shall be round-
ed to the nearest multiple of $10. 
‘‘(E) 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). 
‘‘(F) 
TREATMENT
OF
CONFORMING 
MEDIGAP POLICIES.—For purposes of this sec-
tion, the term ‘qualified prescription drug cov-
erage’ includes a medicare supplemental policy 
described in section 1860D–8(b)(4). 
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) FOR 2007.—The dollar amounts ap-
plied under paragraphs (1)(B) for 2007 shall be 
the dollar amounts specified in such paragraph 
increased by the annual percentage increase de-
scribed in section 1860D–2(b)(5) for 2007.
‘‘(3) the Administrator periodically and on a 
timely basis reimburses the sponsor or entity 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 
consistent with section 1935(d)(1). 
‘‘(3) COORDINATION.—The Administrator shall 
develop and implement a plan for the coordination 
of prescription drug benefits under this part with 
the benefits provided under the medicaid program 
under title XIX, with particular attention to insur-
ing coordination of payments and prevention of 
fraud and abuse. In developing and implementing 
such plan, the Administrator shall involve the Sec-
retary, the States, the data processing industry, 
pharmacists, and pharmaceutical manufacturers, 
and other experts.
‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE-
FICIARIES FOR QUALIFIED PRESCRIPTION 
DRUG COVERAGE. 
‘‘(a) SUBSIDY PAYMENT.—In order to reduce pre-
mium levels applicable to qualified prescription drug cov-
erage for all medicare beneficiaries consistent with an 
overall subsidy level of 73 percent, to reduce adverse selec-
tion among prescription drug plans and MA-EFFS Rx 
plans, and to promote the participation of PDP sponsors 
under this part, the Administrator shall provide in accord-
ance with this section for payment to a qualifying entity 
(as defined in subsection (b)) of the following subsidies: 
‘‘(1) DIRECT SUBSIDY.—In the case of an en-
rollee enrolled for a month in a prescription drug 
plan or a MA-EFFS Rx plan, a direct subsidy equal 
to 43 percent of the national average monthly bid 
amount (computed under subsection (g)) for that 
month.
‘‘(2) SUBSIDY
THROUGH
REINSURANCE.—In 
the case of an enrollee enrolled for a month in a pre-
scription drug plan or a MA-EFFS Rx plan, the re-
insurance payment amount (as defined in subsection
(c)), which in the aggregate is 30 percent of the 
total payments made by qualifying entities for stand-
ard coverage under the respective plan, for excess 
costs incurred in providing qualified prescription 
drug coverage—
‘‘(A) for enrollees with a prescription drug 
plan under this part; and 
‘‘(B) for enrollees with a MA-EFFS Rx 
plan. 
‘‘(3) EMPLOYER AND UNION FLEXIBILITY.—In 
the case of an individual who is a participant or ben-
eficiary in a qualified retiree prescription drug plan 
(as defined in subsection (f)(1)) and who is not en-
rolled in a prescription drug plan or in a MA-EFFS 
Rx plan, the special subsidy payments under sub-
section (f)(3). 
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts pro-
vided under this section. 
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes 
of this section, the term ‘qualifying entity’ means any of 
the following that has entered into an agreement with the 
Administrator to provide the Administrator with such in-
formation as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription 
drug plan under this part. 
‘‘(2) An entity that offers a MA-EFFS Rx plan. 
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)). 
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN
GENERAL.—Subject to subsection 
(d)(1)(B) and paragraph (4), the reinsurance pay-
ment amount under this subsection for a qualifying 
covered individual (as defined in paragraph (5)) for 
a coverage year (as defined in subsection (h)(2)) is 
equal to the sum of the following: 
‘‘(A) REINSURANCE BETWEEN INITIAL RE-
INSURANCE THRESHOLD AND THE INITIAL COV-
ERAGE LIMIT.—For the portion of the individ-
ual’s gross covered prescription drug costs (as 
defined in paragraph (3)) for the year that ex-
ceeds the initial reinsurance threshold specified 
in paragraph (4), but does not exceed the initial 
coverage limit specified in section 1860D–
2(b)(3), an amount equal to 20 percent of the 
allowable costs (as defined in paragraph (2)) at-
tributable to such gross covered prescription 
drug costs.
‘‘(B) REINSURANCE ABOVE ANNUAL OUT-
OF-POCKET
THRESHOLD.—For the portion of 
the individual’s gross covered prescription drug 
costs for the year that exceeds the annual out-
of-pocket 
threshold 
specified 
in 
1860D–
2(b)(4)(B), an amount equal to 80 percent of 
the allowable costs attributable to such gross 
covered prescription drug costs. 
