[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1239 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                S. 1239

  To amend title XVIII of the Social Security Act to provide medicare 
    beneficiaries with a drug discount card that ensures access to 
               affordable outpatient prescription drugs.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 25, 2001

   Mr. Hagel (for himself, Mr. Ensign, and Mr. Lugar) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
  To amend title XVIII of the Social Security Act to provide medicare 
    beneficiaries with a drug discount card that ensures access to 
               affordable outpatient prescription drugs.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare Rx Drug 
Discount and Security Act of 2001''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program.
``Part D--Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program

        ``Sec. 1860. Definitions.
      ``Subpart 1--Establishment of Voluntary Medicare Outpatient 
            Prescription Drug Discount and Security Program

        ``Sec. 1860A. Establishment of program.
        ``Sec. 1860B. Enrollment.
        ``Sec. 1860C. Providing enrollment and coverage information to 
                            beneficiaries.
        ``Sec. 1860D. Enrollee protections.
        ``Sec. 1860E. Annual enrollment fee.
        ``Sec. 1860F. Benefits under the program.
        ``Sec. 1860G. Selection of entities to provide prescription 
                            drug coverage.
        ``Sec. 1860H. Payments to eligible entities for administering 
                            the catastrophic benefit.
        ``Sec. 1860I. Determination of income levels.
        ``Sec. 1860J. Appropriations.
  ``Subpart 2--Establishment of the Medicare Prescription Drug Agency

        ``Sec. 1860S. Medicare Prescription Drug Agency.
        ``Sec. 1860T. Commissioner; Deputy Commissioner; other 
                            officers.
        ``Sec. 1860U. Administrative duties of the Commissioner.
        ``Sec. 1860V. Medicare Competition and Prescription Drug 
                            Advisory Board.''.
Sec. 3. Commissioner as member of the board of trustees of the medicare 
                            trust funds.
Sec. 4. Exclusion of part D costs from determination of part B monthly 
                            premium.
Sec. 5. Medigap revisions.

SEC. 2. VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION DRUG DISCOUNT AND 
              SECURITY PROGRAM.

    (a) Establishment of Program.--Title XVIII of the Social Security 
Act (42 U.S.C. 1395 et seq.) is amended by redesignating part D as part 
E and by inserting after part C the following new part:

``Part D--Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program

                             ``definitions

    ``Sec. 1860. In this part:
            ``(1) Commissioner.--The term `Commissioner' means the 
        Commissioner of Medicare Prescription Drugs appointed under 
        section 1860S(a).
            ``(2) Covered outpatient drug.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `covered outpatient drug' 
                means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        clause (i) or (ii) of subparagraph (A) of 
                        section 1927(k)(2); or
                            ``(ii) a biological product or insulin 
                        described in subparagraph (B) or (C) of such 
                        section.
                    ``(B) Exclusions.--
                            ``(i) In general.--The term `covered 
                        outpatient drug' 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 
                        those restricted under subparagraph (E) of such 
                        section (relating to smoking cessation agents).
                            ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered outpatient drug under 
                        this part shall not be considered to be such a 
                        drug if payment for the drug is available under 
                        part A or B (but such drug shall be so 
                        considered if such payment is not available 
                        because the eligible beneficiary has exhausted 
                        benefits under part A or B), without regard to 
                        whether the individual is entitled to benefits 
                        under part A or enrolled under part B.
            ``(3) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual who is--
                    ``(A) eligible for benefits under part A or 
                enrolled under part B; and
                    ``(B) not eligible for prescription drug coverage 
                under a medicaid plan under title XIX.
            ``(4) Eligible entity.--The term `eligible entity' means 
        any entity that the Commissioner determines to be appropriate 
        to provide the benefits under this part, including--
                    ``(A) pharmaceutical benefit management companies;
                    ``(B) wholesale and retail pharmacy delivery 
                systems;
                    ``(C) insurers;
                    ``(D) Medicare+Choice organizations;
                    ``(E) other entities; or
                    ``(F) any combination of the entities described in 
                subparagraphs (A) through (E).
            ``(5) Poverty line.--The term `poverty line' means the 
        income 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.

      ``Subpart 1--Establishment of Voluntary Medicare Outpatient 
            Prescription Drug Discount and Security Program

                       ``establishment of program

    ``Sec. 1860A. (a) Provision of Benefit.--The Commissioner shall 
establish a Medicare Outpatient Prescription Drug Discount and Security 
Program under which an eligible beneficiary may voluntarily enroll and 
receive benefits under this part through enrollment with an eligible 
entity with a contract under this part.
    ``(b) Program To Begin in 2003.--The Commissioner shall establish 
the program under this part in a manner so that benefits are first 
provided for months beginning with January 2003.
    ``(c) Voluntary Nature of Program.--Nothing in this part shall be 
construed as requiring an eligible beneficiary to enroll in the program 
under this part.
    ``(d) Financing.--The costs of providing benefits under this part 
shall be payable from the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841.

