[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2729 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2729

   To amend title XVIII of the Social Security Act to provide for a 
    medicare voluntary prescription drug delivery program under the 
  medicare program, to modernize the medicare program, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 15, 2002

  Mr. Grassley (for himself, Ms. Snowe, Mr. Jeffords, Mr. Breaux, Mr. 
  Hatch, Ms. Collins, Ms. Landrieu, Mr. Hutchinson, and Mr. Domenici) 
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 for a 
    medicare voluntary prescription drug delivery program under the 
  medicare program, to modernize the medicare program, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
              TO BIPA; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``21st Century 
Medicare Act''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment is expressed 
in terms of an amendment to or repeal of a section or other provision, 
the reference shall be considered to be made to that section or other 
provision of the Social Security Act.
    (c) BIPA; Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
        and SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
                            BIPA; table of contents.
     TITLE I--MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM

Sec. 101. Medicare voluntary prescription drug delivery program.
         ``Part D--Voluntary Prescription Drug Delivery Program

``Sec. 1860D. Definitions; treatment of references to provisions in 
                            Medicare+Choice program.
  ``Subpart 1--Establishment of Voluntary Prescription Drug Delivery 
                                Program

        ``Sec. 1860D-1. Establishment of voluntary prescription drug 
                            delivery program.
        ``Sec. 1860D-2. Enrollment under program.
        ``Sec. 1860D-3. Election of a Medicare Prescription Drug plan.
        ``Sec. 1860D-4. Providing information to beneficiaries.
        ``Sec. 1860D-5. Beneficiary protections.
        ``Sec. 1860D-6. Prescription drug benefits.
        ``Sec. 1860D-7. Requirements for entities offering Medicare 
                            Prescription Drug plans; establishment of 
                            standards.
             ``Subpart 2--Prescription Drug Delivery System

        ``Sec. 1860D-10. Establishment of service areas.
        ``Sec. 1860D-11. Publication of risk adjusters.
        ``Sec. 1860D-12. Submission of bids for proposed Medicare 
                            Prescription Drug plans.
        ``Sec. 1860D-13. Approval of proposed Medicare Prescription 
                            Drug plans.
        ``Sec. 1860D-14. Computation of monthly standard coverage 
                            premiums.
        ``Sec. 1860D-15. Computation of monthly national average 
                            premium.
        ``Sec. 1860D-16. Payments to eligible entities offering 
                            Medicare Prescription Drug plans.
        ``Sec. 1860D-17. Computation of beneficiary obligation.
        ``Sec. 1860D-18. Collection of beneficiary obligation.
        ``Sec. 1860D-19. Premium and cost-sharing subsidies for low-
                            income individuals.
        ``Sec. 1860D-20. Reinsurance payments for qualified 
                            prescription drug coverage.
``Subpart 3--Medicare Competitive Agency; Prescription Drug Account in 
         the Federal Supplementary Medical Insurance Trust Fund

        ``Sec. 1860D-25. Establishment of Medicare Competitive Agency.
        ``Sec. 1860D-26. Prescription Drug Account in the Federal 
                            Supplementary Medical Insurance Trust 
                            Fund.''.
Sec. 102. Study and report on permitting part B only individuals to 
                            enroll in medicare voluntary prescription 
                            drug delivery program.
Sec. 103. Additional requirements for annual financial report and 
                            oversight on medicare program.
Sec. 104. Reference to medigap provisions.
Sec. 105. Medicaid amendments.
Sec. 106. Expansion of membership and duties of Medicare Payment 
                            Advisory Commission (MedPAC).
Sec. 107. Miscellaneous administrative provisions.
            TITLE II--OPTION FOR ENHANCED MEDICARE BENEFITS

Sec. 201. Option for enhanced medicare benefits.
                  ``Part E--Enhanced Medicare Benefits

        ``Sec. 1860E-1. Entitlement to elect to receive enhanced 
                            medicare benefits.
        ``Sec. 1860E-2. Scope of enhanced medicare benefits.
        ``Sec. 1860E-3. Payment of benefits.
        ``Sec. 1860E-4. Eligible beneficiaries; election of enhanced 
                            medicare benefits; termination of election.
        ``Sec. 1860E-5. Premium adjustments; late election penalty.''.
Sec. 202. Rules relating to medigap policies that provide prescription 
                            drug coverage; establishment of enhanced 
                            medicare fee-for-service medigap policies.
                 TITLE III--MEDICARE+CHOICE COMPETITION

Sec. 301. Annual calculation of benchmark amounts based on floor rates 
                            and local fee-for-service rates.
Sec. 302. Application of comprehensive risk adjustment methodology.
Sec. 303. Annual announcement of benchmark amounts and other payment 
                            factors.
Sec. 304. Submission of bids by Medicare+Choice organizations.
Sec. 305. Adjustment of plan bids; comparison of adjusted bid to 
                            benchmark; payment amount.
Sec. 306. Determination of premium reductions, reduced cost-sharing, 
                            additional benefits, and beneficiary 
                            premiums.
Sec. 307. Eligibility, election, and enrollment in competitive 
                            Medicare+Choice plans.
Sec. 308. Benefits and beneficiary protections under competitive 
                            Medicare+Choice plans.
Sec. 309. Payments to Medicare+Choice organizations for enhanced 
                            medicare benefits under part E based on 
                            risk-adjusted bids.
Sec. 310. Separate payments to Medicare+Choice organizations for part D 
                            benefits.
Sec. 311. Administration by the Medicare Competitive Agency.
Sec. 312. Continued calculation of annual Medicare+Choice capitation 
                            rates.
Sec. 313. Five-year extension of medicare cost contracts.
Sec. 314. Effective date.

     TITLE I--MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM

SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM.

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

         ``Part D--Voluntary Prescription Drug Delivery Program

``definitions; treatment of references to provisions in medicare+choice 
                                program

    ``Sec. 1860D. (a) Definitions.--In this part:
            ``(1) Administrator.--The term `Administrator' means the 
        Administrator of the Medicare Competitive Agency as established 
        under section 1860D-25.
            ``(2) Covered drug.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `covered 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;
                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)).
                    ``(B) Exclusions.--
                            ``(i) In general.--The term `covered 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 subparagraph (E) thereof 
                        (relating to smoking cessation agents), or 
                        under section 1927(d)(3).
                            ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered drug under this part 
                        shall not be so considered if payment for such 
                        drug is available under part A or B (or under 
                        part E for an eligible beneficiary who elects 
                        to receive enhanced medicare benefits under 
                        that part), but shall be so considered if such 
                        payment is not available because benefits under 
                        part A or B (or part E, as applicable) have 
                        been exhausted.
            ``(3) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual that is entitled to benefits 
        under part A and enrolled under part B.
            ``(4) Eligible entity.--The term `eligible entity' means 
        any risk-bearing entity that the Administrator determines to be 
        appropriate to provide eligible beneficiaries with the benefits 
        under a Medicare Prescription Drug plan, including--
                    ``(A) a pharmaceutical benefit management company;
                    ``(B) a wholesale or retail pharmacist delivery 
                system;
                    ``(C) an insurer (including an insurer that offers 
                medicare supplemental policies under section 1882);
                    ``(D) another entity; or
                    ``(E) any combination of the entities described in 
                subparagraphs (A) through (D).
            ``(5) Initial coverage limit.--The term `initial coverage 
        limit' means the limit as established under section 1860D-
        6(c)(3), or, in the case of coverage that is not standard 
        coverage, the comparable limit (if any) established under the 
        coverage.
            ``(6) Medicare+choice organization; medicare+choice plan.--
        The terms `Medicare+Choice organization' and `Medicare+Choice 
        plan' have the meanings given such terms in subsections (a)(1) 
        and (b)(1), respectively, of section 1859 (relating to 
        definitions relating to Medicare+Choice organizations).
            ``(7) Medicare prescription drug plan.--The term `Medicare 
        Prescription Drug plan' means prescription drug coverage that 
        is offered under a policy, contract, or plan--
                    ``(A) by an eligible entity pursuant to, and in 
                accordance with, a contract between the Administrator 
                and the entity under section 1860D-7(b); and
                    ``(B) that has been approved under section 1860D-
                13.
            ``(8) Prescription drug account.--The term `Prescription 
        Drug Account' means the Prescription Drug Account (as 
        established under section 1860D-26) in the Federal 
        Supplementary Medical Insurance Trust Fund under section 1841.
            ``(9) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' means the coverage 
        described in section 1860D-6(a)(1).
            ``(10) Standard coverage.--The term `standard coverage' 
        means the coverage described in section 1860D-6(c).
    ``(b) Application of Medicare+Choice Provisions Under This Part.--
For purposes of applying provisions of part C under this part with 
respect to a Medicare Prescription Drug plan and an eligible entity, 
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 Medicare Prescription Drug plan;
            ``(2) any reference to a provider-sponsored organization 
        included a reference to an eligible entity;
            ``(3) any reference to a contract under section 1857 
        included a reference to a contract under section 1860D-7(b); 
        and
            ``(4) any reference to part C included a reference to this 
        part.

