[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4984 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 4984

   To amend title XVIII of the Social Security Act to provide for a 
                  Medicare prescription drug benefit.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 21, 2002

  Mr. Tauzin 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 
                  Medicare prescription drug benefit.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

    (a) In General.--Title XVIII 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 
        1860J(a)(5)).
Such individuals shall have a choice of such plans under section 
1860E(d).
    ``(b) General Election Procedures.--
            ``(1) In general.--An individual eligible to make an 
        election under subsection (a) 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 to change such election only in such 
        manner and form as may be prescribed by regulations of the 
        Administrator of the Medicare Benefits Administration 
        (appointed under section 1808(b)) (in this part referred to as 
        the `Medicare Benefits Administrator') 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 such date, 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 
                Administrator 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;
                            ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions provided under section 
                        1851(e)(4)(D)) as the Administrator may 
                        provide; and
                            ``(iv) in cases of individuals (as 
                        determined by the Administrator) who become 
                        eligible for prescription drug assistance under 
                        title XIX under section 1935(d).
    ``(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 the date 
                the individual first qualifies 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 (as described in 
                subparagraph (C)), a PDP sponsor or Medicare+Choice 
                organization may (notwithstanding any provision in this 
                title) adjust 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 the date the individual first qualifies to 
                elect prescription drug coverage under this part if the 
                individual establishes that as of such date the 
                individual is covered under any of the following 
                prescription drug coverage and before the date that is 
                the last day of the 63-day period that begins on the 
                date of termination of the particular prescription drug 
                coverage involved (regardless of whether the individual 
                subsequently obtains 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(f)(1), but only if 
                        (subject to subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent to the 
                        benefits under a qualified prescription drug 
                        plan.
                            ``(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 if (subject 
                        to subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                            ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program, but 
                        only if (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least equivalent 
                        to the benefits under a qualified prescription 
                        drug plan.
                            ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans under chapter 17 of title 38, United 
                        States Code, but only if (subject to 
                        subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                    ``(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) Disclosure.--
                            ``(i) In general.--Each entity that offers 
                        coverage of the type described in clause (iii), 
                        (iv), (v), or (vi) of subparagraph (C) shall 
                        provide for disclosure, consistent with 
                        standards established by the Administrator, of 
                        whether such coverage provides benefits at 
                        least equivalent to the benefits under a 
                        qualified prescription drug plan.
                            ``(ii) Waiver of limitations.--An 
                        individual may apply to the Administrator to 
                        waive the requirement that coverage of such 
                        type provide benefits at least equivalent to 
                        the benefits under a qualified prescription 
                        drug plan, if the individual establishes that 
                        the individual was not adequately informed that 
                        such coverage did not provide such level of 
                        benefits.
                    ``(F) 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 
        Administrator shall provide that elections under subsection (b) 
        take effect at the same time as the Administrator 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 Administrator shall provide for the 
        termination of an election in the case of--
                    ``(A) termination of coverage under both part A and 
                part B; 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), but only if it is approved by the 
                Administrator, as provided under subsection (c).
            ``(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 Administrator 
                shall review the offering of qualified prescription 
                drug coverage under this part or part C. If the 
                Administrator 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 engaged in 
                activities intended to discourage enrollment of classes 
                of eligible medicare beneficiaries obtaining coverage 
                through the plan on the basis of their higher 
                likelihood of utilizing prescription drug coverage, the 
                Administrator 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--
                    ``(A) for 2005, that is equal to $250; or
                    ``(B) for a subsequent year, that is equal to the 
                amount specified under this paragraph for the previous 
                year increased by the percentage specified in paragraph 
                (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
            ``(2) Limits on cost-sharing.--
                    ``(A) In general.--The coverage has cost-sharing 
                (for costs above the annual deductible specified in 
                paragraph (1) and up to the initial coverage limit 
under paragraph (3)) as follows:
                            ``(i) First copayment range.--For costs 
                        above the annual deductible specified in 
                        paragraph (1) and up to amount specified in 
                        subparagraph (C), the cost-
                        sharing--
                                    ``(I) is equal to 20 percent; or
                                    ``(II) is actuarially equivalent 
                                (using processes established under 
                                subsection (e)) to an average expected 
                                payment of 20 percent of such costs.
                            ``(ii) Secondary copayment range.--For 
                        costs above the amount specified in 
                        subparagraph (C) and up to the initial coverage 
                        limit, the cost-sharing--
                                    ``(I) is equal to 50 percent; or
                                    ``(II) is actuarially consistent 
                                (using processes established under 
                                subsection (e)) with an average 
                                expected payment of 50 percent of such 
                                costs.
                    ``(B) Use of tiered copayments.--Nothing in this 
                part shall be construed as preventing a PDP sponsor 
                from applying tiered copayments, so long as such tiered 
                copayments are consistent with subparagraph (A).
                    ``(C) Initial copayment threshold.--The amount 
                specified in this subparagraph--
                            ``(i) for 2005, is equal to $1,000; or
                            ``(ii) for a subsequent year, is equal to 
                        the amount specified in this subparagraph for 
                        the previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                Any amount determined under clause (ii) that is not a 
                multiple of $10 shall be rounded to the nearest 
                multiple of $10.
            ``(3) Initial coverage limit.--Subject to paragraph (4), 
        the coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes (above the annual 
        deductible)--
                    ``(A) for 2005, that is equal to $2,000; or
                    ``(B) for a subsequent year, that is equal to the 
                amount specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $25 shall be rounded to the nearest multiple of 
        $25.
            ``(4) Catastrophic protection.--
                    ``(A) In general.--Notwithstanding paragraph (3), 
                the coverage provides benefits with no cost-sharing 
                after the individual has incurred costs (as described 
                in subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket threshold 
                specified in subparagraph (B).
                    ``(B) Annual out-of-pocket threshold.--For purposes 
                of this part, the `annual out-of-pocket threshold' 
                specified in this subparagraph--
                            ``(i) for 2005, is equal to $3,700; or
                            ``(ii) for a subsequent year, is equal to 
                        the amount specified in this subparagraph for 
                        the previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                Any amount determined under clause (ii) that is not a 
                multiple of $100 shall be rounded to the nearest 
                multiple of $100.
                    ``(C) Application.--In applying subparagraph (A)--
                            ``(i) incurred costs shall only include 
                        costs incurred for the annual deductible 
                        (described in paragraph (1)), cost-sharing 
                        (described in paragraph (2)), and amounts for 