‘‘(2) ALLOWABLE COSTS.—For purposes of this 
section, the term ‘allowable costs’ means, with re-
spect to gross covered prescription drug costs under 
a plan described in subsection (b) offered by a quali-
fying entity, the part of such costs that are actually 
paid (net of discounts, chargebacks, and average 
percentage rebates) under the plan, but in no case 
more than the part of such costs that would have 
been paid under the plan if the prescription drug 
coverage under the plan were standard coverage. 
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG 
COSTS.—For purposes of this section, the term 
‘gross covered prescription drug costs’ means, with 
respect to an enrollee with a qualifying entity under 
a plan described in subsection (b) during a coverage 
year, the costs incurred under the plan (including 
costs attributable to administrative costs) for cov-
ered prescription drugs dispensed during the year, 
including costs relating to the deductible, whether 
paid by the enrollee or under the plan, regardless of 
whether the coverage under the plan exceeds stand-
ard coverage and regardless of when the payment 
for such drugs is made. 
‘‘(4) INITIAL REINSURANCE THRESHOLD.—The 
initial reinsurance threshold specified in this para-
graph—
‘‘(A) for 2006, is equal to $1,000; or 
‘‘(B) for a subsequent year, is equal to the 
payment threshold specified in this paragraph 
for the previous year, increased by the annual 
percentage 
increase 
described 
in 
section 
1860D–2(b)(5) for the year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10.
‘‘(5) QUALIFYING
COVERED
INDIVIDUAL
DE-
FINED.—For purposes of this subsection, the term 
‘qualifying covered individual’ means an individual 
who—
‘‘(A) is enrolled with a prescription drug 
plan under this part; or 
‘‘(B) is enrolled with a MA-EFFS Rx plan.
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) ADJUSTMENT
OF
REINSURANCE
PAY-
MENTS TO ASSURE 30 PERCENT LEVEL OF SUBSIDY 
THROUGH REINSURANCE.—
‘‘(A) ESTIMATION
OF
PAYMENTS.—The 
Administrator shall estimate—
‘‘(i) the total payments to be made 
(without regard to this subsection) during 
a year under subsections (a)(2) and (c); 
and 
‘‘(ii) the total payments to be made by 
qualifying entities for standard coverage 
under plans described in subsection (b) 
during the year. 
‘‘(B) ADJUSTMENT.—The Administrator 
shall proportionally adjust the payments made 
under subsections (a)(2) and (c) for a coverage 
year in such manner so that the total of the 
payments made under such subsections for the 
year is equal to 30 percent of the total pay-
ments described in subparagraph (A)(ii). 
‘‘(2) RISK
ADJUSTMENT
FOR
DIRECT
SUB-
SIDIES.—To the extent the Administrator deter-
mines it appropriate to avoid risk selection, the pay-
ments made for direct subsidies under subsection
(a)(1) are subject to adjustment based upon risk 
factors specified by the Administrator. Any such risk 
adjustment shall be designed in a manner as to not 
result in a change in the aggregate payments made 
under such subsection. 
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Admin-
istrator determines. The Administrator may estab-
lish a payment method by which interim payments 
of amounts under this section are made during a 
year based on the Administrator’s best estimate of 
amounts that will be payable after obtaining all of 
the information. 
‘‘(2) SOURCE OF PAYMENTS.—Payments under 
this section shall be made from the Medicare Pre-
scription Drug Trust Fund. 
‘‘(f) RULES RELATING TO QUALIFIED RETIREE PRE-
SCRIPTION DRUG PLAN.—
‘‘(1) DEFINITION.—For purposes of this sec-
tion, the term ‘qualified retiree prescription drug 
plan’ means employment-based retiree health cov-
erage (as defined in paragraph (4)(A)) if, with re-
spect to an individual who is a participant or bene-
ficiary under such coverage and is eligible to be en-
rolled in a prescription drug plan or a MA-EFFS Rx 
plan under this part, the following requirements are 
met: 
‘‘(A) ACTUARIAL EQUIVALENCE TO STAND-
ARD
COVERAGE.—The Administrator deter-
mines (based on an actuarial analysis approved 
by the Administrator) that coverage provides at 
least the same actuarial value as standard cov-
erage. Such determination may be made on an 
annual basis. 
‘‘(B) AUDITS.—The sponsor (or the ad-
ministrator, if designated by the sponsor) and 
the plan shall maintain, and afford the Admin-
istrator access to, such records as the Adminis-
trator may require for purposes of audits and 
other oversight activities necessary to ensure 
the adequacy of prescription drug coverage and 
the accuracy of payments made. 