  ``Subpart 1--Establishment of Voluntary Prescription Drug Delivery 
                                Program

    ``establishment of voluntary prescription drug delivery program

    ``Sec. 1860D-1. (a) Provision of Benefit.--
            ``(1) In general.--The Administrator shall provide for and 
        administer a voluntary prescription drug delivery program under 
        which each eligible beneficiary enrolled under this part shall 
        be provided with access to qualified prescription drug coverage 
        as follows:
                    ``(A) Medicare+choice plan.--An eligible 
                beneficiary who is enrolled under this part and 
                enrolled in a Medicare+Choice plan offered by a 
                Medicare+Choice organization shall receive coverage of 
                benefits under this part through such plan if such plan 
                provides qualified prescription drug coverage.
                    ``(B) Medicare prescription drug plan.--An eligible 
                beneficiary who is enrolled under this part but is not 
                enrolled in a Medicare+Choice plan that provides 
                qualified prescription drug coverage shall receive 
                coverage of benefits under this part through enrollment 
                in a Medicare Prescription Drug plan that is offered in 
                the geographic area in which the beneficiary resides.
            ``(2) Voluntary nature of program.--Nothing in this part 
        shall be construed as requiring an eligible beneficiary to 
        enroll in the program under this part.
            ``(3) Scope of benefits.--The program established under 
        this part shall provide for coverage of all therapeutic classes 
        of covered drugs.
            ``(4) Program to begin in 2005.--The Administrator shall 
        establish the program under this part in a manner so that 
        benefits are first provided for months beginning with January 
        2005.
    ``(b) Access to Alternative Prescription Drug Coverage.--In the 
case of an eligible beneficiary who has creditable prescription drug 
coverage (as defined in section 1860D-2(b)(1)(F)), such beneficiary--
            ``(1) may continue to receive such coverage and not enroll 
        under this part; and
            ``(2) pursuant to section 1860D-2(b)(1)(C), is permitted to 
        subsequently enroll under this part without any penalty and 
        obtain access to qualified prescription drug coverage in the 
        manner described in subsection (a) if the beneficiary 
        involuntarily loses such coverage.
    ``(c) Financing.--The costs of providing benefits under this part 
shall be payable from the Prescription Drug Account.

                       ``enrollment under program

    ``Sec. 1860D-2. (a) Establishment of Enrollment Process.--
            ``(1) Process similar to part b enrollment.--The 
        Administrator 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. 
        Such process shall be similar to the process for enrollment in 
        part B under section 1837, including the deeming provisions of 
        such section.
            ``(2) Condition of enrollment.--An eligible beneficiary 
        must be enrolled under this part in order to be eligible to 
        receive access to qualified prescription drug coverage.
    ``(b) Special Enrollment Procedures.--
            ``(1) Late enrollment penalty.--
                    ``(A) Increase in premium.--Subject to the 
                succeeding provisions of this paragraph, in the case of 
                an eligible beneficiary whose coverage period under 
                this part began pursuant to an enrollment after the 
                beneficiary's initial enrollment period under part B 
                (determined pursuant to section 1837(d)) and not 
                pursuant to the open enrollment period described in 
                paragraph (2), the Administrator shall establish 
                procedures for increasing the amount of the monthly 
                beneficiary obligation under section 1860D-17 
                applicable to such beneficiary by an amount that the 
                Administrator determines is actuarially sound for each 
                full 12-month period (in the same continuous period of 
                eligibility) in which the eligible beneficiary could 
                have been enrolled under this part but was not so 
                enrolled.
                    ``(B) Periods taken into account.--For purposes of 
                calculating any 12-month period under subparagraph (A), 
                there shall be taken into account--
                            ``(i) the months which elapsed between the 
                        close of the eligible beneficiary's initial 
                        enrollment period and the close of the 
                        enrollment period in which the beneficiary 
                        enrolled; and
                            ``(ii) in the case of an eligible 
                        beneficiary who reenrolls under this part, the 
                        months which elapsed between the date of 
                        termination of a previous coverage period and 
                        the close of the enrollment period in which the 
                        beneficiary reenrolled.
                    ``(C) Periods not taken into account.--
                            ``(i) In general.--For purposes of 
                        calculating any 12-month period under 
                        subparagraph (A), subject to clauses (ii) and 
                        (iii), there shall not be taken into account 
                        months for which the eligible beneficiary can 
                        demonstrate that the beneficiary had creditable 
                        prescription drug coverage (as defined in 
                        subparagraph (F)).
                            ``(ii) Beneficiary must involuntarily lose 
                        coverage.--Clause (i) shall only apply with 
                        respect to coverage--
                                    ``(I) in the case of coverage 
                                described in clause (ii) of 
                                subparagraph (F), if the plan 
                                terminates, ceases to provide, or 
                                reduces the value of the prescription 
                                drug coverage under such plan to below 
                                the actuarial value of standard 
                                coverage (as determined under section 
                                1860D-6(f));
                                    ``(II) in the case of coverage 
                                described in clause (i), (iii), or (iv) 
                                of subparagraph (F), if the beneficiary 
                                loses eligibility for such coverage; or
                                    ``(III) in the case of a 
                                beneficiary with coverage described in 
                                clause (v) of subparagraph (F), if the 
                                issuer of the policy terminates 
                                coverage under the policy.
                            ``(iii) Partial credit for certain medigap 
                        coverage.--In the case of a beneficiary that 
                        had creditable prescription drug coverage 
                        described in subparagraph (F)(v) that does not 
                        provide coverage of the cost of prescription 
                        drugs the actuarial value of which (as defined 
                        by the Administrator) to the beneficiary equals 
                        or exceeds the actuarial value of standard 
                        coverage (as determined under section 1860D-
                        6(f)), the Administrator shall determine a 
                        percentage of the period in which the 
                        beneficiary had such creditable prescription 
                        drug coverage that will be taken into account 
                        under subparagraph (B) (and not considered to 
                        be such creditable prescription drug coverage 
                        under clause (i)).
                    ``(D) Periods treated separately.--Any increase in 
                an eligible beneficiary's monthly beneficiary 
                obligation under subparagraph (A) with respect to a 
                particular continuous period of eligibility shall not 
                be applicable with respect to any other continuous 
                period of eligibility which the beneficiary may have.
                    ``(E) Continuous period of eligibility.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of this paragraph, an eligible 
                        beneficiary's `continuous period of 
                        eligibility' is the period that begins with the 
                        first day on which the beneficiary is eligible 
                        to enroll under section 1836 and ends with the 
                        beneficiary's death.
                            ``(ii) Separate period.--Any period during 
                        all of which an eligible beneficiary satisfied 
                        paragraph (1) of section 1836 and which 
                        terminated in or before the month preceding the 
                        month in which the beneficiary attained age 65 
                        shall be a separate `continuous period of 
                        eligibility' with respect to the beneficiary 
                        (and each such period which terminates shall be 
                        deemed not to have existed for purposes of 
                        subsequently applying this paragraph).
                    ``(F) Creditable prescription drug coverage 
                defined.--For purposes of this part, the term 
                `creditable prescription drug coverage' means any of 
                the following:
                            ``(i) 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), and 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, 
but only if the coverage provides coverage of the cost of prescription 
drugs the actuarial value of which (as defined by the Administrator) to 
the beneficiary equals or exceeds the actuarial value of standard 
coverage (as determined under section 1860D-6(f)).
                            ``(ii) Prescription drug coverage under a 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under the 
                        Federal Employees Health Benefit Program under 
                        chapter 89 of title 5, United States Code, and 
                        a qualified retiree prescription drug plan (as 
                        defined in section 1860D-20(f)(1)), but only if 
                        the coverage provides coverage of the cost of 
                        prescription drugs the actuarial value of which 
                        (as defined by the Administrator) to the 
                        beneficiary equals or exceeds the actuarial 
                        value of standard coverage (as determined under 
                        section 1860D-6(f)).
                            ``(iii) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program, but 
                        only if the coverage provides coverage of the 
                        cost of prescription drugs the actuarial value 
                        of which (as defined by the Administrator) to 
                        the beneficiary equals or exceeds the actuarial 
                        value of standard coverage (as determined under 
                        section 1860D-6(f)).
                            ``(iv) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans, and survivors and dependents of 
                        veterans, under chapter 17 of title 38, United 
                        States Code, but only if the coverage provides 
                        coverage of the cost of prescription drugs the 
                        actuarial value of which (as defined by the 
                        Administrator) to the beneficiary equals or 
                        exceeds the actuarial value of standard 
                        coverage (as determined under section 1860D-
                        6(f)).
                            ``(v) Prescription drug coverage under 
                        medigap policies.--Subject to subparagraph 
                        (C)(iii), 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)).
            ``(2) Open enrollment period for current beneficiaries in 
        which late enrollment procedures do not apply.--In the case of 
        an individual who is an eligible beneficiary as of January 1, 
        2005, the Administrator shall establish procedures under which 
        such beneficiary may enroll under this part during the open 
        enrollment period without the application of the late 
        enrollment procedures established under paragraph (1)(A). For 
        purposes of the preceding sentence, the open enrollment period 
        shall be the 7-month period that begins on April 1, 2004, and 
        ends on November 30, 2004.
            ``(3) Special enrollment period for beneficiaries who 
        involuntarily lose creditable prescription drug coverage.--
                    ``(A) Establishment.--The Administrator shall 
                establish a special open enrollment period (as 
                described in subparagraph (B)) for an eligible 
                beneficiary that loses creditable prescription drug 
                coverage.
                    ``(B) Special open enrollment period.--The special 
                open enrollment period described in this subparagraph 
                is the 63-day period that begins--
                            ``(i) in the case of a beneficiary with 
                        coverage described in clause (ii) of paragraph 
                        (1)(F), the date on which the plan terminates, 
                        ceases to provide, or substantially reduces (as 
                        defined by the Administrator) the value of the 
                        prescription drug coverage under such plan;
                            ``(ii) in the case of a beneficiary with 
                        coverage described in clause (i), (iii), or 
                        (iv) of paragraph (1)(F), the date on which the 
                        beneficiary loses eligibility for such 
                        coverage; or
                            ``(iii) in the case of a beneficiary with 
                        coverage described in clause (v) of paragraph 
                        (1)(F), the date on which the issuer of the 
                        policy terminates coverage under the policy.
    ``(c) Period of Coverage.--
            ``(1) In general.--Except as provided in paragraph (2) and 
        subject to paragraph (3), an eligible beneficiary's coverage 
        under the program under this part shall be effective for the 
        period provided in section 1838, as if that section applied to 
        the program under this part.
            ``(2) Open and special enrollment.--
                    ``(A) Open enrollment.--An eligible beneficiary who 
                enrolls under the program under this part pursuant to 
                subsection (b)(2) shall be entitled to the benefits 
                under this part beginning on January 1, 2005.
                    ``(B) Special enrollment.--Subject to paragraph 
                (3), an eligible beneficiary who enrolls under the 
                program under this part pursuant to subsection (b)(3) 
                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.
            ``(3) Limitation.--Coverage under this part shall not begin 
        prior to January 1, 2005.
    ``(d) Termination.--
            ``(1) In general.--The causes of termination specified in 
        section 1838 shall apply to this part in the same manner as 
        such causes apply to part B.
            ``(2) Coverage terminated by termination of coverage under 
        parts a or b.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in paragraph (1), the 
                Administrator shall terminate an individual's coverage 
                under this part if the individual is no longer enrolled 
                in both parts A and B.
                    ``(B) Effective date.--The termination described in 
                subparagraph (A) shall be effective on the effective 
                date of termination of coverage under part A or (if 
                earlier) under part B.
            ``(3) Procedures regarding termination of a beneficiary 
        under a plan.--The Administrator shall establish procedures for 
        determining the status of an eligible beneficiary's enrollment 
        under this part if the beneficiary's enrollment in a Medicare 
        Prescription Drug plan offered by an eligible entity under this 
        part is terminated by the entity for cause (pursuant to 
        procedures established by the Administrator under section 
        1860D-3(a)(1)).