                        which benefits are not provided because of the 
                        application of the initial coverage limit 
                        described in paragraph (3); and
                            ``(ii) such costs shall be treated as 
                        incurred only if they are paid by the 
                        individual (or by another individual, such as a 
                        family member, on behalf of the individual), 
                        under section 1860G, or under title XIX and the 
                        individual (or other individual) is not 
                        reimbursed through insurance or otherwise, a 
                        group health plan, or other third-party payment 
                        arrangement for such costs.
            ``(5) Annual percentage increase.--For purposes of this 
        part, the annual percentage increase specified in this 
        paragraph for a year is equal to the annual percentage increase 
        in average per capita aggregate expenditures for covered 
        outpatient drugs in the United States for medicare 
        beneficiaries, as determined by the Administrator for the 12-
        month period ending in July of the previous year.
    ``(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 Administrator determines (based on an actuarial analysis 
by the Administrator) the following requirements are met and the plan 
applies for, and receives, the approval of the Administrator for such 
benefit design:
            ``(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 subsidy payments under section 1860H with respect to such coverage.
                    ``(C) Assuring standard payment for costs at 
                initial coverage limit.--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 
                that are equal to the initial coverage limit under 
                subsection (b)(3), of an amount equal to at least the 
                sum of the following products:
                            ``(i) First copayment range.--The product 
                        of--
                                    ``(I) the amount by which the 
                                initial copayment threshold described 
                                in subsection (b)(2)(C) exceeds the 
                                deductible described in subsection 
                                (b)(1); and
                                    ``(II) 100 percent minus the cost-
                                sharing percentage specified in 
                                subsection (b)(2)(A)(i)(I).
                            ``(ii) Secondary copayment range.--The 
                        product of--
                                    ``(I) the amount by which the 
                                initial coverage limit described in 
                                subsection (b)(3) exceeds the initial 
                                copayment threshold described in 
                                subsection (b)(2)(C); and
                                    ``(II) 100 percent minus the cost-
                                sharing percentage specified in 
                                subsection (b)(2)(A)(ii)(I).
            ``(2) Catastrophic protection.--The coverage provides for 
        beneficiaries the catastrophic protection described in 
        subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
            ``(1) In general.--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. The prices negotiated by a prescription drug plan under 
        this part, by a Medicare+Choice plan with respect to covered 
        outpatient drugs, or by a qualified retiree prescription drug 
        plan (as defined in section 1860H(f)(1)) with respect to such 
        drugs on behalf of individuals entitled to benefits under part 
        A or enrolled under part B, shall (notwithstanding any other 
        provision of law) not be taken into account for the purposes of 
        establishing the best price under section 1927(c)(1)(C).
            ``(2) Disclosure.--The PDP sponsor or Medicare+Choice 
        organization shall disclose to the Administrator (in a manner 
        specified by the Administrator) the extent to which discounts 
        or rebates made available to the sponsor or organization by a 
        manufacturer are passed through to enrollees through pharmacies 
        and other dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Administrator under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
    ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
            ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                    ``(A) for determining the actuarial 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, 
        but the Administrator shall determine whether such actuarial 
        values meet the requirements under subsection (c)(1).
    ``(f) Covered Outpatient Drugs Defined.--
            ``(1) In general.--Except as provided in this subsection, 
        for purposes of this part, the term `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 a vaccine licensed under section 351 of 
        the Public Health Service Act and 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), or under 
                section 1927(d)(3).
                    ``(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 for an individual 
entitled to benefits under part A and 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 
        and such exclusion is not successfully appealed under section 
        1860C(f)(2).
            ``(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, Access to 
Negotiated Prices, and Nondiscrimination.--For provisions requiring 
guaranteed issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860A(c)(1), 1860A(c)(2), 
1860B(d), and 1860F(b), respectively.
    ``(b) Dissemination of Information.--
            ``(1) General information.--A PDP sponsor shall disclose, 
        in a clear, accurate, and standardized form to each enrollee 
        with a prescription drug plan offered by the sponsor under this 
        part at the time of enrollment and at least annually 
        thereafter, the information described in section 1852(c)(1) 
        relating to such plan. Such information includes the 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, 
                including the identification of the tiered or other co-
                payment level applicable to each drug (or class of 
                drugs).
                    ``(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 on a timely basis, 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 threshold 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.--
                    ``(A) In general.--The PDP sponsor of the 
                prescription drug plan shall secure the participation 
                in its network of a sufficient number of pharmacies 
                that dispense (other than by mail order) drugs directly 
                to patients to ensure convenient access (as determined 
                by the Administrator and including adequate emergency 
                access) for enrolled beneficiaries, in accordance with 
                standards established under section 1860D(e) that 
                ensure such convenient access.
                    ``(B) Use of point-of-service system.--A PDP 
                sponsor shall establish an optional point-of-service 
                method of operation under which--
                            ``(i) the plan provides access to any or 
                        all pharmacies that are not participating 
                        pharmacies in its network; and
                            ``(ii) the plan may charge beneficiaries 
                        through adjustments in premiums and copayments 
                        any additional costs associated with the point-
                        of-service option.
                The additional copayments so charged shall not count 
                toward the application of section 1860B(b).
            ``(2) Use of standardized technology.--
                    ``(A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and reissue, as 
                appropriate) such a card (or other technology) 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.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of national 
                        standards relating to a standardized format for 
                        the card or other technology referred to in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                            ``(ii) Application of advisory task 
                        force.--The advisory task force established 
                        under subsection (d)(3)(B)(ii) shall provide 
recommendations to the Administrator under such subsection regarding 
the standards developed under clause (i).
            ``(3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug plan uses 
        a formulary, the following requirements must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                The sponsor must establish a pharmacy and therapeutic 
                committee that develops and reviews the formulary. Such 
                committee shall include at least one physician and at 
                least one pharmacist both with expertise in the care of 
                elderly or disabled persons and a majority of its 
                members shall consist of individuals who are a 
                physician or a pharmacist (or both).
                    ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall base 
                clinical decisions on the strength of scientific 
                evidence and standards of practice, including assessing 
                peer-reviewed medical literature, such as randomized 
                clinical trials, pharmacoeconomic studies, outcomes 
                research data, and such other information as the 
                committee determines to be appropriate.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                each therapeutic category and class of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes).
                    ``(D) Provider education.--The committee shall 
                establish policies and procedures to educate and inform 
                health care providers concerning the formulary.
                    ``(E) Notice before removing drugs from 
                formulary.--Any removal of a drug from a formulary 
                shall take effect only after appropriate notice is made 
                available to beneficiaries and physicians.
                    ``(F) Grievances and appeals relating to 
                application of formularies.--For provisions relating to 
