[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4751 Introduced in House (IH)]







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 
 Committee on Energy and Commerce, and in addition to the Committee on 
   Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the 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 Representatives 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 coverage.
        ``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 
                            individuals.
        ``Sec. 1860H. Subsidies for all medicare beneficiaries through 
                            reinsurance for qualified prescription drug 
                            coverage.
        ``Sec. 1860I. Medicare Prescription Drug Account in federal 
                            Supplementary 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 individual 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 individual is not 
        enrolled in a Medicare+Choice plan that provides qualified 
        prescription drug coverage, the individual may enroll under 
        this part in a prescription 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 coverage 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 Secretary 
        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 periods; 
                        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 covered.--In 
                        the case of an individual who is entitled to 
                        benefits under part A or enrolled under part B 
                        as of November 1, 2004, there shall be an 
                        initial election period of 6 months beginning 
                        on that date.
                            ``(ii) Individual covered in future.--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 period which is the same as 
                        the initial enrollment period under section 
                        1837(d).
                    ``(C) Additional special election periods.--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 (including 
                        conditions recognized under section 
                        1851(d)(4)(D)) as the Secretary may provide.
    ``(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 respect to the plan shall not be denied 
                enrollment based on any health status-related factor 
                (described 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), relating to default enrollment) of 
                section 1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP sponsors 
                under this subsection.
            ``(2) Community-rated premium.--
                    ``(A) In general.--In the case of an individual who 
                maintains (as determined under subparagraph (C)) 
                continuous prescription drug coverage since first 
                qualifying to elect prescription drug coverage under 
                this part, a PDP sponsor or Medicare+Choice 
                organization offering a prescription drug plan or 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage and in which the individual 
                is enrolled may not deny, limit, or condition the 
                coverage or provision of covered prescription drug 
                benefits or increase the premium under the plan based 
                on any health status-related factor described in 
                section 2702(a)(1) of the Public Health Service Act or 
                any other factor.
                    ``(B) Late enrollment penalty.--In the case of an 
                individual who does not maintain such continuous 
                prescription drug coverage, 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 coverage in 
                a manner that reflects additional actuarial risk 
                involved. Such a risk shall be established 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 continuous 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 coverage 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, including 
                        through the Program of All-inclusive Care for 
                        the Elderly (PACE) under section 1934, through 
                        a social health maintenance 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 outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits 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 
                        standards 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 assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program.
                            ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription 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 prescription drug coverage described in 
                subparagraph (C).
                    ``(E) Construction.--Nothing in this section shall 
                be construed as preventing the disenrollment of an 
                individual from a prescription drug plan or a 
                Medicare+Choice plan based on the termination of an 
                election described in section 1851(g)(3), including for 
                non-payment of premiums or for other reasons specified 
                in subsection (d)(3), which takes into account a grace 
                period described in section 1851(g)(3)(B)(i).
            ``(3) Nondiscrimination.--A PDP sponsor offering a 
        prescription drug plan shall not establish a service area in a 
        manner that would discriminate based on health or economic 
        status of potential enrollees.
    ``(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 January 1, 2005.
            ``(3) Termination.--The Secretary shall provide 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 benefits under 
                part A); and
                    ``(B) termination of elections described in section 
                1851(g)(3) (including failure to pay required 
                premiums).

``SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION 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 negotiated prices under subsection 
                (d).
                    ``(B) Actuarially equivalent coverage with access 
                to negotiated prices.--Coverage of covered outpatient 
                drugs which meets the alternative coverage requirements 
                of subsection (c) and access to negotiated prices under 
                subsection (d).
            ``(2) Permitting additional outpatient prescription drug 
        coverage.--
                    ``(A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as preventing 
                qualified prescription drug coverage from including 
                coverage of covered outpatient drugs that exceeds the 
                coverage required under paragraph (1), but any such 
                additional 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 
                activities 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 organization under 
                this part or part C.
            ``(3) Application of secondary payor provisions.--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 outpatient drugs (as defined in 
subsection (f)) that meets the following requirements:
            ``(1) Deductible.--The coverage has an annual 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 incurred 
                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 result of the application of the deductible under 
        paragraph (1) and the coinsurance required under this 
        subsection.
            ``(4) True out-of-pocket expenses defined.--For purposes of 
        paragraph (2), the term `true out-of-pocket expenses' means 
        out-of-pocket expenses insofar as there is no third party 
        reimbursement made.
            ``(5) Inflation adjustment.--
                    ``(A) In general.--In the case of any calendar 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 expenditures under 
                        this part in the preceding calendar year 
                        exceeds the amount of such expenditures in 
                        2005.
                    ``(B) Rounding.--Any amount determined under 
                paragraph (1) or (2) that is not a multiple of $5 or 
                $25, respectively, shall be rounded to the nearest 
                multiple of $5 or $25, respectively.
    ``(c) Alternative Coverage Requirements.--A prescription drug plan 
or Medicare+Choice plan may provide 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 equivalent 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 unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                coverage. For purposes of this subparagraph, the 
                unsubsidized 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 payments under section 1860H 
                with respect to such coverage.
                    ``(C) Assuring standard payment for costs in 
                initial benefit range.--The coverage is designed, based 
                upon an actuarially representative pattern of 
utilization (as determined 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 
applicable dollar amount under such subsection (as adjusted under 
subsection (b)(5)).
            ``(2) Limitation on true out-of-pocket expenditures by 
        beneficiaries.--The coverage provides the limitation on true 
        out-of-pocket expenditures 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 subsection (b)(3)). Insofar as a State elects to 
provide medical assistance under title XIX for a drug based on the 
prices negotiated by a prescription drug plan under this part, the 
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 valuation 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 
                        actuarial principles and methodologies; and
                            ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (c) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (b); and
                    ``(B) for determining annual percentage increases 
                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 actuarial opinions certified by 
        independent, qualified actuaries 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 `covered 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 subparagraph (C) of such section,
        and such term includes any use of a covered outpatient 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 medical uses, which may 
                be excluded from coverage or otherwise restricted under 
                section 1927(d)(2), other than subparagraph (E) thereof 
                (relating to smoking cessation agents) and except to 
                the extent otherwise specifically provided by the 
                Secretary with respect to a drug in any of such 
                classes.
                    ``(B) Avoidance of duplicate coverage.--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 payment 
                is not available because benefits under part A or B 
                have been exhausted), without regard to whether the 
                individual is entitled to benefits under part A or 
                enrolled under part B.
            ``(3) Application of formulary restrictions.--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) (including 
        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 accordance with 
                the plan or this part.
        Such exclusions are determinations subject to reconsideration 
        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 requiring 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 following:
                    ``(A) Access to covered outpatient drugs, including 
                access through pharmacy networks.
                    ``(B) How any formulary used by the sponsor 
                functions.
                    ``(C) Co-payments and deductible requirements.
                    ``(D) Grievance and appeals procedures.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll under a prescription drug plan, 
        the PDP sponsor 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 information 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 sponsor offering a 
        prescription drug plan must furnish to enrolled individuals in 
        a form easily understandable to such individuals an explanation 
        of benefits (in accordance 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 ensure convenient access (including adequate 
        emergency access) for enrolled beneficiaries, in accordance 
        with standards established under section 1860D(e) that ensure 
        such convenient access. Nothing 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 standards 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 conditions established by the sponsor for 
                such participation in such network.
            ``(3) Access to negotiated prices for prescription drugs.--
        The PDP sponsor of a prescription 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 formulary, the following requirements must be met:
                    ``(A) Formulary committee.--The sponsor must 
                establish a pharmaceutical and therapeutic committee 
                that develops the formulary. Such committee shall 
                include at least one physician and at least one 
                pharmacist.
                    ``(B) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                all therapeutic categories and classes of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes).
                    ``(C) Appeals and exceptions to application.--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; Quality 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 incentives to 
                use generic drugs, when appropriate;
                    ``(B) quality assurance measures and systems 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 program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that is designed to assure that covered outpatient 
                drugs under the prescription drug plan are 
                appropriately used to achieve therapeutic goals and 
                reduce the risk of adverse events, including adverse 
                drug interactions.
                    ``(B) Elements.--Such program may include--
                            ``(i) enhanced beneficiary understanding 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 cooperation 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 establishing fees for pharmacists and 
                others providing 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 assurance), 
                including medication therapy management program under 
                paragraph (2).
                    ``(B) Subsection (c)(1) (relating to access to 
                covered benefits).
                    ``(C) Subsection (g) (relating to confidentiality 
                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 
        beneficiary 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 generic drug that is 
        therapeutically and pharmaceutically equivalent and 
        bioequivalent.
    ``(e) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving 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, Reconsiderations, 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 organization with respect to benefits it offers 
        under a Medicare+Choice plan under part C.
            ``(2) Appeals of formulary determinations.--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 determines 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 Enrollee Records.--A PDP 
sponsor shall meet the requirements 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; ESTABLISHMENT OF STANDARDS.