            ``election of a medicare prescription drug plan

    ``Sec. 1860D-3. (a) In General.--
            ``(1) Process.--
                    ``(A) Election.--
                            ``(i) In general.--The Administrator shall 
                        establish a process through which an eligible 
                        beneficiary who is enrolled under this part but 
                        not enrolled in a Medicare+Choice plan offered 
                        by a Medicare+Choice organization that provides 
                        qualified prescription drug coverage--
                                    ``(I) shall make an election to 
                                enroll in any Medicare Prescription 
                                Drug plan that is offered by an 
                                eligible entity and that serves the 
                                geographic area in which the 
                                beneficiary resides; and
                                    ``(II) may make an annual election 
                                to change the election under this 
                                clause.
                            ``(ii) Clarification regarding 
                        enrollment.--The process established under 
                        clause (i) shall include, in the case of an 
                        eligible beneficiary who is enrolled under this 
                        part but who has failed to make an election of 
                        a Medicare Prescription Drug plan in an area, 
                        for the enrollment in the Medicare Prescription 
                        Drug plan with the lowest monthly premium that 
                        is available in the area.
                    ``(B) Requirements for process.--In establishing 
                the process under subparagraph (A), the Administrator 
                shall--
                            ``(i) use rules similar to the rules for 
                        enrollment, disenrollment, and termination of 
                        enrollment with a Medicare+Choice plan under 
                        section 1851, including--
                                    ``(I) the establishment of special 
                                election periods under subsection 
                                (e)(4) of such section; and
                                    ``(II) the application of the 
                                guaranteed issue and renewal provisions 
                                of section 1851(g) (other than clause 
                                (i) and the second sentence of clause 
                                (ii) of paragraph (3)(C), relating to 
                                default enrollment); and
                            ``(ii) coordinate enrollments, 
                        disenrollments, and terminations of enrollment 
                        under part C with enrollments, disenrollments, 
                        and terminations of enrollment under this part.
            ``(2) First enrollment period for plan enrollment.--The 
        process developed under paragraph (1) shall ensure that 
        eligible beneficiaries who enroll under this part during the 
        open enrollment period under section 1860D-2(b)(2) are 
        permitted to elect an eligible entity prior to January 1, 2005, 
        in order to ensure that coverage under this part is effective 
        as of such date.
    ``(b) Enrollment in a Medicare+Choice Plan.--
            ``(1) In general.--An eligible beneficiary who is enrolled 
        under this part and enrolled in a Medicare+Choice plan offered 
        by a Medicare+Choice organization that provides qualified 
        prescription drug coverage shall receive access to such 
        coverage under this part through such plan.
            ``(2) Rules.--Enrollment in a Medicare+Choice plan is 
        subject to the rules for enrollment in such plan under section 
        1851.

                ``providing information to beneficiaries

    ``Sec. 1860D-4. (a) Activities.--
            ``(1) In general.--The Administrator shall conduct 
        activities that are designed to broadly disseminate information 
        to eligible beneficiaries (and prospective eligible 
        beneficiaries) regarding the coverage provided under this part.
            ``(2) Special rule for first enrollment under the 
        program.--The activities described in paragraph (1) shall 
        ensure that eligible beneficiaries are provided with such 
        information at least 30 days prior to the first enrollment 
        period described in section 1860D-3(a)(2).
    ``(b) Requirements.--
            ``(1) In general.--The activities described in subsection 
        (a) shall--
                    ``(A) be similar to the activities performed by the 
                Administrator under section 1851(d);
                    ``(B) be coordinated with the activities performed 
                by--
                            ``(i) the Administrator under such section; 
                        and
                            ``(ii) the Secretary under section 1804; 
                        and
                    ``(C) provide for the dissemination of information 
                comparing the plans offered by eligible entities under 
                this part that are available to eligible beneficiaries 
                residing in an area.
            ``(2) Comparative information.--The comparative information 
        described in paragraph (1)(C) shall include a comparison of the 
        following:
                    ``(A) Benefits.--The benefits provided under the 
                plan and the formularies and appeals processes under 
                the plan.
                    ``(B) Quality and performance.--To the extent 
                available, the quality and performance of the eligible 
                entity offering the plan.
                    ``(C) Beneficiary cost-sharing.--The cost-sharing 
                required of eligible beneficiaries under the plan.
                    ``(D) Consumer satisfaction surveys.--To the extent 
                available, the results of consumer satisfaction surveys 
                regarding the plan and the eligible entity offering 
                such plan.
                    ``(E) Additional information.--Such additional 
                information as the Administrator may prescribe.