                grievances and appeals of coverage, see subsections (e) 
                and (f).
    ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--The PDP sponsor shall have in place with 
        respect to covered outpatient drugs--
                    ``(A) an effective cost and drug utilization 
                management program, including medically appropriate 
                incentives to use generic drugs and therapeutic 
                interchange, 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 for years beginning with 
                2006, an electronic prescription program described in 
                paragraph (3); and
                    ``(C) a program to control fraud, abuse, and waste.
        Nothing in this section shall be construed as impairing a PDP 
        sponsor from applying cost management tools (including 
        differential payments) under all methods of operation.
            ``(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, with respect to 
                beneficiaries with chronic diseases (such as diabetes, 
                asthma, hypertension, and congestive heart failure) or 
                multiple prescriptions, 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;
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means; and
                            ``(iii) detection of patterns of overuse 
                        and underuse of prescription drugs.
                    ``(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) Electronic prescription program.--
                    ``(A) In general.--An electronic prescription drug 
                program described in this paragraph is a program that 
                includes at least the following components, consistent 
                with national standards established under subparagraph 
                (B):
                            ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions are only received 
                        electronically, except in emergency cases and 
                        other exceptional circumstances recognized by 
                        the Administrator.
                            ``(ii) Provision of information to 
                        prescribing health care professional.--The 
                        program provides, upon transmittal of a 
                        prescription by a prescribing health care 
                        professional, for transmittal by the pharmacist 
                        to the professional of information that 
                        includes--
                                    ``(I) information (to the extent 
                                available and feasible) on the drugs 
                                being prescribed for that patient and 
                                other information relating to the 
                                medical history or condition of the 
                                patient that may be relevant to the 
                                appropriate prescription for that 
                                patient;
                                    ``(II) cost-effective alternatives 
                                (if any) for the use of the drug 
                                prescribed; and
                                    ``(III) information on the drugs 
                                included in the applicable formulary.
                        To the extent feasible, such program shall 
                        permit the prescribing health care professional 
                        to provide (and be provided) related 
                        information on an interactive, real-time basis.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of national 
                        standards relating to the electronic 
                        prescription drug program described in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                            ``(ii) Advisory task force.--In developing 
                        such standards and the standards described in 
                        subsection (c)(2)(B)(i) the Administrator shall 
                        establish a task force that includes 
                        representatives of physicians, hospitals, 
                        pharmacists, and technology experts and 
                        representatives of the Departments of Veterans 
                        Affairs and Defense and other appropriate 
                        Federal agencies to provide recommendations to 
                        the Administrator on such standards, including 
                        recommendations relating to the following:
                                    ``(I) The range of available 
                                computerized prescribing software and 
                                hardware and their costs to develop and 
                                implement.
                                    ``(II) The extent to which such 
                                systems reduce medication errors and 
                                can be readily implemented by 
                                physicians and hospitals.
                                    ``(III) Efforts to develop a common 
                                software platform for computerized 
                                prescribing.
                                    ``(IV) The cost of implementing 
                                such systems in the range of hospital 
                                and physician office settings, 
                                including hardware, software, and 
                                training costs.
                                    ``(V) Implementation issues as they 
                                relate to part C of title XI, and 
                                current Federal and State prescribing 
                                laws and regulations and their impact 
                                on implementation of computerized 
                                prescribing.
                            ``(iii) Deadlines.--
                                    ``(I) The Administrator shall 
                                constitute the task force under clause 
                                (ii) by not later than April 1, 2003.
                                    ``(II) Such task force shall submit 
                                recommendations to Administrator by not 
                                later than January 1, 2004.
                                    ``(III) The Administrator shall 
                                develop and promulgate the national 
                                standards referred to in clause (ii) by 
                                not later than July 1, 2004.
                    ``(C) Reference to availability of grant funds.--
                Grant funds are authorized under section 399O of the 
                Public Health Service Act to provide assistance to 
                health care providers in implementing electronic 
                prescription drug programs.
            ``(4) 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).
            ``(5) Public disclosure of pharmaceutical prices for 
        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 covered under the plan that is 
therapeutically equivalent and bioequivalent.
    ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
            ``(1) In general.--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).
            ``(2) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet the 
        requirements of paragraphs (1) through (3) 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.
            ``(3) Request for review of tiered formulary 
        determinations.--In the case of a prescription drug plan 
        offered by a PDP sponsor that provides for tiered cost-sharing 
        for drugs included within a formulary and provides lower cost-
        sharing for preferred drugs included within the formulary, an 
        individual who is enrolled in the plan may request coverage of 
        a nonpreferred drug under the terms applicable for preferred 
        drugs if the prescribing physician determines that the 
        preferred drug for treatment of the same condition is not as 
        effective for the individual or has adverse effects for the 
        individual.
    ``(f) Appeals.--
            ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
        shall meet the requirements of paragraphs (4) and (5) of 
        section 1852(g) with respect to drugs not included on any 
        formulary 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) Formulary determinations.--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 a formulary of the sponsor if the prescribing 
        physician determines that the formulary drug for treatment of 
        the same condition is not as effective for the individual or 
        has adverse effects for the individual.
    ``(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 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 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 Administrator 
        under subsection (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Administrator 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 Administrator 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 
        Administrator 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 Administrator shall take into account 
        the 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 Administrator 
        shall waive the requirement of subsection (a)(1) that the 
        entity be licensed in that State if the Administrator 
        determines, based on the application and other evidence 
        presented to the Administrator, 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 Administrator 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 Administrator 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 Administrator 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 
Administrator shall publish such regulations by October 1, 2003.
    ``(f) Relation to State Laws.--
            ``(1) In general.--The standards established under this 
        part shall supersede any State law or regulation (other than 
        State licensing laws or State laws relating to plan solvency, 
        except as provided in subsection (d)) with respect to 
        prescription drug plans which are offered by PDP sponsors under 
        this part.
            ``(2) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to 
        premiums paid to PDP sponsors for prescription drug plans under 
        this part, or with respect to any payments made to such a 
        sponsor by the Administrator under this part.

``SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) In General.--The Administrator shall establish 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 Administrator shall assure 
                that each individual who is entitled to benefits under 
                part A or enrolled under part B and who is residing in 
                an area in the United States has available, consistent 
                with 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 Administrator 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 Administrator--
                    ``(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 Administrator shall, in each annual 
        report to Congress under section 1808(f), include information 
        on the exercise of authority under this subsection. The 
        Administrator 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. SUBMISSION OF BIDS.

    ``(a) Submission of Bids and Related Information.--
            ``(1) In general.--Each PDP sponsor shall submit to the 
        Administrator 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 bid for the coverage, 
                including an actuarial certification of--
                            ``(i) the actuarial basis for such bid;
                            ``(ii) the portion of such bid attributable 
                        to benefits in excess of standard coverage; and
                            ``(iii) the reduction in such bid resulting 
                        from the subsidy payments provided under 
                        section 1860H.
                    ``(D) Such other information as the Administrator 
                may require to carry out this part.
            ``(3) Review.--The Administrator shall review the 
        information filed under paragraph (2) for the purpose of 
        conducting negotiations under section 1860D(b)(2).
    ``(b) Uniform Bid.--
            ``(1) In general.--The bid for a prescription drug plan 
        under this section may not vary among individuals enrolled in 
        the plan in the same service area.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as preventing the imposition of a late enrollment 
        penalty under section 1860A(c)(2)(B).
    ``(c) Collection.--
            ``(1) Use of electronic funds transfer mechanism or, at 
        beneficiary's option, withholding from social security 
        payment.--In accordance with regulations, a PDP sponsor may 
        encourage that enrollees under a plan make payment of the 
        premium established by the plan under this part through an 
        electronic funds transfer mechanism, such as automatic charges 
        of an account at a financial institution or a credit or debit 
        card account, or, at the option of an enrollee, through 
        withholding from benefit payments in the manner provided under 
        section 1840 with respect to monthly premiums under section 
        1839. All such amounts shall be credited to the Medicare 
        Prescription Drug Trust Fund.
            ``(2) Offsetting.--Reductions in premiums for coverage 
        under parts A and B as a result of a selection of a 
        Medicare+Choice plan may be used to reduce the premium 
        otherwise imposed under paragraph (1).
            ``(3) Payment of plans.--PDP plans shall receive payment 
        based on bid amounts in the same manner as Medicare+Choice 
        organizations receive payment based on bid amounts under 
        section 1853(a)(1)(A)(ii) except that such payment shall be 
        made from the Medicare Prescription Drug Trust Fund.
    ``(d) Acceptance of Benchmark Amount as Full Premium for Subsidized 
Low-Income Individuals 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 
        benchmark bid amount (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) Income-Related Subsidies for Individuals With Income Below 
150 Percent of Federal Poverty Level.--
            ``(1) Full premium subsidy and reduction of cost-sharing 
        for individuals with income below 150 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 an income-related premium subsidy equal to 
                100 percent of the amount described in subsection 
                (b)(1); and
                    ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing described 
                in paragraphs (1) and (2) of section 1860B(b) (up to 
                the initial coverage limit specified in paragraph (3) 
                of such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
            ``(2) Sliding scale premium subsidy and reduction of cost-
        sharing 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) an income-related premium subsidy determined 
                on a linear sliding scale ranging from 100 percent of 
                the amount described in subsection (b)(1) for 
                individuals with incomes at 150 percent of such level 
                to 0 percent of such amount for individuals with 
                incomes at 175 percent of such level; and
                    ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing described 
                in paragraphs (1) and (2) of section 1860B(b) (up to 
                the initial coverage limit specified in paragraph (3) 
                of such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
            ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor from reducing to 0 the 
        cost-sharing otherwise applicable to generic drugs.
            ``(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;
                            ``(ii) has income below 175 percent of the 
                        Federal poverty line; and
                            ``(iii) meets the resources requirement 
                        described in section 1905(p)(1)(C).
                    ``(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 Administrator.
                    ``(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).
                    ``(E) Treatment of conforming medigap policies.--
                For purposes of this section, the term `qualified 
                prescription drug coverage' includes a medicare 
                supplemental policy described in section 1860H(b)(4).
            ``(5) Indexing dollar amounts.--
                    ``(A) For 2006.--The dollar amounts applied under 
                paragraphs (1)(B) and (2)(B) for 2006 shall be the 
                dollar amounts specified in such paragraph increased by 
                the annual percentage increase described in section 
                1860B(b)(5) for 2006.
                    ``(B) For subsequent years.--The dollar amounts 
                applied under paragraphs (1)(B) and (2)(B) for a year 
                after 2006 shall be the amounts (under this paragraph) 
                applied under paragraph (1)(B) or (2)(B) for the 
                preceding year increased by the annual percentage 
                increase described in section 1860B(b)(5) (relating to 
                growth in medicare prescription drug costs per 
                beneficiary) for the year involved.
    ``(b) Premium Subsidy Amount.--
            ``(1) In general.--The premium subsidy amount described in 
        this subsection for an individual residing in an area is the 
        benchmark bid amount (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) Benchmark bid amount defined.--For purposes of this 
        subsection, the term `benchmark bid amount' 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 bid amount 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 bid 
                        amount 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 portion of the 
                bid amount that is attributable to statutory drug 
                benefits (described in section 1853(a)(1)(A)(ii)(II)).
    ``(c) Rules in Applying Cost-Sharing Subsidies.--
            ``(1) In general.--In applying subsections (a)(1)(B) and 
        (a)(2)(B), 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) or 
        (a)(2)(B), the PDP sponsor may not charge more than $5 per 
        prescription.
            ``(3) Application of indexing rules.--The provisions of 
        subsection (a)(4) shall apply to the dollar amount specified in 
        paragraph (2) in the same manner as they apply to the dollar 
        amounts specified in subsections (a)(1)(B) and (a)(2)(B).
    ``(d) Administration of Subsidy Program.--The Administrator 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 Administrator 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 Administrator information 
        on the amount of such reduction; and
            ``(3) the Administrator 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.
            ``(3) Coordination.--The Administrator shall develop and 
        implement a plan for the coordination of prescription drug 
        benefits under this part with the benefits provided under the 
        medicaid program under title XIX, with particular attention to 
        insuring coordination of payments and prevention of fraud and 
        abuse. In developing and implementing such plan, the 
        Administrator shall involve the Secretary, the States, the data 
        processing industry, pharmacists, and pharmaceutical 
        manufacturers, and other experts.

``SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) Subsidy Payment.--In order to reduce premium levels 
applicable to qualified prescription drug coverage for all medicare 
beneficiaries consistent with an overall subsidy level of 66 percent, 
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 Administrator shall provide in accordance with this section 
for payment to a qualifying entity (as defined in subsection (b)) of 
the following subsidies:
            ``(1) Direct subsidy.--In the case of an individual 
        enrolled in a prescription drug plan, Medicare+Choice plan that 
        provides qualified prescription drug coverage, or qualified 
        retiree prescription drug plan, a direct subsidy equal to 36 
        percent of the total payments made by a qualifying entity for 
        standard drug coverage provided under the respective plan.
            ``(2) Subsidy through reinsurance.--The reinsurance payment 
        amount (as defined in subsection (c)), which in the aggregate 
        is 30 percent of such total payments, for excess costs incurred 
        in providing qualified prescription drug coverage--
                    ``(A) for individuals enrolled with a prescription 
                drug plan under this part;
                    ``(B) for individuals enrolled with a 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage under part C; and
                    ``(C) for individuals 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 Administrator 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 Administrator to provide the Administrator 
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 (f)).
    ``(c) Reinsurance Payment Amount.--
            ``(1) In general.--Subject to subsection (d)(2) and 
        paragraph (4), the reinsurance payment amount under this 
        subsection for a qualifying covered individual (as defined in 
        subsection (g)(1)) for a coverage year (as defined in 
        subsection (g)(2)) is equal to the sum of the following:
                    ``(A) For the portion of the individual's gross 
                covered prescription drug costs (as defined in 
                paragraph (3)) for the year that exceeds the initial 
                copayment threshold specified in section 
                1860B(b)(2)(C), but does not exceed the initial 
                coverage limit specified in section 1860B(b)(3), an 
                amount equal to 30 percent of the allowable costs (as 
                defined in paragraph (2)) attributable to such gross 
                covered prescription drug costs.
                    ``(B) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds the annual out-of-pocket threshold specified in 
                1860B(b)(4)(B), an amount equal to 80 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs.
            ``(2) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        prescription drug costs under a plan described in subsection 
        (b) offered by a qualifying entity, the part of such costs that 
        are actually paid (net of average percentage rebates) under the 
        plan, but in no case more than the part of such costs that 
        would have been paid under the plan if the prescription drug 
        coverage under the plan were standard coverage.
            ``(3) Gross covered prescription drug costs.--For purposes 
        of this section, the term `gross covered prescription drug 
        costs' means, with respect to an enrollee with a qualifying 
        entity under a plan described in subsection (b) during a 
        coverage year, the costs incurred under the plan (including 
        costs attributable to administrative costs) for covered 
        prescription drugs dispensed during the year, including costs 
        relating to the deductible, whether paid by the enrollee or 
        under the plan, regardless of whether the coverage under the 
        plan exceeds standard coverage and regardless of when the 
        payment for such drugs is made.
            ``(4) Indexing dollar amounts.--
                    ``(A) Amounts for 2005.--The dollar amounts applied 
                under paragraph (1) for 2005 shall be the dollar 
                amounts specified in such paragraph.
                    ``(B) For 2006.--The dollar amounts applied under 
                paragraph (1) for 2006 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860B(b)(5) 
                for 2006.
                    ``(C) For subsequent years.--The dollar amounts 
                applied under paragraph (1) for a year after 2006 shall 
                be the amounts (under this paragraph) applied under 
                paragraph (1) for the preceding year increased by the 
                annual percentage increase described in section 
                1860B(b)(5) (relating to growth in medicare 
                prescription drug costs per beneficiary) for the year 
                involved.
                    ``(D) Rounding.--Any amount, determined under the 
                preceding provisions of this paragraph for a year, 
                which is not a multiple of $10 shall be rounded to the 
                nearest multiple of $10.
    ``(d) Adjustment of Payments.--
            ``(1) Adjustment of reinsurance payments to assure 30 
        percent level of subsidy through reinsurance.--
                    ``(A) Estimation of payments.--The Administrator 
                shall estimate--
                            ``(i) the total payments to be made 
                        (without regard to this subsection) during a 
                        year under subsections (a)(2) and (c); and
                            ``(ii) the total payments to be made by 
                        qualifying entities for standard coverage under 
                        plans described in subsection (b) during the 
                        year.
                    ``(B) Adjustment.--The Administrator shall 
                proportionally adjust the payments made under 
                subsections (a)(2) and (c) for a coverage year in such 
                manner so that the total of the payments made under 
                such subsections for the year is equal to 30 percent of 
                the total payments described in subparagraph (A)(ii).
            ``(2) Risk adjustment for direct subsidies.--To the extent 
        the Administrator determines it appropriate to avoid risk 
        selection, the payments made for direct subsidies under 
        subsection (a)(1) are subject to adjustment based upon risk 
        factors specified by the Administrator. Any such risk 
        adjustment shall be designed in a manner as to not result in a 
        change in the aggregate payments made under such subsection.
    ``(e) Payment Methods.--
            ``(1) In general.--Payments under this section shall be 
        based on such a method as the Administrator determines. The 
        Administrator may establish a payment method by which interim 
        payments of amounts under this section are made during a year 
        based on the Administrator's best estimate of amounts that will 
        be payable after obtaining all of the information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug Trust Fund.
    ``(f) 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 
                Administrator may require, that the coverage meets or 
                exceeds the requirements for qualified prescription 
                drug coverage.
                    ``(B) Audits.--The sponsor (and the plan) shall 
                maintain, and afford the Administrator access to, such 
                records as the Administrator may require for purposes 
                of audits and other oversight activities necessary to 
                ensure the adequacy of prescription drug coverage, and 
                the accuracy of payments made.
                    ``(C) Provision of certification of prescription 
                drug coverage.--The sponsor of the plan shall provide 
                for issuance of certifications of the type described in 
                section 1860A(c)(2)(D).
            ``(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) enrolled under this part;
                    ``(B) is covered under the plan; and
                    ``(C) 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 individuals enrolled under this part (or for 
                such individuals and their spouses and dependents) 
                based on their status as former employees or labor 
                union members.
                    ``(B) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974.
    ``(g) 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 enrolled for benefits under this title and 
                is covered 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 TRUST FUND.