‘‘(C) PROVISION
OF
CERTIFICATION
OF 
PRESCRIPTION DRUG COVERAGE.—The sponsor 
of the plan shall provide for issuance of certifi-
cations of the type described in section 1860D–
1(c)(2)(D). 
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—
No payment shall be provided under this section
with respect to a participant or beneficiary in a 
qualified retiree prescription drug plan unless the in-
dividual is—
‘‘(A) is covered under the plan; and 
‘‘(B) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860D–1 but 
did not elect such coverage under this part (ei-
ther through a prescription drug plan or 
through a MA-EFFS Rx plan). 
‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY 
AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the special subsidy payment amount 
under this paragraph for a qualifying covered 
retiree(as defined in paragraph (6)) for a cov-
erage year (as defined in subsection (h)) en-
rolled in a qualifying entity described in sub-
section (b)(3) under a qualified retiree prescrip-
tion drug plan is, for the portion of the individ-
ual’s gross covered prescription drug costs for 
the year that exceeds the deductible amount 
specified in subparagraph (B), an amount equal 
to, subject to subparagraph (D), 28 percent of 
the allowable costs attributable to such gross 
covered prescription drug costs, but only to the
extent such costs exceed the deductible under 
subparagraph (B) and do not exceed the cost 
limit under such subparagraph in the case of 
any such individual for the plan year. 
‘‘(B) DEDUCTIBLE AND COST LIMIT APPLI-
CABLE.—Subject to subparagraph (C)—
‘‘(i) the deductible under this sub-
paragraph is equal to $250 for plan years 
that end in 2006; and 
‘‘(ii) the cost limit under this subpara-
graph is equal to $5,000 for plan years 
that end in 2006. 
‘‘(C) INDEXING.—The deductible and cost 
limit amounts specified in subparagraphs (B) 
for a plan year that ends after 2006 shall be 
adjusted in the same manner as the annual de-
ductible under section 1860D–2(b)(1) is annu-
ally adjusted under such section.
‘‘(4) RELATED DEFINITIONS.—As used in this 
section: 
‘‘(A) 
EMPLOYMENT-BASED
RETIREE 
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs 
for individuals eligible to enroll in a prescription
drug plan or MA-EFFS Rx plan under this 
part (or for such individuals and their spouses 
and dependents) under a group health plan (in-
cluding such a plan that is established or main-
tained under or pursuant to one or more collec-
tive bargaining agreements or that is offered 
under chapter 89 of title 5, United States 
Code) based on their status as retired partici-
pants in such plan. 
‘‘(B) QUALIFYING
COVERED
RETIREE.—
The term ‘qualifying covered retiree’ means an 
individual who is eligible to obtain qualified pre-
scription drug coverage under section 1860D–1 
but did not elect such coverage under this part 
(either through a prescription drug plan or 
through a MA-EFFS Rx plan) but is covered 
under a qualified retiree prescription drug plan. 
‘‘(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. 
‘‘(5) CONSTRUCTION.—Nothing in this sub-
section shall be construed as—
‘‘(A) precluding an individual who is cov-
ered under employment-based retiree health
coverage from enrolling in a prescription drug 
plan or in a MA-EFFS plan; 
‘‘(B) precluding such employment-based 
retiree health coverage or an employer or other 
person from paying all or any portion of any 
premium required for coverage under such a 
prescription drug plan or MA-EFFS plan on 
behalf of such an individual; or 
‘‘(C) preventing such employment-based 
retiree health coverage from providing coverage 
for retirees—
‘‘(i) who are covered under a qualified 
retiree prescription plan that is better than 
standard coverage; or 
‘‘(ii) who are not covered under a 
qualified retiree prescription plan but who 
are enrolled in a prescription drug plan or 
a MA-EFFS Rx plan, that is supplemental 
to the benefits provided under such pre-
scription drug plan or MA-EFFS Rx plan, 
except that any such supplemental cov-
erage (not including payment of any pre-
mium referred to in subparagraph (B)) 
shall be treated as primary coverage to
100
which section 1862(b)(2)(A)(i) is deemed 
to apply. 
‘‘(g) COMPUTATION OF NATIONAL AVERAGE MONTH-
LY BID AMOUNT.—
‘‘(1) IN GENERAL.—For each year (beginning 
with 2006) the Administrator shall compute a na-
tional average monthly bid amount equal to the av-
erage of the benchmark bid amounts for each pre-
scription drug plan and for each MA-EFFS Rx plan 
(as computed under paragraph (2), but excluding 
plans described in section 1851(a)(2)(C))) adjusted 
under paragraph (4) to take into account reinsur-
ance payments. 
‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For 
purposes of this subsection, the term ‘benchmark bid 
amount’ means, with respect to qualified prescrip-
tion drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the 
actuarial value of which is equivalent to 
that of standard coverage), the PDP bid; 
or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which
101
is greater than that of standard coverage, 
the PDP bid multiplied by the ratio of (I) 
the actuarial value of standard coverage, to 
(II) the actuarial value of the alternative 
coverage; or 
‘‘(B) a MA-EFFS Rx plan, the portion of 
the bid amount that is attributable to statutory 
drug 
benefits 
(described 
in 
section 
1853(a)(1)(A)(ii)(II)). 
For purposes of subparagraph (A), the term ‘PDP 
bid’ means, with respect to a prescription drug plan, 
the bid amount for enrollment under the plan under 
this part (determined without regard to any low-in-
come subsidy under section 1860D–7 or any late en-
rollment penalty under section 1860D–1(c)(2)(B)). 
‘‘(3) WEIGHTED AVERAGE.—
‘‘(A) IN GENERAL.—The monthly national 
average monthly bid amount computed under 
paragraph (1) shall be a weighted average, with 
the weight for each plan being equal to the av-
erage number of beneficiaries enrolled under 
such plan in the previous year. 
‘‘(B) SPECIAL RULE FOR 2006.—For pur-
poses of applying this subsection for 2006, the 
Administrator shall establish procedures for de-
102
termining the weighted average under subpara-
graph (A) for 2005. 
‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE OF 
REINSURANCE
SUBSIDIES.—The adjustment under 
this paragraph, to take into account reinsurance 
payments under subsection (c) making up 30 per-
cent of total payments, is such an adjustment as will 
make the national average monthly bid amount rep-
resent represent 100 percent, instead of representing 
70 percent, of average payments under this part.
‘‘(h) COVERAGE YEAR DEFINED.—For purposes of 
this section, the term ‘coverage year’ means a calendar 
year in which covered outpatient drugs are dispensed if 
a claim for payment is made under the plan for such 
drugs, regardless of when the claim is paid. 
‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 
FUND. 
‘‘(a) IN GENERAL.—There is created on the books 
of the Treasury of the United States a trust fund to be 
known as the ‘Medicare Prescription Drug Trust Fund’ 
(in this section referred to as the ‘Trust Fund’). The 
Trust Fund shall consist of such gifts and bequests as 
may be made as provided in section 201(i)(1), and such 
amounts as may be deposited in, or appropriated to, such 
fund as provided in this part. Except as otherwise pro-
103
vided in this section, the provisions of subsections (b) 
through (i) of section 1841 shall apply to the Trust Fund 
in the same manner as they apply to the Federal Supple-
mentary Medical Insurance Trust Fund under such sec-
tion. 
‘‘(b) PAYMENTS FROM TRUST FUND.—
‘‘(1) IN
GENERAL.—The Managing Trustee 
shall pay from time to time from the Trust Fund 
such amounts as the Administrator certifies are nec-
essary to make—
‘‘(A) payments under section 1860D–7 (re-
lating to low-income subsidy payments); 
‘‘(B) payments under section 1860D–8 (re-
lating to subsidy payments); and 
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with 
section 201(g). 
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR 
INCREASED
ADMINISTRATIVE
COSTS.—The Man-
aging Trustee shall transfer from time to time from 
the Trust Fund to the Grants to States for Medicaid 
account amounts the Administrator certifies are at-
tributable to increases in payment resulting from the 
application of a higher Federal matching percentage 
under section 1935(b).
104
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is hereby 
transferred to the Trust Fund, 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 Trust 
Fund, an amount equivalent to the amount of pay-
ments made from the Trust Fund under subsection 
(b), reduced by the amount transferred to the Trust 
Fund under paragraph (1). 
‘‘(d) RELATION
TO SOLVENCY REQUIREMENTS.—
Any provision of law that relates to the solvency of the 
Trust Fund under this part shall take into account the 
Trust Fund and amounts receivable by, or payable from, 
the Trust Fund. 
‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 
ADVANTAGE AND EFFS PROGRAMS; TREAT-
MENT OF REFERENCES TO PROVISIONS IN 
PART C. 
‘‘(a) DEFINITIONS.—For purposes of this part:
105
‘‘(1) COVERED OUTPATIENT DRUGS.—The term 
‘covered outpatient drugs’ is defined in section 
1860D–2(f). 
‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means such limit as established 
under section 1860D–2(b)(3), or, in the case of cov-
erage that is not standard coverage, the comparable 
limit (if any) established under the coverage. 
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
TRUST 
FUND.—The term ‘Medicare Prescription Drug 
Trust Fund’ means the Trust Fund created under 
section 1860D–9(a). 
‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’ 
means an entity that is certified under this part as 
meeting the requirements and standards of this part 
for such a sponsor. 
‘‘(5) PRESCRIPTION
DRUG
PLAN.—The term 
‘prescription drug plan’ means health benefits cov-
erage that—
‘‘(A) is offered under a policy, contract, or 
plan by a PDP sponsor pursuant to, and in ac-
cordance with, a contract between the Adminis-
trator and the sponsor under section 1860D–
4(b);
106
‘‘(B) provides qualified prescription drug 
coverage; and 
‘‘(C) meets the applicable requirements of 
the section 1860D–3 for a prescription drug 
plan. 
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860D–2(a). 
‘‘(7) STANDARD COVERAGE.—The term ‘stand-
ard coverage’ is defined in section 1860D–2(b). 
‘‘(8) INSURANCE
RISK.—The term ‘insurance 
risk’ means, with respect to a participating phar-
macy, risk of the type commonly assumed only by 
insurers licensed by a State and does not include 
payment variations designed to reflect performance-
based measures of activities within the control of the 
pharmacy, such as formulary compliance and generic 
drug substitution. 
‘‘(b) OFFER OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE UNDER MEDICARE ADVANTAGE AND EFFS 
PROGRAMS.—
‘‘(1) AS
PART
OF
MEDICARE
ADVANTAGE 
PLAN.—Medicare Advantage organizations are re-
quired to offer Medicare Advantage plans that in-
107
clude qualified prescription drug coverage under part 
C pursuant to section 1851(j). 
‘‘(2) AS PART OF EFFS PLAN.—EFFS organi-
zations are required to offer EFFS plans that in-
clude qualified prescription drug coverage under part 
E pursuant to section 1860E–2(d). 
‘‘(c) APPLICATION OF PART C PROVISIONS UNDER 
THIS PART.—For purposes of applying provisions of part 
C under this part with respect to a prescription 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 Advantage or 
other 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–4(b); and 
‘‘(4) any reference to part C included a ref-
erence to this part. 
‘‘(d) REPORT ON PHARMACY SERVICES PROVIDED TO 
LONG-TERM CARE FACILITY PATIENTS.—
‘‘(1) REVIEW.—Within 6 months after the date 
of the enactment of this section, the Secretary shall
108
review the current standards of practice for phar-
macy services provided to patients in nursing facili-
ties and other long-term care facilities. 
‘‘(2) EVALUATIONS AND RECOMMENDATIONS.—
Specifically in the review under paragraph (1), the 
Secretary shall—
‘‘(A) assess the current standards of prac-
tice, clinical services, and other service require-
ments generally utilized for pharmacy services 
in the long-term care setting; 
‘‘(B) evaluate the impact of those stand-
ards with respect to patient safety, reduction of 
medication errors and quality of care; and 
‘‘(C) recommend (in the Secretary’s report 
under paragraph (3)) necessary actions and ap-
propriate reimbursement to ensure the provision 
of prescription drugs to medicare beneficiaries 
residing in nursing facilities and other long-
term care facilities in a manner consistent with 
existing patient safety and quality of care 
standards under applicable State and Federal 
laws. 
‘‘(3) REPORT.—The Secretary shall submit a 
report to the Congress on the Secretary’s findings 
and recommendations under this subsection, includ-
109
ing a detailed description of the Secretary’s plans to 
implement this part in a manner consistent with ap-
plicable State and Federal laws designed to protect 
the safety and quality of care of patients of nursing 
facilities and other long-term care facilities.’’. 
(b) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS 
PART D.—Any reference in law (in effect before the 
date of the enactment of this Act) to part D of title 
XVIII of the Social Security Act is deemed a ref-
erence to part F of such title (as in effect after such 
date). 
(2) CONFORMING
AMENDMENT
PERMITTING 
WAIVER
OF
COST-SHARING.—Section 1128B(b)(3) 
(42 U.S.C. 1320a–7b(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (E); 
(B) by striking the period at the end of 
subparagraph (F) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(G) the waiver or reduction of any cost-shar-
ing imposed under part D of title XVIII.’’. 
(3) SUBMISSION OF LEGISLATIVE PROPOSAL.—
Not later than 6 months after the date of the enact-
110
ment of this Act, the Secretary of Health and 
Human Services shall submit to the appropriate 
committees of Congress a legislative proposal pro-
viding for such technical and conforming amend-
ments in the law as are required by the provisions 
of this subtitle. 
(c) STUDY ON TRANSITIONING PART B PRESCRIP-
TION DRUG COVERAGE.—Not later than January 1, 2005, 
the Medicare Benefits Administrator shall submit a report 
to Congress that makes recommendations regarding meth-
ods for providing benefits under part D of title XVIII of 
the Social Security Act for outpatient prescription drugs 
for which benefits are provided under part B of such title. 