                       ``beneficiary protections

    ``Sec. 1860D-5. (a) Dissemination of Information.--
            ``(1) General information.--An eligible entity offering a 
        Medicare Prescription Drug plan shall disclose, in a clear, 
        accurate, and standardized form to each enrollee 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 drugs, including access 
                through pharmacy networks.
                    ``(B) How any formulary used by the entity 
                functions.
                    ``(C) Copayments, coinsurance, and deductible 
                requirements.
                    ``(D) Grievance and appeals procedures.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll in a Medicare Prescription Drug 
        plan, the eligible entity offering such plan shall provide the 
        information described in section 1852(c)(2) to such individual.
            ``(3) Response to beneficiary questions.--An eligible 
        entity offering a Medicare Prescription Drug plan shall have a 
        mechanism for providing specific information to enrollees upon 
        request, including information on the coverage of specific 
        drugs and changes in its formulary on a timely basis.
            ``(4) Claims information.--An eligible entity offering a 
        Medicare Prescription Drug plan must furnish to enrolled 
        individuals in a form easily understandable to such individuals 
        an explanation of benefits (in accordance with section 1806(a) 
        or in a comparable manner) and a notice of the benefits in 
        relation to initial coverage limit and annual out-of-pocket 
        limit for the current year, whenever prescription drug benefits 
        are provided under this part (except that such notice need not 
        be provided more often than monthly).
            ``(5) Approval of marketing material and application 
        forms.--The provisions of section 1851(h) shall apply to 
        marketing material and application forms under this part in the 
        same manner as such provisions apply to marketing material and 
        application forms under part C.
    ``(b) Access to Covered Drugs.--
            ``(1) Access to negotiated prices for prescription drugs.--
        An eligible entity offering a Medicare Prescription Drug plan 
        shall issue such a card (or other technology) that may be used 
        by an enrolled beneficiary to assure access to negotiated 
        prices under section 1860D-6(e) for the purchase of 
        prescription drugs for which coverage is not otherwise provided 
        under the Medicare Prescription Drug plan.
            ``(2) Assuring pharmacy access.--
                    ``(A) In general.--An eligible entity offering a 
                Medicare 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-7(f) that ensure such convenient access. Such 
                standards shall take into account reasonable distances 
                to pharmacy services in both urban and rural areas.
                    ``(B) Use of point-of-service system.--An eligible 
                entity offering a Medicare Prescription Drug plan 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 copayments any 
                        additional costs associated with the point-of-
                        service option.
                The additional copayments so charged shall not count 
                toward the application of section 1860D-6(c).
            ``(3) Requirements on development and application of 
        formularies.--If an eligible entity offering a Medicare 
        Prescription Drug plan uses a formulary, the following 
        requirements must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                The eligible entity must establish a pharmacy and 
                therapeutic committee that develops and reviews the 
                formulary. Such committee shall include at least one 
                practicing physician and at least one practicing 
                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 practicing physician 
                or a practicing 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) Appeals and exceptions to application.--The 
                eligible entity must have, as part of the appeals 
                process under subsection (e)(3), a process for timely 
                appeals for denials of coverage based on such 
                application of the formulary.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--An eligible entity shall have in place 
        the following with respect to covered drugs:
                    ``(A) A cost-effective drug utilization management 
                program, including incentives to reduce costs when 
                appropriate.
                    ``(B) Quality assurance measures to reduce medical 
                errors and adverse drug interactions, which--
                            ``(i) shall include a medication therapy 
                        management program described in paragraph (2); 
                        and
                            ``(ii) may include beneficiary education 
                        programs, counseling, medication refill 
                        reminders, and special packaging.
                    ``(C) A program to control fraud, abuse, and waste.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that is designed to assure, 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 and practicing pharmacists 
                and physicians.
                    ``(D) Considerations in pharmacy fees.--The 
                eligible entity offering a Medicare Prescription Drug 
                plan 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) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--The eligible entity offering a Medicare 
        Prescription Drug plan shall provide that each pharmacy or 
        other dispenser that arranges for the dispensing of a covered 
        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.
    ``(d) Grievance Mechanism.--An eligible entity shall provide 
meaningful procedures for hearing and resolving grievances between the 
eligible entity (including any entity or individual through which the 
eligible entity provides covered benefits) and enrollees in a Medicare 
Prescription Drug plan offered by the eligible entity in accordance 
with section 1852(f).
    ``(e) 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 Medicare Prescription Drug plan it offers 
        under this part in the same manner as such requirements apply 
        to a Medicare+Choice organization with respect to benefits it 
        offers under a Medicare+Choice plan under part C.
            ``(2) Request for review of tiered formulary 
        determinations.--In the case of a Medicare Prescription Drug 
        plan offered by an eligible entity that provides for tiered 
        cost-sharing for covered 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.
            ``(3) Appeals of formulary determinations.--
                    ``(A) In general.--Subject to subparagraph (B), 
                consistent with the requirements of section 1852(g), an 
                eligible entity shall establish a process for 
                individuals to appeal formulary determinations.
                    ``(B) Formulary determinations.--An individual who 
                is enrolled in a Medicare Prescription Drug plan 
                offered by an eligible entity may appeal to obtain 
                coverage for a covered drug that is not on a formulary 
                of the eligible entity 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.
    ``(f) 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.
    ``(g) Uniform Premium.--An eligible entity shall ensure that the 
monthly premium for a Medicare Prescription Drug plan charged under 
this part is the same for all eligible beneficiaries enrolled in the 
plan.

                      ``prescription drug benefits

    ``Sec. 1860D-6. (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 
                (c)) and access to negotiated prices under subsection 
                (e).
                    ``(B) Actuarially equivalent coverage with access 
                to negotiated prices.--Coverage of covered drugs which 
                meets the alternative coverage requirements of 
                subsection (d) and access to negotiated prices under 
                subsection (e), but only if it is approved by the 
                Administrator, as provided under subsection (d).
            ``(2) Permitting additional prescription drug coverage.--
                    ``(A) In general.--Subject to subparagraph (B) and 
                section 1860D-13(c)(2), nothing in this part shall be 
                construed as preventing qualified prescription drug 
                coverage from including coverage of covered drugs that 
                exceeds the coverage required under paragraph (1).
                    ``(B) Requirement.--An eligible entity may not 
                offer a Medicare Prescription Drug plan that provides 
                additional benefits pursuant to subparagraph (A) in an 
                area unless the eligible entity offering such plan also 
                offers a Medicare Prescription Drug plan in the area 
                that only provides the coverage of prescription drugs 
                that is required under subsection (a)(1).
            ``(3) Cost control mechanisms.--In providing qualified 
        prescription drug coverage, the entity offering the Medicare 
        Prescription Drug plan or the Medicare+Choice plan may use cost 
        control mechanisms that are customarily used in employer-
        sponsored health care plans that offer coverage for 
        prescription drugs, including the use of formularies, tiered 
        copayments, selective contracting with providers of 
        prescription drugs, and mail order pharmacies.
    ``(b) 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.
    ``(c) Standard Coverage.--For purposes of this part and part C, the 
term `standard coverage' means coverage of covered drugs that meets the 
following requirements:
            ``(1) Deductible.--
                    ``(A) In general.--The coverage has an annual 
                deductible--
                            ``(i) for 2005, that is equal to $250; or
                            ``(ii) 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.
                    ``(B) Rounding.--Any amount determined under 
                subparagraph (A)(ii) that is not a multiple of $1 shall 
                be rounded to the nearest multiple of $1.
            ``(2) Limits on cost-sharing.--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)) that is equal to 50 percent or that is 
        actuarially consistent (using processes established under 
        subsection (f)) with an average expected payment of 50 percent 
        of such costs.
            ``(3) Initial coverage limit.--
                    ``(A) In general.--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)--
                            ``(i) for 2005, that is equal to $3,450; or
                            ``(ii) 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.
                    ``(B) Rounding.--Any amount determined under 
                subparagraph (A)(ii) that is not a multiple of $1 shall 
                be rounded to the nearest multiple of $1.
            ``(4) Limitation on out-of-pocket expenditures by 
        beneficiary.--
                    ``(A) In general.--Notwithstanding paragraph (3), 
                the coverage provides benefits with cost-sharing that 
                is equal to 10 percent after the individual has 
                incurred costs (as described  in subparagraph (C)) for 
covered drugs in a year equal to the annual out-of-pocket limit 
specified in subparagraph (B).
                    ``(B) Annual out-of-pocket limit.--
                            ``(i) In general.--For purposes of this 
                        part, the `annual out-of-pocket limit' 
                        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 the 
                                subparagraph for the previous year, 
                                increased by the annual percentage 
                                increase described in paragraph (5) for 
                                the year involved.
                            ``(ii) Rounding.--Any amount determined 
                        under clause (i)(II) that is not a multiple of 
                        $1 shall be rounded to the nearest multiple of 
                        $1.
                    ``(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 1860D-19, 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 drugs 
        in the United States for beneficiaries under this title, as 
        determined by the Administrator for the 12-month period ending 
        in July of the previous year.
    ``(d) Alternative Coverage Requirements.--A Medicare Prescription 
Drug plan or Medicare+Choice plan may provide a different prescription 
drug benefit design from the standard coverage described in subsection 
(c) so long as the Administrator determines (based on an actuarial 
analysis by the Administrator) that 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 (f)) 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 (f)) exceeds the actuarial value of 
                the amounts associated with the application of section 
                1860D-17(c) and reinsurance payments under section 
                1860D-20 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 (f)), to 
                provide for the payment, with respect to costs incurred 
                that are equal to the sum of the deductible under 
                subsection (c)(1) and the initial coverage limit under 
                subsection (c)(3), of an amount equal to at least such 
                initial coverage limit multiplied by the percentage 
                specified in subsection (c)(2).
        Benefits other than qualified prescription drug coverage shall 
        not be taken into account for purposes of this paragraph.
            ``(2) Limitation on out-of-pocket expenditures by 
        beneficiaries.--The coverage provides the limitation on out-of-
        pocket expenditures by beneficiaries described in subsection 
        (c)(4).
    ``(e) Access to Negotiated Prices.--
            ``(1) Access.--
                    ``(A) In general.--Under qualified prescription 
                drug coverage offered by an eligible entity or a 
                Medicare+Choice organization, the entity or 
                organization shall provide beneficiaries with access to 
                negotiated prices (including applicable discounts) used 
                for payment for covered drugs, regardless of the fact 
                that no benefits may be payable under the coverage with 
                respect to such drugs because of the application of the 
                deductible, any cost-sharing, or an initial coverage 
                limit (described in subsection (c)(3)).
                    ``(B) Medicaid related provisions.--Insofar as a 
                State elects to provide medical assistance under title 
                XIX for a drug based on the prices negotiated under a 
                Medicare Prescription Drug plan under this part, the 
                requirements of section 1927 shall not apply to such 
                drugs. The prices negotiated under a Medicare 
                Prescription Drug plan with respect to covered drugs, 
                under a Medicare+Choice plan with respect to such 
                drugs, or under a qualified retiree prescription drug 
                plan (as defined in section 1860D-20(f)(1)) with 
                respect to such drugs, on behalf of eligible 
                beneficiaries, 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) Cards or other technology.--In providing the access 
        under paragraph (1), the eligible  entity or Medicare+Choice 
organization shall issue a card or use other technology pursuant to 
section 1860D-5(b)(1).
    ``(f) 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 payments under 
                        section 1860D-20;
                            ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                            ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (d) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (c); and
                    ``(B) for determining annual percentage increases 
                described in subsection (c)(5).
            ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), eligible entities 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).