                              ``enrollment

    ``Sec. 1860B. (a) Enrollment Under Part D.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Commissioner shall establish 
                a process through which an eligible beneficiary 
                (including an eligible beneficiary enrolled in a 
                Medicare+Choice plan offered by a Medicare+Choice 
                organization) may make an election to enroll under this 
                part. Except as otherwise provided in this subsection, 
                such process shall be similar to the process for 
                enrollment under part B under section 1837.
                    ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this part in order to be 
                eligible to receive the benefits under this part.
            ``(2) Enrollment periods.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B) or (C), an eligible beneficiary may 
                not enroll in the program under this part during any 
                period after the beneficiary's initial enrollment 
                period under part B (as determined under section 1837).
                    ``(B) Special enrollment period.--In the case of 
                eligible beneficiaries that have recently lost 
                eligibility for prescription drug coverage under a 
                medicaid plan under title XIX, the Commissioner shall 
                establish a special enrollment period in which such 
                beneficiaries may enroll under this part.
                    ``(C) Open enrollment period in 2003 for current 
                beneficiaries.--The Commissioner shall establish a 
                period, which shall begin on the date on which the 
                Commissioner first begins to accept elections for 
                enrollment under this part and shall end on December 
                31, 2003, during which any eligible beneficiary may--
                            ``(i) enroll under this part; or
                            ``(ii) enroll or re-enroll under this part 
                        after having previously declined or terminated 
                        such enrollment.
            ``(3) Period of coverage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subject to subparagraph (C), an 
                eligible beneficiary's coverage under the program under 
                this part shall be effective for the period provided 
                under section 1838, as if that section applied to the 
                program under this part.
                    ``(B) Enrollment during open and special 
                enrollment.--Subject to subparagraph (C), an eligible 
                beneficiary who enrolls under the program under this 
                part under subparagraph (B) or (C) of paragraph (2) 
                shall be entitled to the benefits under this part 
                beginning on the first day of the month following the 
                month in which such enrollment occurs.
                    ``(C) Limitation.--Coverage under this part shall 
                not begin prior to January 1, 2003.
            ``(4) Part d coverage terminated by termination of coverage 
        under parts a and b or eligibility for medical assistance.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in section 1838, the Commissioner 
                shall terminate an individual's coverage under this 
                part if the individual is--
                            ``(i) no longer enrolled in part A or B; or
                            ``(ii) eligible for prescription drug 
                        coverage under a medicaid plan under title XIX.
                    ``(B) Effective date.--The termination described in 
                subparagraph (A) shall be effective on the effective 
                date of--
                            ``(i) the termination of coverage under 
                        part A or (if later) under part B; or
                            ``(ii) the coverage under title XIX.
    ``(b) Enrollment With Eligible Entity.--
            ``(1) Process.--
                    ``(A) In general.--The Commissioner shall establish 
                a process through which an eligible beneficiary who is 
                enrolled under this part shall make an annual election 
                to enroll with any eligible entity that has been 
                awarded a contract under this part and serves the 
                geographic area in which the beneficiary resides.
                    ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Commissioner shall use rules 
                similar to the rules for enrollment and disenrollment 
                with a Medicare+Choice plan under section 1851 
                (including the special election periods under 
                subsection (e)(4) of such section).
            ``(2) Medicare+choice enrollees.--An eligible beneficiary 
        who is enrolled under this part and enrolled in a 
        Medicare+Choice plan offered by a Medicare+Choice organization 
        must enroll with an eligible entity in order to receive 
        benefits under this part. The beneficiary may elect to receive 
        such benefits from the Medicare+Choice organization in which 
        the beneficiary is enrolled if the organization has been 
        awarded a contract under this part.
            ``(3) Competition.--Eligible entities with a contract under 
        this part shall compete for beneficiaries on the basis of 
        discounts, formularies, pharmacy networks, and other services 
        provided for under the contract.
    ``(c) Enrollment Period for Benefits in 2003.--The processes 
developed under subsections (a) and (b) shall ensure that eligible 
beneficiaries are permitted to enroll under this part and with an 
eligible entity prior  to January 1, 2003, in order to ensure that 
coverage under this part is effective as of such date.

    ``providing enrollment and coverage information to beneficiaries

    ``Sec. 1860C. (a) Activities.--The Commissioner shall provide for 
activities under this part to broadly disseminate information to 
eligible beneficiaries (and prospective eligible beneficiaries) 
regarding enrollment under this part and the prescription drug coverage 
made available by eligible entities with a contract under this part.
    ``(b) Special Rule for First Enrollment Under the Program.--To the 
extent practicable, the activities described in subsection (a) shall 
ensure that eligible beneficiaries are provided with such information 
at least 60 days prior to the first enrollment period described in 
section 1860B(c).