    ``(a) General Requirements.--Each PDP sponsor of a prescription 
drug plan shall meet the following requirements:
            ``(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 subparagraph (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 entity may obtain 
                insurance or make other arrangements 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 subsection (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Secretary shall not permit the 
        election under section 1860A of a prescription 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 
        subsection 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 standards 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 Director of the Office of Personnel Management has with 
        respect to health benefits plans under chapter 89 of title 5, 
        United States Code. In negotiating the terms and conditions 
        regarding premiums for which information is submitted under 
        section 1860F(a)(2), the Secretary shall take into account the 
        reinsurance subsidy payments under section 1860H and the 
        adjusted 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 contracts under 
        section 1857(a):
                    ``(A) Minimum enrollment.--Paragraphs (1) and (3) 
                of section 1857(b).
                    ``(B) Contract period and effectiveness.--
                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 
                        separately to costs relating to this part (from 
                        costs under part C);
                            ``(ii) in no case shall the amount of the 
                        fee established under this subparagraph 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 intermediate sanctions.--In 
        applying paragraph (3)(E)--
                    ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference 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 Expand 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 application and other evidence presented to the Secretary, 
        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 requirements imposed under this part for a PDP 
        sponsor.
            ``(5) References to certain provisions.--For purposes of 
        this subsection, in applying provisions 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 reference 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 establish, by not 
        later than October 1, 2003, financial solvency and capital 
        adequacy standards that an entity that does not meet the 
        requirements of subsection (a)(1) must meet to qualify as a PDP 
        sponsor under this part.
            ``(2) Compliance with standards.--Each PDP sponsor that is 
        not licensed by a State under subsection (a)(1) and for which a 
        waiver application has been approved under subsection (c) shall 
        meet solvency and capital adequacy standards established under 
        paragraph (1). The Secretary shall establish certification 
        procedures for such PDP sponsors with respect to such solvency 
        standards in the manner described in section 1855(c)(2).
    ``(e) Other Standards.--The Secretary shall establish 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 
publish 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 comment.
    ``(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 paragraph (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 superseded.--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 premiums.
            ``(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 following:
            ``(1) Annual, coordinated election periods, in which such 
        individuals can change the qualifying plans through which they 
        obtain coverage, in accordance with section 1860A(b)(2).
            ``(2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon price, 
        quality, and other features, in the manner described in (and in 
        coordination with) section 1851(d), including the provision of 
        annual comparative information, maintenance of a toll-free 
        hotline, 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 coordination with) section 1851(c)(2).
    ``(c) Medicare+Choice Enrollee in Plan Offering Prescription Drug 
Coverage May Only Obtain Benefits Through the Plan.--An individual who 
is enrolled under a Medicare+Choice plan that offers qualified 
prescription drug coverage may only elect to receive 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 subparagraph (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 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 
        assure the access guaranteed under paragraph (1).
            ``(3) Limitation on authority.--In exercising authority 
        under this subsection, the Secretary--
                    ``(A) shall not provide for the full underwriting 
                of financial risk for any PDP sponsor;
                    ``(B) shall not provide for any underwriting of 
                financial risk for a public PDP sponsor with respect to 
                the offering of a nationwide prescription drug plan; 
                and
                    ``(C) shall seek to maximize the assumption 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), include 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 purposes of this 
        subsection, the term `qualifying plan' means a prescription 
        drug plan or a Medicare+Choice plan that includes qualified 
        prescription drug coverage.

``SEC. 1860F. PREMIUMS.

    ``(a) Submission of Premiums and Related Information.--
            ``(1) In general.--Each PDP sponsor shall submit to the 
        Secretary information of the type described in paragraph (2) in 
        the same manner as information is submitted by a 
        Medicare+Choice organization under section 1854(a)(1).
            ``(2) Type of information.--The information described in 
        this paragraph is the following:
                    ``(A) Information on the qualified prescription 
                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 actuarial 
                certification of--
                            ``(i) the actuarial basis for such premium;
                            ``(ii) the portion of such premium 
                        attributable 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 Secretary may 
                require to carry out this part.
            ``(3) Review.--The Secretary shall review the information 
        filed under paragraph (2) for the purpose 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 estimated 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 prescription 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 Premiums.--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 section 
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 prescription 
        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 qualified 
        prescription drug coverage in the area) shall accept 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 coverage 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 coverage.