``requirements for entities offering medicare prescription drug plans; 
                       establishment of standards

    ``Sec. 1860D-7. (a) General Requirements.--An eligible entity 
offering a Medicare Prescription Drug plan shall meet the following 
requirements:
            ``(1) Licensure.--Subject to subsection (c), the entity 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 Medicare Prescription Drug 
        plan.
            ``(2) Assumption of financial risk.--
                    ``(A) In general.--Subject to subparagraph (B) and 
                section 1860D-20, the entity assumes financial risk on 
                a prospective basis for the benefits that it offers 
                under a Medicare Prescription Drug plan and that is not 
                covered under such section or section 1860D-16.
                    ``(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 entities.--In the case of an 
        eligible entity that is not described in paragraph (1) and for 
        which a waiver has been approved under subsection (c), such 
        entity shall meet solvency standards established by the 
        Administrator under subsection (d).
    ``(b) Contract Requirements.--The Administrator shall not permit an 
eligible beneficiary to elect a Medicare Prescription Drug plan offered 
by an eligible entity under this part, and the entity shall not be 
eligible for payments under section 1860D-16 or 1860D-20, unless the 
Administrator has entered into a contract under this subsection with 
the entity with respect to the offering of such plan. Such a contract 
with an entity may cover more than 1 Medicare Prescription Drug plan. 
Such contract shall provide that the entity 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.
    ``(c) Waiver of Certain Requirements in Order To Ensure Beneficiary 
Choice.--
            ``(1) In general.--In the case of an eligible entity that 
        seeks to offer a Medicare 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) have been met.
            ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraphs (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) References to certain provisions.--For purposes of 
        this subsection, in applying the provisions of section 
        1855(a)(2) under this subsection to Medicare Prescription Drug 
        plans and eligible entities--
                    ``(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 were 
                treated as a reference to solvency standards 
                established under subsection (d).
    ``(d) Solvency Standards for Non-Licensed Entities.--
            ``(1) Establishment and publication.--The Administrator, in 
        consultation with the National Association of Insurance 
        Commissioners, shall establish and publish, by not later than 
        January 1, 2004, financial solvency and capital adequacy 
        standards for entities described in paragraph (2).
            ``(2) Compliance with standards.--An eligible entity 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 eligible entities 
        with respect to such solvency standards in the manner described 
        in section 1855(c)(2).
    ``(e) Licensure Does Not Substitute for or Constitute 
Certification.--The fact that an entity is licensed in accordance with 
subsection (a)(1) or has a waiver application approved under subsection 
(c) does not  deem the eligible entity to meet other requirements 
imposed under this part for an eligible entity.
    ``(f) Other Standards.--The Administrator shall establish by 
regulation other standards (not described in subsection (d)) for 
eligible entities and Medicare Prescription Drug plans consistent with, 
and to carry out, this part. The Administrator shall publish such 
regulations by January 1, 2004.
    ``(g) Periodic Review and Revision of Standards.--The Administrator 
shall periodically review the standards established under this section 
and, based on such review, may revise such standards if the 
Administrator determines such revision to be appropriate.
    ``(h) Relation to State Laws.--
            ``(1) In general.--The standards established under this 
        part shall supersede any State law or regulation (including 
        standards described in paragraph (2)) with respect to Medicare 
        Prescription Drug plans which are offered by eligible entities 
        under this part--
                    ``(A) to the extent such law or regulation is 
                inconsistent with such standards; and
                    ``(B) in the same manner as such laws and 
                regulations are superseded under section 1856(b)(3).
            ``(2) Standards specifically superseded.--State standards 
        relating to the following are superseded under this section:
                    ``(A) Benefit requirements.
                    ``(B) Requirements relating to inclusion or 
                treatment of providers.
                    ``(C) Coverage determinations (including related 
                appeals and grievance processes).
            ``(3) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to--
                    ``(A) premiums paid to the Administrator for 
                Medicare Prescription Drug plans under this part; or
                    ``(B) any payments made by the Administrator under 
                this part to an eligible entity offering such a plan.

             ``Subpart 2--Prescription Drug Delivery System

                    ``establishment of service areas

    ``Sec. 1860D-10. (a) Establishment.--
            ``(1) Initial establishment.--Not later than April 15, 
        2004, the Administrator shall establish and publish the service 
        areas in which Medicare Prescription Drug plans may offer 
        benefits under this part.
            ``(2) Periodic review and revision of service areas.--The 
        Administrator shall periodically review the service areas 
        applicable under this section and, based on such review, may 
        revise such service areas if the Administrator determines such 
        revision to be appropriate.
    ``(b) Requirements for Establishment of Service Areas.--
            ``(1) In general.--The Administrator shall establish the 
        service areas under subsection (a) in a manner that--
                    ``(A) maximizes the availability of Medicare 
                Prescription Drug plans to eligible beneficiaries; and
                    ``(B) minimizes the ability of eligible entities 
                offering such plans to favorably select eligible 
                beneficiaries.
            ``(2) Service area may not be smaller than a state.--A 
        service area established under subsection (a) may not be 
        smaller than a State.

                    ``publication of risk adjusters

    ``Sec. 1860D-11. (a) Publication.--Not later than April 15 of each 
year (beginning in 2004), the Administrator shall publish the risk 
adjusters established under subsection (b) to be used in computing--
            ``(1) under section 1860D-16(a) the amount of payment to 
        Medicare Prescription Drug plans in the subsequent year; and
            ``(2) under section 1853(k)(2) the amount of payment to 
        Medicare+Choice organizations that offer qualified prescription 
        drug coverage in the subsequent year.
    ``(b) Establishment of Risk Adjusters.--
            ``(1) In general.--Subject to paragraph (2), the 
        Administrator shall establish an appropriate methodology for 
        adjusting the amount of payment to Medicare Prescription Drug 
        plans computed under section 1860D-16(a) to take into account, 
        in a budget neutral manner, variation in costs based on the 
        differences in actuarial risk of different enrollees being 
        served.
            ``(2) Considerations.--In establishing the methodology 
        under paragraph (1), the Administrator may take into account 
        the similar methodologies used under section 1853(a)(3) to 
        adjust payments to Medicare+Choice organizations (with respect 
        to enhanced medicare benefits under part E).