    ``(a) In General.--There is created on the books of the Treasury of 
the United States a trust fund to be known as the `Medicare 
Prescription Drug Trust Fund' (in this section referred to as the 
`Trust Fund'). The Trust Fund shall consist of such gifts and bequests 
as may be made as provided in section 201(i)(1), and such amounts as 
may be deposited in, or appropriated to, such fund as provided in this 
part. Except as otherwise provided in this section, the provisions of 
subsections (b) through (i) of section 1841 shall apply to the Trust 
Fund in the same manner as they apply to the Federal Supplementary 
Medical Insurance Trust Fund under such section.
    ``(b) Payments From Trust Fund.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Trust Fund such amounts as the Administrator 
        certifies are necessary to make--
                    ``(A) payments under section 1860G (relating to 
                low-income subsidy payments);
                    ``(B) payments under section 1860H (relating to 
                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 Trust Fund to the Grants to States for 
        Medicaid account amounts the Administrator certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
    ``(c) Deposits Into Trust Fund.--
            ``(1) Low-income transfer.--There is hereby transferred to 
        the Trust Fund, 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 Trust Fund, an amount equivalent to the amount of payments 
        made from the Trust Fund under subsection (b), reduced by the 
        amount transferred to the Trust Fund under paragraph (1).
    ``(d) Relation to Solvency Requirements.--Any provision of law that 
relates to the solvency of the Trust Fund under this part shall take 
into account the Trust Fund and amounts receivable by, or payable from, 
the Trust Fund.

``SEC. 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 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 trust fund.--The term 
        `Medicare Prescription Drug Trust Fund' means the 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 Administrator 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.''.
    (b) Additional Conforming Changes.--
            (1) Conforming references to previous part d.--Any 
        reference in law (in effect before the date of the enactment of 
        this Act) to part D of title XVIII of the Social Security Act 
        is deemed a reference to part E of such title (as in effect 
        after such date).
            (2) Conforming amendment permitting waiver of cost-
        sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
        amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) the waiver or reduction of any cost-sharing imposed 
        under part D of title XVIII.''.
            (3) 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.
    (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2004, the Medicare Benefits Administrator shall 
submit a report to Congress that makes recommendations regarding 
methods for providing benefits under part D of title XVIII of the 
Social Security Act for outpatient prescription drugs for which 
benefits are provided under part B of such title.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
              MEDICARE+CHOICE PROGRAM.