``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 
                substitution for the beneficiary cost-sharing described 
                in section 1860B(b)(2)) of amounts that are nominal.
            ``(2) Premium subsidy only for individuals with income 
        above 150, but below 175 percent, of federal poverty level.--In 
        the case of a subsidy eligible individual who is determined to 
        have income that exceeds 150 percent, but does not 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 
        determined 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 described in subsection (b)(1) for individuals 
        with incomes 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 defined.--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 
                        elected, to obtain qualified prescription drug 
                        coverage under this part; and
                            ``(ii) has income below 200 percent of the 
                        Federal poverty line.
                    ``(B) Determinations.--The determination 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 (either 
                under title XIX or under a statewide waiver granted 
                under section 1115), such determination shall be made 
                under arrangements made by the Secretary.
                    ``(C) Income determinations.--For purposes 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 residents.--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 defined in paragraph (2)) for qualified 
        prescription drug coverage offered by the prescription drug 
        plan or the Medicare+Choice plan in which the individual is 
        enrolled.
            ``(2) Reference premium defined.--For purposes of this 
        subsection, the term `reference premium' means, with respect to 
        qualified prescription drug coverage offered under--
                    ``(A) a prescription drug plan that--
                            ``(i) provides standard coverage (or 
                        alternative 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 enrollment penalty 
                        under section 1860A(c)(2)(B)); or
                            ``(ii) provides alternative prescription 
                        drug coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        premium described in clause (i) multiplied 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 standard 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 Subsidies.--
            ``(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 maximum 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 construed 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 reduces the 
        premiums or cost-sharing otherwise imposed 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 subsidies and with appropriate adjustments to 
reflect differences in the risks actually involved.
    ``(e) Relation to Medicaid Program.--
            ``(1) In general.--For provisions providing for eligibility 
        determinations, and additional financing, under the medicaid 
        program, see section 1935.
            ``(2) Medicaid providing wrap around benefits.--The 
        coverage provided under this part is primary payor to benefits 
        for prescribed drugs provided under the medicaid program under 
        title XIX.

``SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES 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 adverse 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 prescription drug coverage under part 
        C; and
            ``(3) for medicare primary individuals (described in 
        subsection (e)(3)(D)) who are enrolled in a qualified retiree 
        prescription drug plan.
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Secretary 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 provides 
        qualified prescription drug coverage under a Medicare+Choice 
        plan under part C.
            ``(3) The sponsor of a qualified retiree prescription drug 
        plan (as defined in subsection (e)).
    ``(c) Reinsurance Payment Amount.--
            ``(1) In general.--Subject to paragraph (3), the 
        reinsurance payment amount under this subsection for a 
        qualifying covered individual (as defined in subsection (f)(1)) 
        for a coverage year (as defined in subsection (f)(2)) is equal 
        to such percentages, at such attachment points, as the 
        Secretary may specify in order to provide that the total of the 
        payments made for the year under this section is equal to 65 
        percent of the total payments described in paragraph (2)(B) 
        during the year. The Secretary shall adjust such percentages 
        and attachment points each year.
            ``(2) Payment computations.--The Secretary shall estimate--
                    ``(A) the total payments to be made (without 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 paragraph (1), the Secretary may 
        provide for such payment 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 section shall be 
        based on such a method as the Secretary 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 information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug Account.
    ``(e) Qualified Retiree Prescription Drug Plan Defined.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (3)(A)) 
        if, with respect to an individual enrolled (or eligible to be 
        enrolled) 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 assurances 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 activities necessary to 
                ensure the adequacy of prescription drug coverage, the 
                accuracy of payments 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 certifications of the type described in 
                section 1860A(c)(2)(D).
                    ``(D) Other requirements.--The sponsor of the plan 
                shall comply with such other requirements 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 prescription 
                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 insurance 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 Security Act of 1974 (except that 
                such term shall include only employers of two or more 
                employees).
                    ``(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 covered 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 individual 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 individual 
                under a qualified retiree prescription drug plan.
            ``(2) Coverage year.--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. 1860I. MEDICARE PRESCRIPTION DRUG ACCOUNT IN FEDERAL 
              SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND.