   ``submission of bids for proposed medicare prescription drug plans

    ``Sec. 1860D-12. (a) In General.--Each eligible entity that intends 
to offer a Medicare Prescription Drug plan in a year (beginning with 
2005) shall submit to the Administrator, at such time and in such 
manner as the Administrator may specify, such information as the 
Administrator may require, including the information described in 
subsection (b).
    ``(b) Information Described.--The information described in this 
subsection includes information on each of the following:
            ``(1) A description of the benefits under the plan (as 
        required under section 1860D-6).
            ``(2) Information on the actuarial value of the qualified 
        prescription drug coverage.
            ``(3) Information on the monthly premium to be charged for 
        all benefits, including an actuarial certification of--
                    ``(A) the actuarial basis for such premium; and
                    ``(B) the portion of such premium attributable to 
                benefits in excess of standard coverage; and
                    ``(C) the reduction in such bid and premium 
                resulting from the payments associated with section 
                1860D-16(c) and payments provided under section 1860D-
                20.
            ``(4) The service area for the plan.
            ``(5) Such other information as the Administrator may 
        require to carry out this part.
    ``(c) Options Regarding Service Areas.--
            ``(1) In general.--The service area of a Medicare 
        Prescription Drug plan shall be either--
                    ``(A) the entire area of 1 of the service areas 
                established by the Administrator under section 1860D-
                10; or
                    ``(B) the entire area covered by the medicare 
                program.
            ``(2) Rule of construction.--Nothing in this part shall be 
        construed as prohibiting an eligible entity from submitting 
        separate bids in multiple service areas as long as each bid is 
        for a single service area.

        ``approval of proposed medicare prescription drug plans

    ``Sec. 1860D-13. (a) In General.--The Administrator shall review 
the information filed under section 1860D-12 and shall approve or 
disapprove the Medicare Prescription Drug plan. The Administrator may 
not approve a plan if--
            ``(1) the plan and the entity offering the plan comply with 
        the requirements under this part; and
            ``(2) the premium accurately reflects both (A) the 
        actuarial value of the benefits provided, and (B) the payments 
        associated with the application of 186D-16(c) and the payments 
        under section 1860D-20 for the standard benefit.
    ``(b) Negotiation.--In exercising the authority under subsection 
(a), the Administrator shall have the same authority to negotiate the 
terms and conditions of the premiums submitted and other terms and 
conditions of proposed plans 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.
    ``(c) Special Rules for Approval.--The Administrator may approve a 
Medicare Prescription Drug plan submitted under section 1860D-12 only 
if the benefits under such plan--
            ``(1) include the required benefits under section 1860D-
        6(a)(1); and
            ``(2) are not designed in such a manner that the 
        Administrator finds is likely to result in favorable selection 
        of eligible beneficiaries.
    ``(d) Assuring Access.--
            ``(1) Number of contracts.--The Administrator shall, 
        consistent with the requirements of this part and the goal of 
        containing costs under this title, approve at least 2 contracts 
        to offer a Medicare Prescription Drug plan in an area.
            ``(2) Guaranteeing access to coverage.--In order to assure 
        access under paragraph (1) in an area and consistent with 
        paragraph (3), the Administrator may provide financial 
        incentives (including partial underwriting of risk) for an 
        eligible entity to offer a Medicare Prescription Drug plan in 
        that area, but only so long as (and to the extent) necessary to 
        assure the access guaranteed under paragraph (1) in that area.
            ``(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 eligible entity;
                    ``(B) shall not provide for any underwriting of 
                financial risk for a public eligible entity with 
                respect to the offering of a nationwide prescription 
                drug plan; and
                    ``(C) shall seek to maximize the assumption of 
                financial risk by an eligible entity.
            ``(4) Reports.--The Administrator shall, in each annual 
        report to Congress under section 1860D-25(c)(1)(D), include 
        information on the exercise of authority under this subsection. 
        The Administrator also shall include such recommendations as 
        may be appropriate to limit the exercise of such authority, 
        including minimizing the assumption of financial risk.
    ``(e) Annual Contracts.--A contract approved under this part shall 
be for a 1-year period.

          ``computation of monthly standard coverage premiums

    ``Sec. 1860D-14. (a) In General.--For each year (beginning with 
2005), the Administrator shall compute a monthly standard coverage 
premium for each Medicare Prescription Drug plan approved under section 
1860D-13.
    ``(b) Requirements.--The monthly standard coverage premium for a 
Medicare Prescription Drug plan for a year shall be equal to--
            ``(1) in the case of a plan offered by an eligible entity 
        that provides standard coverage or an actuarially equivalent 
        coverage and does not provide additional prescription drug 
        coverage pursuant to section 1860D-6(a)(2), the monthly premium 
        approved for the plan under section 1860D-13 for the year; and
            ``(2) in the case of a plan offered by an eligible entity 
        that provides additional prescription drug coverage pursuant to 
        section 1860D-6(a)(2)--
                    ``(A) an amount that reflects only the actuarial 
                value of the standard coverage offered under the plan; 
                or
                    ``(B) if determined appropriate by the 
                Administrator, the monthly premium approved under 
                section 1860D-13 for the year for the Medicare 
                Prescription Drug plan that (as required under 
                subparagraph (B) of such section)--
                            ``(i) is offered by such entity in the same 
                        area as the plan; and
                            ``(ii) does not provide additional 
                        prescription drug coverage pursuant to such 
                        section.

           ``computation of monthly national average premium

    ``Sec. 1860D-15. (a) Computation.--
            ``(1) In general.--For each year (beginning with 2005) the 
        Administrator shall compute a monthly national average premium 
        equal to the average of the monthly standard coverage premium 
        for each Medicare Prescription Drug plan (as computed under 
        section 1860D-14).
            ``(2) Weighted average.--The monthly national average 
        premium computed under paragraph (1) shall be a weighted 
        average, with the weight for each plan being equal to the 
average number of beneficiaries enrolled under such plan in the 
previous year.
    ``(b) Special Rule for 2005.--For purposes of applying this section 
for 2005, the Administrator shall establish procedures for determining 
the weighted average under subsection (a)(2) for 2004.

  ``payments to eligible entities offering medicare prescription drug 
                                 plans

    ``Sec. 1860D-16. (a) Payment of Premiums.--For each year (beginning 
with 2005), the Administrator shall pay to each entity offering a 
Medicare Prescription Drug plan in which an eligible beneficiary is 
enrolled an amount equal to the full amount of the monthly premium 
approved for the plan under section 1860D-13 on behalf of each eligible 
beneficiary enrolled in such plan for the year, as adjusted using the 
risk adjusters that apply to the standard coverage published under 
section 1860D-11.
    ``(b) Payment Terms.--Payment under this section to an entity 
offering a Medicare Prescription Drug plan shall be made in a manner 
determined by the Administrator and based upon the manner in which 
payments are made under section 1853(a) (relating to payments to 
Medicare+Choice organizations).
    ``(c) Payments to Medicare+Choice Plans.--For provisions related to 
payments to Medicare+Choice organizations offering Medicare+Choice 
plans that provide qualified prescription drug coverage, see section 
1853(k)(2).
    ``(d) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.

                ``computation of beneficiary obligation

    ``Sec. 1860D-17. (a) Beneficiaries Enrolled in a Medicare 
Prescription Drug Plan.--In the case of an eligible beneficiary 
enrolled under this part and in a Medicare Prescription Drug plan, the 
monthly beneficiary obligation for enrollment in such plan in a year 
shall be determined as follows:
            ``(1) Medicare prescription drug plan premiums equal to the 
        monthly national average.--If the amount of the monthly premium 
        approved by the Administrator under section 1860D-13 for a 
        Medicare Prescription Drug plan for the year is equal to the 
        monthly national average premium (as computed under section 
        1860D-15) for the year, the monthly obligation of the eligible 
        beneficiary in that year shall be an amount equal to the 
        applicable percent (as defined in subsection (c)) of the amount 
        of the monthly national average premium.
            ``(2) Medicare prescription drug plan premiums that are 
        less than the monthly national average.--If the amount of the 
        monthly premium approved by the Administrator under section 
        1860D-13 for the Medicare Prescription Drug plan for the year 
        is less than the monthly national average premium (as computed 
        under section 1860D-15) for the year, the monthly obligation of 
        the eligible beneficiary in that year shall be an amount equal 
        to--
                    ``(A) the applicable percent of the amount of the 
                monthly national average premium; minus
                    ``(B) the amount by which the monthly national 
                average premium exceeds the amount of the premium 
                approved by the Administrator for the plan.
            ``(3) Medicare prescription drug plan premiums that are 
        greater than the monthly national average.--If the amount of 
        the monthly premium approved by the Administrator under section 
        1860D-13 for a Medicare Prescription Drug plan for the year 
        exceeds the monthly national average premium (as computed under 
        section 1860D-15) for the year, the monthly obligation of the 
        eligible beneficiary in that year shall be an amount equal to 
        the sum of--
                    ``(A) the applicable percent of the amount of the 
                monthly national average premium; plus
                    ``(B) the amount by which the premium approved by 
                the Administrator for the plan exceeds the amount of 
                the monthly national average premium.
    ``(b) Beneficiaries Enrolled in a Medicare+Choice Plan.--In the 
case of an eligible beneficiary that is receiving qualified 
prescription drug coverage under a Medicare+Choice plan, the monthly 
obligation for such coverage shall be determined pursuant to section 
1853(k)(3).
    ``(c) Applicable Percent Defined.--For purposes of this section, 
except as provided in section 1860D-19 (relating to premium subsidies 
for low-income individuals), the term `applicable percent' means 55 
percent.