    (a) In General.--Section 1851 (42 U.S.C. 1395w-21) is amended by 
adding at the end the following new subsection:
    ``(j) Availability of Prescription Drug Benefits.--
            ``(1) Offer of qualified prescription drug coverage.--
                    ``(A) 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.
                    ``(B) Construction.--Nothing in this subsection 
                shall be construed as--
                            ``(i) requiring a Medicare+Choice plan to 
                        include coverage of qualified prescription drug 
                        coverage; or
                            ``(ii) permitting a Medicare+Choice 
                        organization from providing such coverage to an 
                        individual who has not elected such coverage 
                        under section 1860A(b).
                For purposes of this part, an individual who has not 
                elected qualified prescription drug coverage under 
                section 1860A(b) shall be treated as being ineligible 
                to enroll in a Medicare+Choice plan under this part 
                that offers such coverage.
            ``(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 and shall submit to the Administrator 
        the information described in section 1860F(a)(2). The 
        Administrator shall waive such requirements to the extent the 
        Administrator determines that such requirements duplicate 
        requirements otherwise applicable to the organization or plan 
        under this part.
            ``(3) Availability of premium and cost-sharing subsidies 
        for low-income enrollees and direct 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 
                direct and insurance subsidy payments for providing 
                qualified prescription drug coverage under this part, 
                see section 1860H.
            ``(4) 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.
            ``(5) 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 (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. 103. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
            (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (64);
                    (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                    (C) by inserting after paragraph (65) the following 
                new paragraph:
            ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
            (2) New section.--Title XIX 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 Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which such 
        eligibility is established; and
            ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 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 (but in no case shall the rate as 
        so increased exceed 100 percent):
                    ``(A) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable Federal 
                matching rate shall be increased by 10 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(B)(i) For expenditures attributable to costs 
                incurred during 2006 and each subsequent year through 
                2013, the otherwise applicable Federal matching rate 
                shall be increased by the applicable percent (as 
                defined in clause (ii)) of the percentage otherwise 
                payable (but for this subsection) by the State.
                    ``(ii) For purposes of clause (i), the `applicable 
                percent' for--
                            ``(I) 2006 is 20 percent; or
                            ``(II) a subsequent year is the applicable 
                        percent under this clause for the previous year 
                        increased by 10 percentage points.
                    ``(C) For expenditures attributable to costs 
                incurred after 2013, the otherwise applicable Federal 
                matching rate shall be increased to 100 percent.
            ``(2) Coordination.--The State shall provide the 
        Administrator with such information as may be necessary to 
        properly allocate administrative 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) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
            (2) Amount described.--Section 1935, as 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 90 percent;
                    ``(B) a subsequent year before 2014, is the phase-
                out proportion for calendar quarters in the previous 
                year decreased by 10 percentage points; or
                    ``(C) a year after 2013 is 0 percent.''.
    (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, 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 who is 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, 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 Administrator shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Administrator deems 
        appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 1935(e)(1)(B)'' 
        after ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r-8(c)(1)(C)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (III);
            (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
            (3) by adding at the end the following new subclause:
                                    ``(V) any prices charged which are 
                                negotiated by a prescription drug plan 
                                under part D of title XVIII, by a 
                                Medicare+Choice plan under part C of 
                                such title with respect to covered 
                                outpatient drugs, or by a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860H(f)(1)) with 
                                respect to such drugs on behalf of 
                                individuals entitled to benefits under 
                                part A or enrolled under part B of such 
                                title.''.

SEC. 104. MEDIGAP TRANSITION.

    (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended by 
adding at the end the following new subsection:
    ``(v) Coverage of Prescription Drugs.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, except as provided in paragraph (3) no new medicare 
        supplemental policy that provides coverage of expenses for 
        prescription drugs may be issued under this section on or after 
        January 1, 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.
            ``(2) Issuance of substitute policies if obtain 
        prescription drug coverage under part d.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                            ``(i) 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)) and that is offered and is 
                        available for issuance to new enrollees by such 
                        issuer;
                            ``(ii) may not discriminate in the pricing 
                        of such policy, because of health status, 
                        claims experience, receipt of health care, or 
                        medical condition; and
                            ``(iii) may not impose an exclusion of 
                        benefits based on a pre-existing condition 
                        under such policy,
                in the case of an individual described in subparagraph 
                (B) 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.
                    ``(B) Individual covered.--An individual described 
                in this subparagraph is an individual who--
                            ``(i) enrolls in a prescription drug plan 
                        under part D; and
                            ``(ii) 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 subparagraph 
                        (A)(i) or terminates enrollment in a policy to 
                        which such standards do not apply but which 
                        provides benefits for prescription drugs.
                    ``(C) Enforcement.--The provisions of paragraph (4) 
                of subsection (s) shall apply with respect to the 
                requirements of this paragraph in the same manner as 
                they apply to the requirements of such subsection.
            ``(3) New standards.--In applying subsection (p)(1)(E) 
        (including permitting the NAIC to revise its model regulations 
        in response to changes in law) with respect to the change in 
        benefits resulting from title I of the Medicare Modernization 
        and Prescription Drug Act of 2002, with respect to policies 
        issued to individuals who are enrolled under part D, the 
        changes in standards shall provide only provide for 
        substituting for the benefit packages that included coverage 
        for prescription drugs two benefit packages that may provide 
        for coverage of cost-sharing with respect to qualified 
        prescription drug coverage under such part, except that such 
        coverage may not cover the prescription drug deductible under 
        such part. The two benefit packages shall be consistent with 
        the following:
                    ``(A) First new policy.--The policy described in 
                this subparagraph has the following benefits, 
                notwithstanding any other provision of this section 
                relating to a core benefit package:
                            ``(i) Coverage of 50 percent of the cost-
                        sharing otherwise applicable, except coverage 
                        of 100 percent of any cost-sharing otherwise 
                        applicable for preventive benefits.
                            ``(ii) No coverage of the part B 
                        deductible.
                            ``(iii) Coverage for all hospital 
                        coinsurance for long stays (as in the current 
                        core benefit package).
                            ``(iv) A limitation on annual out-of-pocket 
                        expenditures to $4,000 in 2005 (or, in a 
                        subsequent year, to such limitation for the 
                        previous year increased by an appropriate 
                        inflation adjustment specified by the 
                        Secretary).
                    ``(B) Second new policy.--The policy described in 
                this subparagraph has the same benefits as the policy 
                described in subparagraph (A), except as follows:
                            ``(i) Substitute `75 percent' for `50 
                        percent' in clause (i) of such subparagraph.
                            ``(ii) Substitute `$2,000' for `$4,000' in 
                        clause (iv) of such subparagraph.
            ``(4) Construction.--Any provision in this section or in a 
        medicare supplemental policy relating to guaranteed 
        renewability of coverage shall be deemed to have been met 
        through the offering of other coverage under this 
        subsection.''.