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE UNDER MEDICARE ADVANTAGE 
AND ENHANCED FEE-FOR-SERVICE (EFFS) 
PROGRAM. 
(a) MEDICARE
ADVANTAGE.—Section 1851 (42 
U.S.C. 1395w–21) is amended by adding at the end the 
following new subsection: 
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS AND SUBSIDIES.—
‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION 
DRUG COVERAGE.—A Medicare Advantage organiza-
tion on and after January 1, 2006—
111
‘‘(A) may not offer a Medicare Advantage 
plan described in section 1851(a)(2)(A) in an 
area unless either that plan (or another Medi-
care Advantage plan offered by the organization 
in that area) includes qualified prescription 
drug coverage; and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts 
A and B) to an enrollee under a Medicare Ad-
vantage 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) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in a Medicare 
Advantage plan under this part that offers such cov-
erage. 
‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL 
BENEFICIARY
PROTECTIONS
FOR
PRESCRIPTION 
DRUG COVERAGE.—With respect to the offering of 
qualified prescription drug coverage by a Medicare
112
Advantage organization under this part on and after 
January 1, 2006, the organization and plan shall 
meet the requirements of subsections (a) through (d) 
of section 1860D–3 in the same manner as they 
apply to a PDP sponsor and a prescription drug 
plan under part D and shall submit to the Adminis-
trator the information described in section 1860D–
6(a)(2). The Administrator shall waive such require-
ments to the extent the Administrator determines 
that such requirements duplicate requirements oth-
erwise applicable to the organization or plan under 
this part. 
‘‘(4) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES.—In the case of low-income in-
dividuals who are enrolled in a Medicare Advantage 
plan that provides qualified prescription drug cov-
erage, premium and cost-sharing subsidies are pro-
vided for such coverage under section 1860D–7. 
‘‘(5) AVAILABILITY OF DIRECT AND REINSUR-
ANCE
SUBSIDIES
TO
REDUCE
BIDS
AND
PRE-
MIUMS.—Medicare Advantage organizations are pro-
vided direct and reinsurance subsidy payments for 
providing qualified prescription drug coverage under 
this part under section 1860D–8.
113
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of a Medicare Advantage 
plan that includes qualified prescription drug cov-
erage, with respect to an enrollee in such plan there 
shall be a single premium for both drug and non-
drug coverage provided under the plan. 
‘‘(7) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this 
part, the annual, coordinated election period under 
subsection (e)(3)(B) for 2006 shall be the 6-month 
period beginning with November 2005. 
‘‘(8) 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 1860D–2. 
‘‘(9) SPECIAL RULES FOR PRIVATE FEE-FOR-
SERVICE PLANS.— With respect to a Medicare Ad-
vantage plan described in section 1851(a)(2)(C) that 
offers qualified prescription drug coverage—
‘‘(A) REQUIREMENTS
REGARDING
NEGO-
TIATED PRICES.—Subsections (a)(1) and (d)(1) 
of section 1860D–2 shall not be construed to 
require the plan to negotiate prices or discounts 
but shall apply to the extent the plan does so.
114
‘‘(B) MODIFICATION OF PHARMACY PAR-
TICIPATION
REQUIREMENT.—If the plan pro-
vides access, without charging additional copay-
ments, to all pharmacies without regard to 
whether they are participating pharmacies in a 
network, section 1860D-3(c)(1)(A)(iii) shall not 
apply to the plan. 
‘‘(C) DRUG
UTILIZATION
MANAGEMENT 
PROGRAM
NOT
REQUIRED.—The requirements 
of section 1860D-3(d)(1)(A) shall not apply to 
the plan. 
‘‘(D) NON-PARTICIPATING PHARMACY DIS-
CLOSURE
EXCEPTION.—If the plan provides 
coverage for drugs purchased from all phar-
macies, without entering into contracts or 
agreements with pharmacies to provide drugs to 
enrollees covered by the plan, section 1860D-
3(d)(5) shall not apply to the plan.’’. 
(b) APPLICATION TO EFFS PLANS.—Subsection (d) 
of section 1860E–2, as added by section 201(a), is amend-
ed to read as follows: 
‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS AND SUBSIDIES.—
‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION 
DRUG COVERAGE.—An EFFS organization—
115
‘‘(A) may not offer an EFFS plan in an 
area unless either that plan (or another EFFS 
plan offered by the organization in that area) 
includes qualified prescription drug coverage; 
and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts 
A and B) to an enrollee under an EFFS plan, 
unless such drug coverage is at least qualified 
prescription drug coverage and unless the re-
quirements of this subsection with respect to 
such coverage are met. 