                         ``enrollee protections

    ``Sec. 1860D. (a) Guaranteed Issue and Nondiscrimination.--
            ``(1) Guaranteed issue.--
                    ``(A) In general.--An eligible beneficiary who is 
                eligible to enroll with an eligible entity under 
                section 1860B(b) for prescription drug coverage under 
                this part at a time during which elections are accepted 
                under this part with respect to the coverage 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 eligible 
                entities under this subsection.
            ``(2) Nondiscrimination.--An eligible entity offering 
        prescription drug coverage under this part shall not establish 
        a service area in a manner that would discriminate based on 
        health or economic status of potential enrollees.
    ``(b) Dissemination of Information.--
            ``(1) General information.--An eligible entity with a 
        contract under this part shall disclose, in a clear, accurate, 
        and standardized form to each eligible beneficiary enrolled for 
        prescription drug coverage with such entity under this part at 
        the time of enrollment and at least annually thereafter, the 
        information described in section 1852(c)(1) relating to such 
        prescription drug coverage. Such information includes the 
        following:
                    ``(A) Access to covered outpatient drugs, including 
                access through pharmacy networks.
                    ``(B) How any formulary used by the eligible entity 
                functions.
                    ``(C) Grievance and appeals procedures.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        eligible beneficiary, the eligible entity shall provide the 
        information described in section 1852(c)(2) (other than 
        subparagraph (D)) to such beneficiary.
            ``(3) Response to beneficiary questions.--Each eligible 
        entity offering prescription drug coverage under this part 
        shall have a mechanism for providing specific information to 
        enrollees upon request. The entity shall make available, 
        through an Internet website and in writing upon request, 
        information on specific changes in its formulary.
    ``(c) Access to Covered Benefits.--
            ``(1) Ensuring pharmacy access.--
                    ``(A) In general.--Each eligible entity with a 
                contract under this part shall permit any pharmacy 
                located in the area covered by such contract to 
                participate in the pharmacy network of the eligible 
                entity if the pharmacy agrees to accept such operating 
                terms as the eligible entity may specify, including any 
                fee schedule, requirements relating to covered 
                expenses, and quality standards relating to the 
                provision of prescription drug coverage.
                    ``(B) Construction.--Nothing in this paragraph 
                shall be construed as requiring a pharmacy to 
                participate in a pharmacy network of an eligible entity 
                with a contract under this part to participate in any 
                other coverage program of the eligible entity.
            ``(2) Access to negotiated prices for prescription drugs.--
        For requirements relating to the access of an eligible 
        beneficiary to negotiated prices (including applicable 
        discounts), see section 1860F(a).
            ``(3) Requirements on development and application of 
        formularies.--Insofar as an eligible entity with a contract 
        under this part uses a formulary, the following requirements 
        must be met:
                    ``(A) Formulary committee.--The eligible entity 
                must establish a pharmaceutical and therapeutic 
                committee that develops the formulary. Such committee 
                shall include at least 1 physician and at least 1 
                pharmacist.
                    ``(B) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                all therapeutic categories and classes of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes).
                    ``(C) Appeals and exceptions to application.--The 
                entity must have, as part of the appeals process under 
                subsection (f)(2), a process for appeals for denials of 
                coverage based on such application of the formulary.
    ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--For purposes of providing access to 
        negotiated benefits under section 1860F(a) and the catastrophic 
        benefit described in section 1860F(b), the eligible entity 
        shall have in place--
                    ``(A) an effective cost and drug utilization 
                management program, including appropriate incentives to 
                use generic drugs, when appropriate;
                    ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
                including a medication therapy  management program 
described in paragraph (2); and
                    ``(C) a program to control fraud, abuse, and waste.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                provided by a community-based pharmacy that is designed 
                to ensure that prescription drugs made available under 
                this part are appropriately used to achieve therapeutic 
                goals and reduce the risk of adverse events, including 
                adverse drug interactions.
                    ``(B) Elements.--Such program shall include--
                            ``(i) enhanced beneficiary understanding of 
                        such appropriate use through beneficiary 
                        education, counseling, and other appropriate 
                        means; and
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means.
                    ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed pharmacists and 
                physicians.
                    ``(D) Considerations in pharmacy fees.--An eligible 
                entity with a contract under this part shall establish 
                fees for pharmacists, pharmacies, and others providing 
                services under the medication therapy management 
                program that take into account the resources and time 
                used in implementing the program.
            ``(3) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug coverage provided 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) Subsection (c)(1) (relating to access to 
                covered benefits).
                    ``(B) Subsection (g) (relating to confidentiality 
                and accuracy of enrollee records).
    ``(e) Grievance Mechanism.--Each eligible entity shall provide 
meaningful procedures for hearing and resolving grievances between the 
organization (including any entity or individual through which the 
eligible entity provides covered benefits) and eligible beneficiaries 
enrolled with the entity under this part in accordance with section 
1852(f).
    ``(f) Coverage Determinations, Reconsiderations, and Appeals.--
            ``(1) In general.--An eligible entity shall meet the 
        requirements of section 1852(g) with respect to covered 
        benefits under the prescription drug coverage it offers under 
        this part in the same manner as such requirements apply to a 
        Medicare+Choice organization with respect to benefits it offers 
        under a Medicare+Choice plan under part C.
            ``(2) Appeals of formulary determinations.--Under the 
        appeals process under paragraph (1) an individual who is 
        enrolled with an eligible entity with a contract under this 
        part for prescription drug coverage may appeal any denial of 
        coverage of a prescription drug to obtain coverage for a 
        medically necessary covered outpatient drug that is not on the 
        formulary of the eligible entity (established under subsection 
        (c)) if the prescribing physician determines that the 
        therapeutically similar drug that is on the formulary is not 
        effective for the enrollee or has significant adverse effects 
        for the enrollee.
    ``(g) Confidentiality and Accuracy of Enrollee Records.--An 
eligible entity 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.

                        ``annual enrollment fee

    ``Sec. 1860E. (a) Amount.--
            ``(1) In general.--Except as provided in subsection (c), 
        enrollment under the program under this part is conditioned 
        upon payment of an annual enrollment fee of $25.
            ``(2) Annual percentage increase.--
                    ``(A) In general.--In the case of any calendar year 
                beginning after 2003, the dollar amount in paragraph 
                (1) shall be increased by an amount equal to--
                            ``(i) such dollar amount; multiplied by
                            ``(ii) the inflation adjustment.
                    ``(B) Inflation adjustment.--For purposes of 
                subparagraph (A)(ii), the inflation adjustment for any 
                calendar year is the percentage (if any) by which--
                            ``(i) the average per capita aggregate 
                        expenditures for covered outpatient drugs in 
                        the United States for medicare beneficiaries, 
                        as determined by the Commissioner for the 12-
                        month period ending in July of the previous 
                        year; exceeds
                            ``(ii) such aggregate expenditures for the 
                        12-month period ending with July 2003.
                    ``(C) Rounding.--If any increase determined under 
                clause (ii) is not a multiple of $1, such increase 
                shall be rounded to the nearest multiple of $1.
    ``(b) Collection of Annual Enrollment Fee.--
            ``(1) In general.--Unless the eligible beneficiary makes an 
        election under paragraph (2), the annual enrollment fee 
        described in subsection (a) shall be collected and credited to 
        the Federal Supplementary Medical Insurance Trust Fund in the 
        same manner as the monthly premium determined under section 
        1839 is collected and credited to such Trust Fund under section 
        1840.
            ``(2) Direct payment.--An eligible beneficiary may elect to 
        pay the annual enrollment fee directly or in any other manner 
        approved by the Commissioner. The Commissioner shall establish 
        procedures for making such an election.
    ``(c) Waiver.--The Commissioner shall waive the enrollment fee 
described in subsection (a) in the case of an eligible beneficiary 
whose income is below 200 percent of the poverty line.