    ``(a) In General.--There is created within the Federal 
Supplementary Medical Insurance Trust Fund established by section 1841 
an account to be known as the `Medicare Prescription Drug Account' (in 
this section referred 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 Supplementary 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 (relating to 
                low-income subsidy payments);
                    ``(B) payments under section 1860H (relating to 
                reinsurance subsidy payments); and
                    ``(C) payments with respect to administrative 
                expenses under this part in accordance with section 
                201(g).
            ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall transfer from 
        time to time from the Account to the Grants to States for 
        Medicaid account amounts the Secretary certifies are 
        attributable 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 premium.--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 appropriated 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 appropriated from time to time, out 
        of any moneys in the Treasury not otherwise appropriated, to 
        the Account, an amount equivalent to the amount of payments 
        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 `initial coverage 
        limit' means the such limit as established under section 
        1860B(b)(3), or, in the case of coverage that is not standard 
        coverage, the comparable limit (if any) established under the 
        coverage.
            ``(3) Medicare prescription drug account.--The term 
        `Medicare Prescription Drug Account' means the Account in the 
        Federal Supplementary 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 coverage that--
                    ``(A) is offered under a policy, contract, or plan 
                by a PDP sponsor pursuant to, and in accordance 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 coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860B(a).
            ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860B(b).
    ``(b) Application of Medicare+Choice 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+Choice plan included a 
        reference to a prescription drug plan;
            ``(2) any reference to a provider-sponsored organization 
        included a reference to a PDP sponsor;
            ``(3) any reference to a contract under section 1857 
        included a reference to a contract under section 1860D(b); and
            ``(4) any reference to part C included a reference to this 
        part.

            ``medicare prescription drug advisory committee

    ``Sec. 1860K. (a) Establishment of Committee.--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 development of standards and 
guidelines for the implementation and administration of the outpatient 
prescription drug benefit program under this part.
    ``(c) Structure and Membership of the Committee.--
            ``(1) Structure.--The Committee shall be composed of 19 
        members, of whom--
                    ``(A) 12 shall be appointed by the Secretary;
                    ``(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, exceptionally qualified to 
                perform the duties of members of the Committee.
                    ``(B) Specific members.--Of the members 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 Services;
                            ``(iv) 3 shall be chosen to represent 
                        actuaries, pharmacoeconomists, researchers, 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 appropriate by the Secretary. The terms of 
service of the members 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 employee of the Federal 
                Government shall be compensated 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 expenses, including 
                per diem in lieu of subsistence, at rates authorized 
                for employees of agencies under subchapter I of chapter 
                57 of title 5, United States Code, while away from 
                their homes or regular places of business in the 
                performance of services for the Committee.
            ``(2) Staff.--The Committee may appoint such personnel as 
        the Committee considers appropriate.
    ``(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 Committee 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 Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ 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 Supplementary Medical 
Insurance Trust Fund.--Section 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 following: 
                ``and such amounts as may be deposited in, or 
                appropriated to, the Medicare Prescription 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 reference 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 appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this subtitle.

SEC. 3. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
              MEDICARE+CHOICE PROGRAM.