‘‘(2) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in an EFFS plan 
under this part that offers such coverage. 
‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL 
BENEFICIARY
PROTECTIONS
FOR
PRESCRIPTION 
DRUG COVERAGE.—With respect to the offering of 
qualified prescription drug coverage by an EFFS or-
ganization under this part, the organization and 
plan shall meet the requirements of subsections (a)
116
through (d) of section 1860D–3 in the same manner 
as they apply to a PDP sponsor and a prescription 
drug plan under part D and shall submit to the Ad-
ministrator the information described in section 
1860D–6(a)(2). The Administrator shall waive such 
requirements to the extent the Administrator deter-
mines that such requirements duplicate requirements 
otherwise applicable to the organization or plan 
under this part. 
‘‘(4) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES.—In the case of low-income in-
dividuals who are enrolled in an EFFS plan that 
provides qualified prescription drug coverage, pre-
mium and cost-sharing subsidies are provided for 
such coverage under section 1860D–7. 
‘‘(5) AVAILABILITY OF DIRECT AND REINSUR-
ANCE
SUBSIDIES
TO
REDUCE
BIDS
AND
PRE-
MIUMS.—EFFS organizations are provided direct 
and reinsurance subsidy payments for providing 
qualified prescription drug coverage under this part 
under section 1860D–8. 
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of an EFFS plan that in-
cludes qualified prescription drug coverage, with re-
spect to an enrollee in such plan there shall be a sin-
117
gle premium for both drug and non-drug coverage 
provided under the plan. 
‘‘(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 1860D–2.’’. 
(c) CONFORMING AMENDMENTS.—Section 1851 (42 
U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’; 
(B) by striking the period at the end of 
subparagraph (B) and inserting a comma; and 
(C) by adding after and below subpara-
graph (B) the following: 
‘‘and may elect qualified prescription drug coverage 
in accordance with section 1860D–1.’’; and 
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860D–1(c)(2)(B)’’ after ‘‘in this subsection’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section apply to coverage provided on or after January 
1, 2006.
118
SEC. 103. MEDICAID AMENDMENTS. 
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) 
REQUIREMENT.—Section 
1902(a) 
(42 
U.S.C. 1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64); 
(B) by striking the period at the end of 
paragraph (65) and inserting ‘‘; and’’; and 
(C) by inserting after paragraph (65) the 
following new paragraph: 
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’. 
(2) NEW
SECTION.—Title XIX is further 
amended—
(A) by redesignating section 1935 as sec-
tion 1936; and 
(B) by inserting after section 1934 the fol-
lowing new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE 
PRESCRIPTION DRUG BENEFIT 
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—As a condition of its State plan under this title 
under section 1902(a)(66) and receipt of any Federal fi-
nancial assistance under section 1903(a), a State shall—
119
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860D–7; 
‘‘(2) inform the Administrator of the Medicare 
Benefits Administration of such determinations in 
cases in which such eligibility is established; and 
‘‘(3) otherwise provide such Administrator with 
such information as may be required to carry out 
part D of title XVIII (including section 1860D–7). 
‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE 
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by 
a State in carrying out subsection (a) are, subject to 
paragraph (2), expenditures reimbursable under the 
appropriate paragraph of section 1903(a); except 
that, notwithstanding any other provision of such 
section, the applicable Federal matching rates with 
respect to such expenditures under such section shall 
be increased as follows (but in no case shall the rate 
as so increased exceed 100 percent): 
‘‘(A) For expenditures attributable to costs 
incurred during 2005, the otherwise applicable 
Federal matching rate shall be increased by 6-
2⁄3 percent of the percentage otherwise payable 
(but for this subsection) by the State.
120
‘‘(B)(i) For expenditures attributable to 
costs incurred during 2006 and each subse-
quent year through 2018, the otherwise applica-
ble Federal matching rate shall be increased by 
the applicable percent (as defined in clause (ii)) 
of the percentage otherwise payable (but for 
this subsection) by the State. 
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
‘‘(I) 2006 is 13-1⁄3 percent; or 
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 6-2⁄3 percentage 
points. 
‘‘(C) For expenditures attributable to costs 
incurred after 2018, the otherwise applicable 
Federal matching rate shall be increased to 100 
percent.
‘‘(2) COORDINATION.—The State shall provide 
the Administrator with such information as may be 
necessary to properly allocate administrative expend-
itures described in paragraph (1) that may otherwise 
be made for similar eligibility determinations.’’.