                      ``benefits under the program

    ``Sec. 1860F. (a) Access to Negotiated Prices.--
            ``(1) Negotiated prices.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each eligible entity with a contract under this part 
                shall provide each eligible beneficiary enrolled with 
                the entity with access to negotiated prices (including 
                applicable discounts) for such prescription drugs as 
                the eligible entity determines appropriate. If such a 
                beneficiary becomes eligible for the catastrophic 
                benefit under subsection (b), the negotiated prices 
                (including applicable discounts) shall continue to be 
                available to the beneficiary for those prescription 
                drugs for which payment may not be made under section 
                1860H(b). For purposes of this subparagraph, the term 
                `prescription drugs' is not limited to covered 
                outpatient drugs, but does not include any over-the-
                counter drug that is not a covered outpatient drug.
                    ``(B) Limitations.--
                            ``(i) Formulary restrictions.--Insofar as 
                        an eligible entity with a contract under this 
                        part uses a formulary, the negotiated prices 
                        (including applicable discounts) for 
                        prescription drugs shall only be available for 
                        drugs included in such formulary.
                            ``(ii) Avoidance of duplicate coverage.--
                        The negotiated prices (including applicable 
                        discounts) for prescription drugs shall not be 
                        available for any drug prescribed for an 
                        eligible beneficiary if payment for the drug is 
                        available under part A or B (but such 
                        negotiated prices shall be available if payment 
                        under part A or B is not available because the 
                        beneficiary has not met the deductible or has 
                        exhausted benefits under part A or B).
            ``(2) Discount card.--The Commissioner shall develop a 
        uniform standard card format to be issued by each eligible 
        entity that may be used by an enrolled beneficiary to ensure 
        the access of such beneficiary to negotiated prices under 
        paragraph (1).
            ``(3) Ensuring discounts in all areas.--The Commissioner 
        shall develop procedures that ensure that each eligible 
        beneficiary that resides in an area where no eligible entity 
        has been awarded a contract under this part is provided with 
        access to negotiated prices for prescription drugs (including 
        applicable discounts).
    ``(b) Catastrophic Benefit.--
            ``(1) In general.--Subject to paragraph (4) (relating to 
        eligibility for the catastrophic benefit) and any formulary 
        used by the eligible entity with which the eligible beneficiary 
        is enrolled, the catastrophic benefit shall be administered as 
        follows:
                    ``(A) Beneficiaries with annual incomes below 200 
                percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as defined in paragraph (4)(E)) is below 200 
                percent of the poverty line, the beneficiary shall not 
                be responsible for making a payment for a covered 
                outpatient drug provided to the beneficiary in a year 
                to the extent that the out-of-pocket expenses of the 
                beneficiary for such drug, when added to the out-of-
                pocket expenses of the beneficiary for covered 
                outpatient drugs previously provided in the year, 
                exceed $1,200.
                    ``(B) Beneficiaries with annual incomes between 200 
                and 400 percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as so defined) exceeds 200 percent, but does 
                not exceed 400 percent, of the poverty line, the 
                beneficiary shall not be responsible for making a 
                payment for a covered outpatient drug provided to the 
                beneficiary in a year to the extent that the out-of-
                pocket expenses of the beneficiary for such drug, when 
                added to the out-of-pocket expenses of the beneficiary 
                for covered outpatient drugs previously provided in the 
                year, exceed $2,500.
                    ``(C) Beneficiaries with annual incomes above 400 
                percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as so defined) exceeds 400 percent of the 
                poverty line, the beneficiary shall not be responsible 
                for making a payment for a covered outpatient drug 
                provided to the beneficiary in a year to the extent 
                that the out-of-pocket expenses of the beneficiary for 
                such drug, when added to the out-of-pocket expenses of 
                the beneficiary for covered outpatient drugs previously 
                provided in the year, exceed $5,000.
            ``(2) Annual percentage increase.--
                    ``(A) In general.--In the case of any calendar year 
                after 2003, the dollar amounts in paragraph (1) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount; multiplied by
                            ``(ii) the inflation adjustment determined 
                        under section 1860E(a)(2)(B) for such calendar 
                        year.
                    ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of $1, such increase 
                shall be rounded to the nearest multiple of $1.
            ``(3) Eligible entity not at risk for catastrophic 
        benefit.--
                    ``(A) In general.--The Commissioner, and not the 
                eligible entity, shall be at risk for  the provision of 
the catastrophic benefit under this subsection.
                    ``(B) Provisions relating to payments to eligible 
                entities.--For provisions relating to payments to 
                eligible entities for administering the catastrophic 
                benefit under this subsection, see section 1860H.
            ``(4) Catastrophic benefit not available to certain high 
        income individuals.--
                    ``(A) In general.--An eligible beneficiary enrolled 
                under this part whose modified adjusted gross income 
                for a taxable year exceeds 600 percent of the poverty 
                line shall not be eligible for the catastrophic benefit 
                under this subsection.
                    ``(B) Beneficiary still eligible for discount 
                benefit.--Nothing in subparagraph (A) shall be 
                construed as affecting the eligibility of a beneficiary 
                described in such subparagraph for the benefits under 
                subsection (a).
                    ``(C) Procedures for determining modified adjusted 
                gross income.--
                            ``(i) In general.--The Commissioner shall 
                        establish procedures for determining the 
                        modified adjusted gross income of eligible 
                        beneficiaries enrolled under this part.
                            ``(ii) Consultation.--The Commissioner 
                        shall consult with the Secretary of the 
                        Treasury in making the determinations described 
                        in clause (i).
                            ``(iii) Disclosure of information.--
                        Notwithstanding section 6103(a) of the Internal 
                        Revenue Code of 1986, the Secretary of the 
                        Treasury may, upon written request from the 
                        Commissioner, disclose to officers and 
                        employees of the Medicare Prescription Drug 
                        Agency such return information as is necessary 
                        to make the determinations described in clause 
                        (i). Return information disclosed under the 
                        preceding sentence may be used by officers and 
                        employees of the Medicare Prescription Drug 
                        Agency only for the purposes of, and to the 
                        extent necessary in, making such 
                        determinations.
                    ``(D) Definition of modified adjusted gross 
                income.--In this paragraph, the term `modified adjusted 
                gross income' means adjusted gross income (as defined 
                in section 62 of the Internal Revenue Code of 1986)--
                            ``(i) determined without regard to sections 
                        135, 911, 931, and 933 of such Code; and
                            ``(ii) increased by the amount of interest 
                        received or accrued by the taxpayer during the 
                        taxable year which is exempt from tax under 
                        such Code.
            ``(5) Ensuring catastrophic benefit in all areas.--The 
        Commissioner shall develop procedures for the provision of the 
        catastrophic benefit under this subsection to each eligible 
        beneficiary that resides in an area where there are no eligible 
        entities that have been awarded a contract under this part.