                 ``collection of beneficiary obligation

    ``Sec. 1860D-18. (a) Collection of Amount in Same Manner as Part B 
Premium.--The amount of the monthly beneficiary obligation (determined 
under section 1860D-17) applicable to an eligible beneficiary under 
this part (after application of any increase under section 1860D-
2(b)(1)(A)) shall be collected and credited to the Prescription Drug 
Account in the same manner as the monthly premium determined under 
section 1839 is collected and credited to the Federal Supplementary 
Medical Insurance Trust Fund under section 1840.
    ``(b) Information Necessary for Collection.--In order to carry out 
subsection (a), the Administrator shall transmit to the Commissioner of 
Social Security--
            ``(1) at the beginning of each year, the name, social 
        security account number, and annual beneficiary obligation owed 
        by each individual enrolled in a Medicare Prescription Drug 
        plan for each month during the year; and
            ``(2) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.
    ``(c) Collection for Beneficiaries Receiving Qualified Prescription 
Drug Coverage Under a Medicare+Choice Plan.--For provisions related to 
the collection of the monthly beneficiary obligation for qualified 
prescription drug coverage under a Medicare+Choice plan, see section 
1853(k)(4).

    ``premium and cost-sharing subsidies for low-income individuals

    ``Sec. 1860D-19. (a) In General.--
            ``(1) Full premium subsidy and reduction of cost-sharing 
        for individuals with income below 135 percent of federal 
        poverty line.--In the case of a subsidy-eligible individual (as 
        defined in paragraph (3)) who is determined to have income that 
        does not exceed 135 percent of the Federal poverty line--
                    ``(A) section 1860D-17 shall be applied--
                            ``(i) in subsection (c), by substituting `0 
                        percent' for `55 percent'; and
                            ``(ii) in subparagraphs (A) and (B) of 
                        subsection (a)(3), by substituting ``the amount 
                        of the premium for the Medicare Prescription 
                        Drug plan with the lowest monthly premium in 
                        the area that the beneficiary resides'' for 
                        ``the amount of the monthly national average 
                        premium'', but only if there is no Medicare 
                        Prescription Drug plan offered in the area in 
                        which the individual resides that has a monthly 
                        premium for the year that is equal to or less 
                        than the monthly national average premium (as 
                        computed under section 1860D-15) for the year;
                    ``(B) the annual deductible applicable under 
                section 1860D-6(c)(1) in a year shall be reduced to an 
                amount equal to 5 percent of the  annual deductible 
otherwise applicable under such section for that year;
                    ``(C) section 1860D-6(c)(2) shall be applied by 
                substituting `2.5 percent' for `50 percent' each place 
                it appears;
                    ``(D) such individual shall be responsible for 
                cost-sharing for the cost of any covered drug provided 
                in the year (after the individual has reached such 
                initial coverage limit and before the individual has 
                reached the limitation under section 1860D-6(c)(4)(A)), 
                that is equal to 50 percent; and
                    ``(E) section 1860D-6(c)(4)(A) shall be applied by 
                substituting `0 percent' for `10 percent'.
        In no case may the application of subparagraph (A) result in a 
        monthly beneficiary obligation that is below zero.
            ``(2) Sliding scale premium subsidy and reduction of cost-
        sharing for individuals with income between 135 and 150 percent 
        of federal poverty line.--
                    ``(A) In general.--In the case of a subsidy-
                eligible individual who is determined to have income 
                that exceeds 135 percent, but is less than 150 percent, 
                of the Federal poverty line--
                            ``(i) section 1860D-17 shall be applied--
                                    ``(I) in subsection (c), by 
                                substituting `subsidy percent' for `55 
                                percent'; and
                                    ``(II) in subparagraphs (A) and (B) 
                                of subsection (a)(3), by substituting 
                                ``the amount of the premium for the 
                                Medicare Prescription Drug plan with 
                                the lowest monthly premium in the area 
                                that the beneficiary resides'' for 
                                ``the amount of the monthly national 
                                average premium'', but only if there is 
                                no Medicare Prescription Drug plan 
                                offered in the area in which the 
                                individual resides that has a monthly 
                                premium for the year that is equal to 
                                or less than the monthly national 
                                average premium (as computed under 
                                section 1860D-15) for the year; and
                            ``(ii) such individual shall be responsible 
                        for cost-sharing for the cost of any covered 
                        drug provided in the year (after the individual 
                        has reached such initial coverage limit and 
                        before the individual has reached the 
                        limitation under section 1860D-6(c)(4)(A)), 
                        that is equal to 50 percent.
                In no case may the application of clause (i) result in 
                a monthly beneficiary obligation that is below zero.
                    ``(B) Subsidy percent defined.--For purposes of 
                subparagraph (A)(i), the term `subsidy percent' means a 
                percent determined on a linear sliding scale ranging 
                from 0 percent for individuals with incomes at 135 
                percent of such level to 55 percent for individuals 
                with incomes at 150 percent of such level.
            ``(3) 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 enrolled under this part, 
                        including an individual receiving qualified 
                        prescription drug coverage under a 
                        Medicare+Choice plan;
                            ``(ii) has income that is less that 150 
                        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).
    ``(b) Rules in Applying Cost-Sharing Subsidies.--
            ``(1) Additional benefits.--In applying subparagraphs (B) 
        and (C) of subsection (a)(1) and clauses (ii) and (iii) of 
        subsection (a)(2)(A), nothing in this part shall be construed 
        as preventing an eligible entity offering a Medicare 
        Prescription Drug plan or a Medicare+Choice organization 
        offering a Medicare+Choice plan in which qualified drug 
        coverage is provided from waiving or reducing the amount of the 
        deductible or other cost-sharing otherwise applicable pursuant 
        to section 1860D-6(a)(2).
            ``(2) Limitation on charges.--In the case of an individual 
        receiving cost-sharing subsidies under subparagraphs (B) and 
        (C) of subsection (a)(1) or under clauses (ii) and (iii) of 
        subsection (a)(2)(A), the eligible entity offering a Medicare 
        Prescription Drug plan or the Medicare+Choice organization 
        offering a Medicare+Choice plan in which qualified drug 
        coverage is provided may not charge more than the deductible or 
        other cost-sharing required pursuant to such subsection.
    ``(c) Administration of Subsidy Program.--The Administrator shall 
provide a process whereby, in the case of an individual eligible for a 
cost-sharing under subparagraphs (B) and (C) of subsection (a)(1) or 
under clauses (ii) and (iii) of subsection (a)(2)(A) and who is 
enrolled in a Medicare 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 
        eligible entity or Medicare+Choice organization involved that 
        the individual is eligible for a cost-sharing subsidy and the 
        amount of the subsidy under such subsection;
            ``(2) the entity or organization involved reduces the 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 entity or organization for the amount of such 
        reductions.
The reimbursement under paragraph (3) 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.
    ``(d) 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.