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD ENDORSEMENT PROGRAM.

    Title XVIII is amended by inserting after section 1806 the 
following new section:

     ``medicare prescription drug discount card endorsement program

    ``Sec. 1807. (a) In General.--The Secretary (or the Medicare 
Benefits Administrator pursuant to section 1808(c)(3)(C)) shall 
establish a program--
            ``(1) to endorse prescription drug discount card programs 
        that meet the requirements of this section; and
            ``(2) to make available to medicare beneficiaries 
        information regarding such endorsed programs.
    ``(b) Requirements for Endorsement.--The Secretary may not endorse 
a prescription drug discount card program under this section unless the 
program meets the following requirements:
            ``(1) Savings to medicare beneficiaries.--The program 
        passes on to medicare beneficiaries who enroll in the program 
        discounts on prescription drugs, including discounts negotiated 
        with manufacturers.
            ``(2) Prohibition on application only to mail order.--The 
        program applies to drugs that are available other than solely 
        through mail order.
            ``(3) Beneficiary services.--The program provides 
        pharmaceutical support services, such as education and 
        counseling, and services to prevent adverse drug interactions.
            ``(4) Information.--The program makes available to medicare 
        beneficiaries through the Internet and otherwise information, 
        including information on enrollment fees, prices charged to 
        beneficiaries, and services offered under the program, that the 
        Secretary identifies as being necessary to provide for informed 
        choice by beneficiaries among endorsed programs.
            ``(5) Demonstrated experience.--The entity operating the 
        program has demonstrated experience and expertise in operating 
        such a program or a similar program.
            ``(6) Quality assurance.--The entity has in place adequate 
        procedures for assuring quality service under the program.
            ``(7) Additional beneficiary protections.--The program 
        meets such additional requirements as the Secretary identifies 
        to protect and promote the interest of medicare beneficiaries, 
        including requirements that ensure that beneficiaries are not 
        charged more than the lower of the negotiated retail price or 
        the usual and customary price.
    ``(c) Program Operation.--The Secretary shall operate the program 
under this section consistent with the following:
            ``(1) Promotion of informed choice.--In order to promote 
        informed choice among endorsed prescription drug discount card 
        programs, the Secretary shall provide for the dissemination of 
        information which compares the costs and benefits of such 
        programs in a manner coordinated with the dissemination of 
        educational information on Medicare+Choice plans under part C.
            ``(2) Oversight.--The Secretary shall provide appropriate 
        oversight to ensure compliance of endorsed programs with the 
        requirements of this section, including verification of the 
        discounts and services provided.
            ``(3) Use of medicare toll-free number.--The Secretary 
        shall provide through the 1-800-medicare toll free telephone 
        number for the receipt and response to inquiries and complaints 
        concerning the program and programs endorsed under this 
        section.
            ``(4) Disqualification for abusive practices.--The 
        Secretary shall revoke the endorsement of a program that the 
        Secretary determines no longer meets the requirements of this 
        section or that has engaged in false or misleading marketing 
        practices.
            ``(5) Enrollment practices.--A medicare beneficiary may not 
        be enrolled in more than one endorsed program at any time.
    ``(d) Transition.--The Secretary shall provide for an appropriate 
transition and discontinuation of the program under this section at the 
time prescription drug benefits first become available under part D.
    ``(e) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the program 
under this section.''.

SEC. 106. GAO STUDY OF THE EFFECTIVENESS OF THE NEW PRESCRIPTION DRUG 
              PROGRAM.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study on the effectiveness of the prescription drug program 
provided under part D of title XVIII of the Social Security Act. Such 
study shall--
            (1) report--
                    (A) the percentage of eligible individuals who 
                enrolled in the program;
                    (B) the demographic characteristics (including 
                health status) of such enrollees;
                    (C) the number and type of qualified prescription 
                drug coverage available to such individuals (including 
                the percentage of enrollees who had access to single or 
                multiple plans); and
                    (D) the premiums imposed for enrollment in 
                different areas;
            (2) evaluate the processes and methods developed by the 
        Administrator and the decisions reached by outside actuaries to 
        determine the actuarial valuation of prescription drug 
        coverage; and
            (3) assess whether the subsidy payments under such part 
        accomplished its stated goals of reducing premium levels for 
        all beneficiaries, reducing adverse selection, and promoting 
        participation of PDP sponsors.
    (b) Report.--Not later January 1, 2006, the Comptroller General 
shall submit a report to Congress on the study conducted under 
subsection (a).
                                 <all>