     ``selection of entities to provide prescription drug coverage

    ``Sec. 1860G. (a) Establishment of Bidding Process.--The 
Commissioner shall establish a process under which the Commissioner 
accepts bids from eligible entities and awards contracts to the 
entities to provide the benefits under this part to eligible 
beneficiaries in an area.
    ``(b) Submission of Bids.--Each eligible entity desiring to enter 
into a contract under this part shall submit a bid to the Commissioner 
at such time, in such manner, and accompanied by such information as 
the Commissioner may reasonably require.
    ``(c) Awarding of Contracts.--
            ``(1) In general.--The Commissioner shall, consistent with 
        the requirements of this part and the goal of containing 
        medicare program costs, award at least 2 contracts in each 
        area, unless only 1 bidding entity meets the terms and 
        conditions specified by the Commissioner under paragraph (2).
            ``(2) Terms and conditions.--The Commissioner shall not 
        award a contract to an eligible entity under this section 
        unless the Commissioner finds that the eligible entity is in 
        compliance with such terms and conditions as the Commissioner 
        shall specify.
            ``(3) Comparative merits.--In determining which of the 
        eligible entities that submitted bids that meet the terms and 
        conditions specified by the Commissioner under paragraph (2) to 
        award a contract, the Commissioner shall consider the 
        comparative merits of each of the bids.

  ``payments to eligible entities for administering the catastrophic 
                                benefit

    ``Sec. 1860H. (a) In General.--The Commissioner shall establish 
procedures for making payments to an eligible entity under a contract 
entered into under this part for--
            ``(1) providing covered outpatient prescription drugs to 
        beneficiaries eligible for the catastrophic benefit in 
        accordance with subsection (b); and
            ``(2) costs incurred by the entity in administering the 
        catastrophic benefit in accordance with subsection (c).
    ``(b) Payment for Covered Outpatient Prescription Drugs.--
            ``(1) In general.--Except as provided in subsection (c) and 
        subject to paragraph (2), the Commissioner may only pay an 
        eligible entity for covered outpatient drugs furnished by the 
        eligible entity to an eligible beneficiary enrolled with such 
        entity under this part that is eligible for the catastrophic 
        benefit under section 1860F(b).
            ``(2) Limitations.--
                    ``(A) Formulary restrictions.--Insofar as an 
                eligible entity with a contract under this part uses a 
                formulary, the Commissioner may not make any payment 
                for a covered outpatient drug that is not included in 
                such formulary.
                    ``(B) Negotiated prices.--The Commissioner may not 
                pay an amount for a covered  outpatient drug furnished 
to an eligible beneficiary that exceeds the negotiated price (including 
applicable discounts) that the beneficiary would have been responsible 
for under section 1860F(a).
    ``(c) Payment for Administrative Costs.--
            ``(1) Procedures.--The procedures established under 
        subsection (a)(1) shall provide for payment to the eligible 
        entity of an administrative fee for each prescription filled by 
        the entity for an eligible beneficiary--
                    ``(A) who is enrolled with the entity; and
                    ``(B) to whom subparagraph (A), (B), or (C) of 
                section 1860F(b)(1) applies with respect to a covered 
                outpatient drug.
            ``(2) Amount.--The fee described in paragraph (1) shall 
        be--
                    ``(A) negotiated by the Commissioner; and
                    ``(B) consistent with such fees paid under private 
                sector pharmaceutical benefit contracts.
    ``(d) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.

                    ``determination of income levels

    ``Sec. 1860I. (a) Procedures.--The Commissioner shall establish 
procedures for determining the income levels of eligible beneficiaries 
for purposes of sections 1860E(c) and 1860F(b).
    ``(b) Periodic Redeterminations.--Such income determinations shall 
be valid for a period (of not less than 1 year) specified by the 
Commissioner.

                            ``appropriations

    ``Sec. 1860J. There are authorized to be appropriated from time to 
time, out of any moneys in the Treasury not otherwise appropriated, to 
the Federal Supplementary Medical Insurance Trust Fund established 
under section 1841, an amount equal to the amount by which the benefits 
and administrative costs of providing the benefits under this part 
exceed the enrollment fees collected under section 1860E.

  ``Subpart 2--Establishment of the Medicare Prescription Drug Agency

                  ``medicare prescription drug agency

    ``Sec. 1860S. (a) Establishment.--There is established, as an 
independent agency in the executive branch of the Government, a 
Medicare Prescription Drug Agency (in this part referred to as the 
`Agency').
    ``(b) Duty.--It shall be the duty of the Agency to administer the 
Medicare Outpatient Prescription Drug Discount and Security Program 
under subpart 1.