121
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID 
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN
GENERAL.—Section 1903(a)(1) (42 
U.S.C. 1396b(a)(1)) is amended by inserting before 
the semicolon the following: ‘‘, reduced by the 
amount computed under section 1935(c)(1) for the 
State and the quarter’’. 
(2) AMOUNT DESCRIBED.—Section 1935, as in-
serted by subsection (a)(2), is amended by adding at 
the end the following new subsection: 
‘‘(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 1860D–7 (relating to premium and 
cost-sharing prescription drug subsidies for low-
income medicare beneficiaries) that are attrib-
122
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) 2006 is 93-1⁄3 percent; 
‘‘(B) a subsequent year before 2021, is the 
phase-out proportion for calendar quarters in 
the previous year decreased by 6-2⁄3 percentage 
points; or 
‘‘(C) a year after 2020 is 0 percent.’’. 
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935, as so inserted and amended, is fur-
123
ther amended by adding at the end the following new sub-
section: 
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 
case of an individual who is entitled to qualified pre-
scription drug coverage under a prescription drug 
plan under part D of title XVIII (or under a MA-
EFFS Rx plan under part C or E of such title) and 
medical assistance for prescribed drugs under this 
title, medical assistance shall continue to be provided 
under this title (other than for copayment amounts 
specified in section 1860D–7(a)(1)(B), notwith-
standing section 1916) for prescribed drugs to the 
extent payment is not made under the prescription 
drug plan or MA-EFFS Rx plan selected by the in-
dividual. 
‘‘(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 1860D–1.’’. 
(d) TREATMENT OF TERRITORIES.—
124
(1) IN GENERAL.—Section 1935, as so inserted 
and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to 
subsection (e)’’ after ‘‘section 1903(a)’’; 
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 
(C) by adding at the end the following new 
subsection: 
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN
GENERAL.—In the case of a State, 
other than the 50 States and the District of Colum-
bia—
‘‘(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—
125
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient 
drugs (as defined in section 1860D–2(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) 2006, is equal to $25,000,000; or 
‘‘(ii) a subsequent year, is equal to the 
aggregate amount specified in this sub-
paragraph for the previous year increased
126
by annual percentage increase specified in 
section 1860D–2(b)(5) for the year in-
volved. 
‘‘(4) REPORT.—The Administrator shall submit 
to Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Administrator deems appro-
priate.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1108(f) (42 U.S.C. 1308(f)) is amended by inserting 
‘‘and section 1935(e)(1)(B)’’ after ‘‘Subject to sub-
section (g)’’. 
(e) 
AMENDMENT
TO
BEST
PRICE.—Section 
1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is 
amended—
(1) by striking ‘‘and’’ at the end of subclause 
(III); 
(2) by striking the period at the end of sub-
clause (IV) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
clause: 
‘‘(V) any prices charged which 
are negotiated by a prescription drug 
plan under part D of title XVIII, by 
a MA-EFFS Rx plan under part C or
127
E of such title with respect to covered 
outpatient drugs, or by a qualified re-
tiree prescription drug plan (as de-
fined in section 1860D–8(f)(1)) with 
respect to such drugs on behalf of in-
dividuals entitled to benefits under 
part A or enrolled under part B of 
such title.’’. 
SEC. 104. MEDIGAP TRANSITION. 
(a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) 
is amended by adding at the end the following new sub-
section: 
‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of law, except as provided in paragraph (3) 
no new medicare supplemental policy that provides 
coverage of expenses for prescription drugs may be 
issued under this section on or after January 1, 
2006, to an individual unless it replaces a medicare 
supplemental policy that was issued to that indi-
vidual and that provided some coverage of expenses 
for prescription drugs. Nothing in this subsection 
shall be construed as preventing the policy holder of 
a medicare supplemental policy issued before Janu-
134
‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; 
PRESCRIPTION DRUG ACCOUNT.—For purposes of this 
section: 
‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligi-
ble beneficiary’ means an individual who is eligible 
for benefits under part A or enrolled under part B 
and who is not enrolled in a Medicare Advantage 
plan that offers qualified prescription drug coverage. 
‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible en-
tity’ means any entity that the Secretary determines 
to be appropriate to provide the benefits under this 
section, including—
‘‘(A) pharmaceutical benefit management 
companies; 
‘‘(B) wholesale and retail pharmacy deliv-
ery systems; 
‘‘(C) insurers; 
‘‘(D) Medicare Advantage organizations; 
‘‘(E) other entities; or 
‘‘(F) any combination of the entities de-
scribed in subparagraphs (A) through (E). 
‘‘(3) PRESCRIPTION
DRUG
ACCOUNT.—The 
term ‘prescription drug account’ means, with respect 
to an eligible beneficiary, an account established for 
the benefit of that beneficiary under section 1807A.