    (a) In General.--Section 1851 of the Social Security Act (42 U.S.C. 
1395w-21) is amended by adding at the end the following new subsection:
    ``(j) Availability of Prescription Drug Benefits.--
            ``(1) In general.--A Medicare+Choice organization may not 
        offer prescription drug coverage (other than that required 
        under parts A and B) to an enrollee under a Medicare+Choice 
        plan unless such drug 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 beneficiary protections.--
        With respect to the offering 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, including requirements relating 
        to information dissemination and grievance and appeals, in the 
        same manner as they apply to a PDP sponsor and a prescription 
        drug plan under part D. The Secretary shall waive such 
        requirements to the extent the Secretary determines that such 
        requirements duplicate requirements otherwise applicable to the 
        organization 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 supplemental health care benefits described in 
        section 1852(a)(3)(A).
            ``(4) Availability of premium and cost-sharing subsidies 
        for low-income enrollees and reinsurance subsidy payments for 
        organizations.--For provisions--
                    ``(A) providing premium and cost-sharing subsidies 
                to low-income individuals receiving qualified 
                prescription drug coverage through a Medicare+Choice 
                plan, see section 1860G; and
                    ``(B) providing a Medicare+Choice organization with 
                reinsurance subsidy payments for providing qualified 
                prescription drug coverage under this part, see section 
                1860H.
            ``(5) Specification of separate and standard premium.--
                    ``(A) In general.--For purposes of applying section 
                1854 and section 1860G(b)(2)(B) with respect to 
                qualified prescription drug coverage offered under this 
                subsection under a plan, the Medicare+Choice 
                organization shall compute and publish the following:
                            ``(i) Separate prescription drug premium.--
                        A premium for prescription drug benefits that 
                        constitute qualified prescription drug coverage 
                        that is separate from other coverage under the 
                        plan. Such premium shall be established 
                        consistent with the limitations described in 
                        section 1860F(a)(4).
                            ``(ii) Portion of coverage attributable 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 attributable 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 allowed.--Nothing in 
                this subsection shall be construed as preventing a 
                Medicare+Choice organization from reducing the amount 
                of a premium charged for prescription drug coverage 
                because of the application of section 1854(f)(1)(A) to 
                other coverage.
                    ``(C) Acceptance of reference premium as full 
                premium if no standard (or equivalent) coverage in an 
                area.--For requirement 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 period.--
        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 coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' 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 
                prescription 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 subparagraph (B) the 
                following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860A.''; and
            (2) in subsection (g)(1), by inserting ``and section 
        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-Income 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 determinations under 
        section 1935(a).''.
            (2) New section.--Title XIX of such Act is further 
        amended--
                    (A) by redesignating section 1935 as section 1936; 
                and
                    (B) by inserting after section 1934 the following 
                new section:

  ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall--
            ``(1) make determinations of eligibility for premium and 
        cost-sharing subsidies under (and in accordance with) section 
        1860G;
            ``(2) inform the Secretary of such determinations 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 necessary to properly allocate 
        administrative expenditures 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 Subsidies 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 following: ``, 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 amended by adding at the end 
        the following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
            ``(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 computed 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-income medicare beneficiaries) that 
                are attributable 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 proportion 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 Benefits.--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 prescription 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 provided under 
        this title for prescribed drugs to the extent 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 prescription drug coverage described in 
        paragraph (1), that the individual elect qualified prescription 
        drug coverage 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 preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                    (B) in subsection (c)(1), by inserting ``subject 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 described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription 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 paragraph is a plan 
        that--
                    ``(A) provides medical assistance with respect to 
                the provision of covered outpatient drugs (as defined 
                in section 1860B(f)) to low-income medicare 
                beneficiaries; and
                    ``(B) assures that additional amounts received 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 section for 
                        all such States.
                    ``(B) Aggregate amount.--The aggregate 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 subparagraph 
                        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 subsection and may include in 
        the report such recommendations 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 provision of law, no new 
medicare supplemental policy that provides 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 
replaces a medicare supplemental policy that was issued to that 
individual and that provided some coverage of expenses 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 policy 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 available for 
                issuance to new enrollees by such issuer;
                    (B) may not discriminate in the pricing of such 
                policy, because of health status, claims experience, 
                receipt of health care, or medical condition; and
                    (C) may not impose an exclusion of benefits based 
                on a pre-existing condition under such policy,
        in the case of an individual described in paragraph (2) who 
        seeks to enroll under the policy not later than 63 days after 
        the date of the termination of enrollment described in such 
        paragraph and who submits evidence of the date of termination 
        or disenrollment along with the application for such medicare 
        supplemental policy.
            (2) Individual covered.--An individual described in this 
        paragraph is an individual who--
                    (A) enrolls in a prescription drug plan under part 
                D of title XVIII of the Social Security Act; and
                    (B) at the time of such enrollment was enrolled and 
                terminates enrollment in a medicare supplemental policy 
                which has a benefit package classified as ``H'', ``I'', 
                or ``J'' under the standards referred to in paragraph 
                (1)(A) or terminates enrollment in a policy to which 
                such standards do not apply but which provides benefits 
                for prescription drugs.
            (3) Enforcement.--The provisions of paragraph (1) shall be 
        enforced as though they were included in section 1882(s) of the 
        Social Security Act (42 U.S.C. 1395ss(s)).
            (4) Definitions.--For purposes of this subsection, the term 
        ``medicare supplemental policy'' has the meaning given such 
        term in section 1882(g) of the Social Security Act (42 U.S.C. 
        1395ss(g)).
                                 <all>