          ``commissioner; deputy commissioner; other officers

    ``Sec. 1860T. (a) Commissioner of Medicare Prescription Drugs.--
            ``(1) Appointment.--There shall be in the Agency a 
        Commissioner of Medicare Prescription Drugs (in this subpart 
        referred to as the `Commissioner') who shall be appointed by 
        the President, by and with the advice and consent of the 
        Senate.
            ``(2) Compensation.--The Commissioner shall be compensated 
        at the rate provided for level I of the Executive Schedule.
            ``(3) Term.--
                    ``(A) In general.--The Commissioner shall be 
                appointed for a term of 6 years.
                    ``(B) Continuance in office.--In any case in which 
                a successor does not take office at the end of a 
                Commissioner's term of office, such Commissioner may 
                continue in office until the appointment of a 
                successor.
                    ``(C) Delayed appointments.--A Commissioner 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                    ``(D) Removal.--An individual serving in the office 
                of Commissioner may be removed from office only under a 
                finding by the President of neglect of duty or 
                malfeasance in office.
            ``(4) Responsibilities.--The Commissioner shall be 
        responsible for the exercise of all powers and the discharge of 
        all duties of the Agency, and shall have authority and control 
        over all personnel and activities thereof.
            ``(5) Promulgation of rules and regulations.--
                    ``(A) In general.--The Commissioner may prescribe 
                such rules and regulations as the Commissioner 
                determines necessary or appropriate to carry out the 
                functions of the Agency.
                    ``(B) Rulemaking.--The regulations prescribed by 
                the Commissioner shall be subject to the rulemaking 
                procedures established under section 553 of title 5, 
                United States Code.
            ``(6) Delegation of authority.--
                    ``(A) In general.--The Commissioner may assign 
                duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the Agency 
                as the Commissioner may find necessary.
                    ``(B) Effect of delegation.--Within the limitations 
                of such delegations, redelegations, or assignments, all 
                official acts and decisions of such officers and 
                employees shall have the same force and effect as 
                though performed or rendered by the Commissioner.
            ``(7) Consultation with secretary of health and human 
        services.--The Commissioner and the Secretary shall consult, on 
        an ongoing basis, to ensure the coordination of the programs 
        administered by the Commissioner with the programs administered 
        by the Secretary under this title and under title XIX.
    ``(b) Deputy Commissioner of Medicare Prescription Drugs.--
            ``(1) Appointment.--There shall be in the Agency a Deputy 
        Commissioner of Medicare Prescription Drugs (in this subpart 
        referred to as the `Deputy Commissioner') who shall be 
        appointed by the President, by and with the advice and consent 
        of the Senate.
            ``(2) Term.--
                    ``(A) In general.--The Deputy Commissioner shall be 
                appointed for a term of 6 years.
                    ``(B) Continuance in office.--In any case in which 
                a successor does not take office at the end of a Deputy 
                Commissioner's term of office, such Deputy Commissioner 
                may continue in office until the entry upon office of 
                such a successor.
                    ``(C) Delayed appointment.--A Deputy Commissioner 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
            ``(3) Compensation.--The Deputy Commissioner shall be 
        compensated at the rate provided for level II of the Executive 
        Schedule.
            ``(4) Duties.--
                    ``(A) In general.--The Deputy Commissioner shall 
                perform such duties and exercise such powers as the 
                Commissioner shall from time to time assign or 
                delegate.
                    ``(B) Acting commissioner.--The Deputy Commissioner 
                shall be Acting Commissioner of the Agency during the 
                absence or disability of the Commissioner, unless the 
                President designates another officer of the Government 
                as Acting Commissioner, in the event of a vacancy in 
                the office of the Commissioner.
    ``(c) Chief Actuary.--
            ``(1) Appointment.--
                    ``(A) In general.--There shall be in the Agency a 
                Chief Actuary, who shall be appointed by, and in direct 
                line of authority to, the Commissioner.
                    ``(B) Qualifications.--The Chief Actuary shall be 
                appointed from individuals who have demonstrated, by 
                their education and experience, superior expertise in 
                the actuarial sciences.
                    ``(C) Duties.--The Chief Actuary shall serve as the 
                chief actuarial officer of the Agency, and shall 
                exercise such duties as are appropriate for the office 
                of the Chief Actuary and in accordance with 
                professional standards of actuarial independence.
            ``(2) Compensation.--The Chief Actuary shall be compensated 
        at the highest rate of basic pay for the Senior Executive 
        Service under section 5382(b) of title 5, United States Code.

              ``administrative duties of the commissioner

    ``Sec. 1860U. (a) Personnel.--
            ``(1) In general.--The Commissioner may employ, without 
        regard to chapter 31 of title 5, United States Code, such 
        officers and employees as are necessary to administer the 
        activities to be carried out through the Medicare Prescription 
        Drug Agency.
            ``(2) Flexibility with respect to civil service laws.--
                    ``(A) In general.--The staff of the Medicare 
                Prescription Drug Agency shall be appointed without 
                regard to the provisions of title 5, United States 
                Code, governing appointments in the competitive 
                service, and, subject to subparagraph (B), shall be 
                paid without regard to the provisions of chapters 51 
                and 53 of such title (relating to classification and 
                schedule pay rates).
                    ``(B) Maximum rate.--In no case may the rate of 
                compensation determined under subparagraph (A) exceed 
                the rate of basic pay payable for level IV of the 
                Executive Schedule under section 5315 of title 5, 
                United States Code.
    ``(b) Budgetary Matters.--
            ``(1) Submission of annual budget.--The Commissioner shall 
        prepare an annual budget for the Agency, which shall be 
        submitted by the President to Congress without revision, 
        together with the President's annual budget for the Agency.
            ``(2) Appropriations requests.--
                    ``(A) Staffing and personnel.--Appropriations 
                requests for staffing and personnel of the Agency shall 
                be based upon a comprehensive workforce plan, which 
                shall be established and revised from time to time by 
                the Commissioner.
                    ``(B) Administrative expenses.--Appropriations for 
                administrative expenses of the Agency are authorized to 
                be provided on a biennial basis.
    ``(c) Seal of Office.--
            ``(1) In general.--The Commissioner shall cause a Seal of 
        Office to be made for the Agency of such design as the 
        Commissioner shall approve.
            ``(2) Judicial notice.--Judicial notice shall be taken of 
        the seal made under paragraph (1).
    ``(d) Data Exchanges.--
            ``(1) Disclosure of records and other information.--
        Notwithstanding any other provision of law (including 
        subsections (b), (o), (p), (q), (r), and (u) of section 552a of 
        title 5, United States Code)--
                    ``(A) the Secretary shall disclose to the 
                Commissioner any record or information requested in 
                writing by the Commissioner for the purpose of 
                administering any program administered by the 
                Commissioner, if records or information of such type 
                were disclosed to the Administrator of the Health Care 
                Financing Administration in the Department of Health 
                and Human Services under applicable rules, regulations, 
                and procedures in effect before the date of enactment 
                of the Medicare Rx Drug Discount and Security Act of 
                2001; and
                    ``(B) the Commissioner shall disclose to the 
                Secretary or to any State any record or information 
                requested in writing by the Secretary to be so 
                disclosed for the purpose of administering any program 
                administered by the Secretary, if records or 
                information of such type were so disclosed under 
                applicable rules, regulations, and procedures in effect 
                before the date of enactment of the Medicare Rx Drug 
                Discount and Security Act of 2001.
            ``(2) Exchange of other data.--The Commissioner and the 
        Secretary shall periodically review the need for exchanges of 
        information not referred to in paragraph (1) and shall enter 
        into such agreements as may be necessary and appropriate to 
        provide information to each other or to States in order to meet 
        the programmatic needs of the requesting agencies.
            ``(3) Routine use.--
                    ``(A) In general.--Any disclosure from a system of 
                records (as defined in section 552a(a)(5) of title 5, 
                United States Code) pursuant to this subsection shall 
                be made as a routine use under subsection (b)(3) of 
                section 552a of such title (unless otherwise authorized 
                under such section 552a).
                    ``(B) Computerized comparison.--Any computerized 
                comparison of records, including matching programs, 
                between the Commissioner and the Secretary shall be 
                conducted in accordance with subsections (o), (p), (q), 
                (r), and (u) of section 552a of title 5, United States 
                Code.
            ``(4) Timely action.--The Commissioner and the Secretary 
        shall each ensure that timely action is taken to establish any 
        necessary routine uses for disclosures required under paragraph 
        (1) or agreed to under paragraph (2).

      ``medicare competition and prescription drug advisory board

    ``Sec. 1860V. (a) Establishment of Board.--There is established a 
Medicare Prescription Drug Advisory Board (in this section referred to 
as the `Board').
    ``(b) Advice on Policies; Reports.--
            ``(1) Advice on policies.--On and after the date the 
        Commissioner takes office, the Board shall advise the 
        Commissioner on policies relating to the Medicare Outpatient 
        Prescription Drug Discount and Security Program under subpart 
        1.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of subpart 1, the Board shall submit to 
                Congress and to the Commissioner of Medicare 
                Prescription Drugs such reports as the Board determines 
                appropriate. Each such report may contain such 
                recommendations as the Board determines appropriate for 
                legislative or administrative changes to improve the 
                administration of such subpart. Each such report shall 
                be published in the Federal Register.
                    ``(B) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
    ``(c) Structure and Membership of the Board.--
            ``(1) Membership.--The Board shall be composed of 7 members 
        who shall be appointed as follows:
                    ``(A) Presidential appointments.--
                            ``(i) In general.--Three members shall be 
                        appointed by the President, by and with the 
                        advice and consent of the Senate.
                            ``(ii) Limitation.--Not more than 2 such 
                        members may be from the same political party.
                    ``(B) Senatorial appointments.--Two members (each 
                member from a different political party) shall be 
                appointed by the President pro tempore of the Senate 
                with the advice of the Chairman and the Ranking 
                Minority Member of the Committee on Finance of the 
                Senate.
                    ``(C) Congressional appointments.--Two members 
                (each member from a different political party) shall be 
                appointed by the Speaker of the House of 
                Representatives, with the advice of the Chairman and 
                the Ranking Minority Member of the Committee on Ways 
                and Means of the House of Representatives.
            ``(2) Qualifications.--The members shall be chosen on the 
        basis of their integrity, impartiality, and good judgment, and 
        shall be individuals who are, by reason of their education, 
        experience, and attainments, exceptionally qualified to perform 
        the duties of members of the Board.
    ``(d) Terms of Appointment.--
            ``(1) In general.--Subject to paragraph (2), each member of 
        the Board shall serve for a term of 6 years.
            ``(2) Continuance in office and staggered terms.--
                    ``(A) Continuance in office.--A member appointed to 
                a term of office after the commencement of such term 
                may serve under such appointment only for the remainder 
                of such term.
                    ``(B) Staggered terms.--The terms of service of the 
                members initially appointed under this section shall 
                begin on January 1, 2002, and expire as follows:
                            ``(i) Presidential appointments.--The terms 
                        of service of the members initially appointed 
                        by the President shall expire as designated by 
                        the President at the time of nomination, 1 each 
                        at the end of--
                                    ``(I) 2 years;
                                    ``(II) 4 years; and
                                    ``(III) 6 years.
                            ``(ii) Senatorial appointments.--The terms 
                        of service of members initially appointed by 
                        the President pro tempore of the Senate shall 
                        expire as designated by the President pro 
                        tempore of the Senate at the time of 
                        nomination, 1 each at the end of--
                                    ``(I) 3 years; and
                                    ``(II) 6 years.
                            ``(iii) Congressional appointments.--The 
                        terms of service of members initially appointed 
by the Speaker of the House of Representatives shall expire as 
designated by the Speaker of the House of Representatives at the time 
of nomination, 1 each at the end of--
                                    ``(I) 4 years; and
                                    ``(II) 5 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
    ``(e) Chairperson.--A member of the Board shall be designated by 
the President to serve as Chairperson for a term of 4 years, coincident 
with the term of the President, or until the designation of a 
successor.
    ``(f) Expenses and Per Diem.--Members of the Board shall serve 
without compensation, except that, while serving on business of the 
Board away from their homes or regular places of business, members may 
be allowed travel expenses, including per diem in lieu of subsistence, 
as authorized by section 5703 of title 5, United States Code, for 
persons in the Government employed intermittently.
    ``(g) Meeting.--
            ``(1) In general.--The Board shall meet at the call of the 
        Chairperson (in consultation with the other members of the 
        Board) not less than 4 times each year to consider a specific 
        agenda of issues, as determined by the Chairperson in 
        consultation with the other members of the Board.
            ``(2) Quorum.--Four members of the Board (not more than 3 
        of whom may be of the same political party) shall constitute a 
        quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--The Board shall be exempt 
from the provisions of the Federal Advisory Committee Act (5 U.S.C. 
App.).
    ``(i) Personnel.--
            ``(1) Staff director.--The Board shall, without regard to 
        the provisions of title 5, United States Code, relating to the 
        competitive service, appoint a Staff Director who shall be paid 
        at a rate equivalent to a rate established for the Senior 
        Executive Service under section 5382 of title 5, United States 
        Code.
            ``(2) Staff.--
                    ``(A) In general.--The Board may employ, without 
                regard to chapter 31 of title 5, United States Code, 
                such officers and employees as are necessary to 
                administer the activities to be carried out by the 
                Board.
                    ``(B) Flexibility with respect to civil service 
                laws.--
                            ``(i) In general.--The staff of the Board 
                        shall be appointed without regard to the 
                        provisions of title 5, United States Code, 
                        governing appointments in the competitive 
                        service, and, subject to clause (ii), shall be 
                        paid without regard to the provisions of 
                        chapters 51 and 53 of such title (relating to 
                        classification and schedule pay rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated, out of the Federal Supplemental Medical Insurance Trust 
Fund established under section 1841, and the general fund of the 
Treasury, such sums as are necessary to carry out the purposes of this 
section.''.
    (b) Conforming References to Previous Part D.--
            (1) In general.--Any reference in law (in effect before the 
        date of enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of such 
        title (as in effect after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 6 months after the date of enactment of this 
        section, 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 section.
    (c) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of enactment of this Act.
            (2) Timing of initial appointments.--The Commissioner and 
        Deputy Commissioner of Medicare Prescription Drugs may not be 
        appointed before March 1, 2002.

SEC. 3. COMMISSIONER AS MEMBER OF THE BOARD OF TRUSTEES OF THE MEDICARE 
              TRUST FUNDS.

    (a) In General.--Section 1841(b) of the Social Security Act (42 
U.S.C. 1395t(b)) is amended by striking ``and the Secretary of Health 
and Human Services, all ex officio,'' and inserting ``, the Secretary 
of Health and Human Services, and the Commissioner of Medicare 
Prescription Drugs, all ex officio,''.
    (b) Effective Date.--The amendment made by this subsection shall 
take effect on March 1, 2002.

SEC. 4. EXCLUSION OF PART D COSTS FROM DETERMINATION OF PART B MONTHLY 
              PREMIUM.

    Section 1839(g) of the Social Security Act (42 U.S.C. 1395r(g)) is 
amended--
            (1) by striking ``attributable to the application of 
        section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(2) the Voluntary Medicare Outpatient Prescription Drug 
        Discount and Security Program under part D.''.

SEC. 5. MEDIGAP REVISIONS.

    Section 1882 of the Social Security Act (42 U.S.C. 1395ss) is 
amended by adding at the end the following new subsection:
    ``(v) Modernization of Medicare Supplemental Policies.--
            ``(1) Promulgation of model regulation.--
                    ``(A) NAIC model regulation.--If, within 9 months 
                after the date of enactment of the Medicare Rx Drug 
                Discount and Security Act of 2001, the National 
                Association of Insurance Commissioners (in this 
                subsection referred to as the `NAIC') changes the 1991 
                NAIC Model Regulation (described in subsection (p)) to 
                revise the benefit package classified as `J' under the 
                standards established by subsection (p)(2) (including 
                the benefit package classified as `J' with a high 
                deductible feature, as described in subsection (p)(11)) 
                so that--
                            ``(i) the coverage for outpatient 
                        prescription drugs available under such benefit 
                        package is replaced with coverage for 
                        outpatient prescription drugs that complements 
                        but does not duplicate the benefits for 
                        outpatient prescription drugs that 
                        beneficiaries are otherwise entitled to under 
                        this title;
                            ``(ii) a uniform format is used in the 
                        policy with respect to such revised benefits; 
                        and
                            ``(iii) such revised standards meet any 
                        additional requirements imposed by the Medicare 
                        Rx Drug Discount and Security Act of 2001;
                subsection (g)(2)(A) shall be applied in each State, 
                effective for policies issued to policy holders on and 
                after January 1, 2003, as if the reference to the Model 
                Regulation adopted on June 6, 1979, were a reference to 
                the 1991 NAIC Model Regulation as changed under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2003 NAIC Model Regulation').
                    ``(B) Regulation by the secretary.--If the NAIC 
                does not make the changes in the 1991 NAIC Model 
                Regulation within the 9-month period specified in 
                subparagraph (A), the Secretary shall promulgate, not 
                later than 9 months after the end of such period, a 
                regulation and subsection (g)(2)(A) shall be applied in 
                each State, effective for policies issued to policy 
                holders on and after January 1, 2003, as if the 
                reference to the Model Regulation adopted on June 6, 
                1979, were a reference to the 1991 NAIC Model 
                Regulation as changed by the Secretary under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2003 Federal Regulation').
                    ``(C) Consultation with working group.--In 
                promulgating standards under this paragraph, the NAIC 
                or Secretary shall consult with a working group similar 
                to the working group described in subsection (p)(1)(D).
                    ``(D) Modification of standards if medicare 
                benefits change.--If benefits under part D of this 
                title are changed and the Secretary determines, in 
                consultation with the NAIC, that changes in the 2003 
                NAIC Model Regulation or 2003 Federal Regulation are 
                needed to reflect such changes, the preceding 
                provisions of this paragraph shall apply to the 
                modification of standards previously established in the 
                same manner as they applied to the original 
                establishment of such standards.
            ``(2) Construction of benefits in other medicare 
        supplemental policies.--Nothing in the benefit packages 
        classified as `A' through `I' under the standards established 
        by subsection (p)(2) (including the benefit package classified 
        as `F' with a high deductible feature, as described in 
        subsection (p)(11)) shall be construed as providing coverage 
        for benefits for which payment may be made under part D.
            ``(3) Application of provisions and conforming 
        references.--
                    ``(A) Application of provisions.--The provisions of 
                paragraphs (4) through (10) of subsection (p) shall 
                apply under this section, except that--
                            ``(i) any reference to the model regulation 
                        applicable under that subsection shall be 
                        deemed to be a reference to the applicable 2003 
                        NAIC Model Regulation or 2003 Federal 
                        Regulation; and
                            ``(ii) any reference to a date under such 
                        paragraphs of subsection (p) shall be deemed to 
                        be a reference to the appropriate date under 
                        this subsection.
                    ``(B) Other references.--Any reference to a 
                provision of subsection (p) or a date applicable under 
                such subsection shall also be considered to be a 
                reference to the appropriate provision or date under 
                this subsection.''.
                                 <all>