    ``reinsurance payments for qualified prescription drug coverage

    ``Sec. 1860D-20. (a) Reinsurance Payments.--
            ``(1) In general.--The Administrator shall provide in 
        accordance with this section for payment to a qualifying entity 
        (as defined in subsection (b)) of the reinsurance payment 
        amount (as defined in subsection (c)), which in the aggregate 
        is 30 percent of the total payments made by a qualifying entity 
        for standard coverage under the respective plan, for excess 
        costs incurred in providing qualified prescription drug 
        coverage for qualifying covered individuals (as defined in 
        subsection (g)(1)).
            ``(2) Budget authority.--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) An eligible entity offering a Medicare 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), the 
        reinsurance payment amount under this subsection for a 
        qualifying covered individual 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 drug costs (as defined in paragraph (3)) for 
                the year that exceeds the amount specified in paragraph 
                (2), but does not exceed the initial coverage limit, an 
                amount equal to 50 percent of the allowable costs (as 
                defined in paragraph (3)) attributable to such gross 
                covered drug costs.
                    ``(B) For the portion of the individual's gross 
                covered drug costs for the year that exceeds the annual 
                out-of-pocket threshold specified in section 1860D-
                6(c)(4)(B), an amount equal to 80 percent of the 
                allowable costs attributable to such gross covered drug 
                costs.
            ``(2) Amount specified.--The amount specified under this 
        paragraph--
                    ``(A) for 2005, is equal to $2,000; and
                    ``(B) for a subsequent year, is equal to the amount 
                specified in this paragraph for the previous year, 
                increased by the annual percentage increase described 
                in section 1860D-6(c)(5).
            ``(3) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        drug costs (as defined in paragraph (4)) 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.
            ``(4) Gross covered drug costs.--For purposes of this 
        section, the term `gross covered 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 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.
    ``(d) Adjustment of Reinsurance Payments to Assure 30 Percent Level 
of Payment.--
            ``(1) Estimation of payments.--The Administrator shall 
        estimate--
                    ``(A) the total payments to be made (without regard 
                to this subsection) during a year under subsections (a) 
                and (c); and
                    ``(B) the total payments to be made by qualifying 
                entities for standard coverage under plans described in 
                subsection (b) during the year.
            ``(2) Adjustment.--The Administrator shall proportionally 
        adjust the payments made under subsections (a) 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).
    ``(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 Prescription Drug Account.
    ``(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 a qualifying covered individual 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.
            ``(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--
                    ``(A) is covered under the plan; and
                    ``(B) was eligible for, but was not enrolled in, 
                the program under this part.
            ``(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 (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 in this part and in a Medicare 
                Prescription Drug plan;
                    ``(B) is enrolled in this part and in a 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage; or
                    ``(C) is eligible for, but not enrolled in, the 
                program under this part, and is covered under a 
                qualified retiree prescription drug plan.
            ``(2) Coverage year.--The term `coverage year' means a 
        calendar year in which covered drugs are dispensed if a claim 
        for payment is made under the plan for such drugs, regardless 
        of when the claim is paid.

``Subpart 3--Medicare Competitive Agency; Prescription Drug Account in 
         the Federal Supplementary Medical Insurance Trust Fund

             ``establishment of medicare competitive agency

    ``Sec. 1860D-25. (a) Establishment.--By not later than March 1, 
2003, the Secretary shall establish within the Department of Health and 
Human Services an agency to be known as the Medicare Competitive 
Agency.
    ``(b) Administrator and Deputy Administrator.--
            ``(1) Administrator.--
                    ``(A) In general.--The Medicare Competitive Agency 
                shall be headed by an Administrator (in this section 
                referred to as the `Administrator') who shall be 
                appointed by the President, by and with the advice and 
                consent of the Senate. The Administrator shall report 
                directly to the Secretary.
                    ``(B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level III of 
                the Executive Schedule under section 5314 of title 5, 
                United States Code.
                    ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 5 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator 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) General authority.--The Administrator shall 
                be responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                    ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code.
                    ``(F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational units 
                or components within the Administration as the 
                Administrator considers necessary or appropriate, 
                except that this subparagraph shall not apply with 
                respect to any unit, component, or provision provided 
                for by this section.
                    ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                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 Administrator.
            ``(2) Deputy administrator.--
                    ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Competitive Agency who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate.
                    ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                    ``(C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 5 years. In any case 
                in which a successor does not take office at the end of 
                a Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                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) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
            ``(3) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        & Medicaid Services in carrying out the programs under this 
        title.
    ``(c) Duties; Administrative Provisions.--
            ``(1) Duties.--
                    ``(A) General duties.--The Administrator shall 
                carry out parts C and D, including--
                            ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under part C, 
                        including the offering of qualified 
                        prescription drug coverage under such plans; 
                        and
                            ``(ii) negotiating, entering into, and 
                        enforcing, contracts with eligible entities for 
                        the offering of Medicare Prescription Drug 
                        plans under part D.
                    ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C or D, including 
                demonstration projects carried out in part or in whole 
                under such parts, the programs of all-inclusive care 
                for the elderly (PACE program) under section 1894, the 
                social health maintenance organization (SHMO) 
                demonstration projects (referred to in section 4104(c) 
                of the Balanced Budget Act of 1997), and through a 
                Medicare+Choice project that demonstrates the 
                application of capitation payment rates for frail 
                elderly medicare beneficiaries through the use of an 
                interdisciplinary team and through the provision of 
                primary care services to such beneficiaries by means of 
                such a team at the nursing facility involved.
                    ``(C) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                            ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered drugs;
                            ``(ii) interfere in any way with 
                        negotiations between eligible entities and 
                        Medicare+Choice organizations and drug 
                        manufacturers, wholesalers, or other suppliers 
                        of covered drugs; and
                            ``(iii) otherwise interfere with the 
                        competitive nature of providing such qualified 
                        prescription drug coverage through such 
                        entities and organizations.
                    ``(D) Annual reports.--Not later than March 31 of 
                each year, the Administrator shall submit to Congress 
                and the President a report on the administration of the 
                voluntary prescription drug delivery program under this 
                part during the previous fiscal year.
            ``(2) Staff.--
                    ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, other 
                than sections 3110 and 3112, such officers and 
                employees as are necessary to administer the activities 
                to be carried out through the Medicare Competitive 
                Agency. The Administrator shall employ staff with 
                appropriate and necessary expertise in negotiating 
                contracts in the private sector.
                    ``(B) Flexibility with respect to compensation.--
                            ``(i) In general.--The staff of the 
                        Medicare Competitive Agency shall, subject to 
                        clause (ii), be paid without regard to the 
                        provisions of chapter 51 (other than section 
                        5101) and chapter 53 (other than section 5301) 
                        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.
                    ``(C) Limitation on full-time equivalent staffing 
                for current cms functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Centers 
for Medicare & Medicaid Services and that are conducted by the 
Administrator by reason of this section, that exceeds the number of 
such full-time equivalent employees authorized to be employed by the 
Centers for Medicare & Medicaid Services to conduct such functions as 
of the date of enactment of this Act.
            ``(3) Redelegation of certain functions of the centers for 
        medicare and medicaid services.--
                    ``(A) In general.--The Secretary, the 
                Administrator, and the Administrator of the Centers for 
                Medicare & Medicaid Services shall establish an 
                appropriate transition of responsibility in order to 
                redelegate the administration of part C from the 
                Secretary and the Administrator of the Centers for 
                Medicare & Medicaid Services to the Administrator as is 
                appropriate to carry out the purposes of this section.
                    ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare & Medicaid Services transfers to 
                the Administrator such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare & Medicaid Services as the Administrator 
                requires to carry out the duties described in paragraph 
                (1).
                    ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services in this title or title XI 
                with respect to such responsibility is deemed to be a 
                reference to the Administrator.
    ``(d) Office of Beneficiary Assistance.--
            ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Competitive Agency an Office of Beneficiary 
        Assistance to carry out functions relating to medicare 
        beneficiaries under this title, including making determinations 
        of eligibility of individuals for benefits under this title, 
        providing for enrollment of medicare beneficiaries under this 
        title, and the functions described in paragraph (2). The Office 
        shall be a separate operating division within the 
        Administration.
            ``(2) Dissemination of information on benefits and appeals 
        rights.--
                    ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate to 
                medicare beneficiaries, by mail, by posting on the 
                Internet site of the Medicare Competitive Agency, and 
                through the toll-free telephone number provided for 
                under section 1804(b), information with respect to the 
                following:
                            ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C and 
                        D.
                            ``(ii) Benefits, and limitations on payment 
                        under parts A, B, and E, including information 
                        on medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and E, and medicare supplemental policies with 
                benefits under Medicare+Choice plans under part C.
                    ``(B) Dissemination of appeals rights 
                information.--The Office of Beneficiary Assistance 
                shall disseminate to medicare beneficiaries in the 
                manner provided under subparagraph (A) a description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A and B 
                (including beneficiaries who elect to receive enhanced 
                medicare benefits under part E), the Medicare+Choice 
                program under part C, and the voluntary prescription 
                drug delivery program under part D.
            ``(3) Medicare ombudsman.--
                    ``(A) In general.--Within the Office of Beneficiary 
                Assistance, there shall be a Medicare Ombudsman, 
                appointed by the Secretary from among individuals with 
                expertise and experience in the fields of health care 
                and advocacy, to carry out the duties described in 
                subparagraph (B).
                    ``(B) Duties.--The Medicare Ombudsman shall--
                            ``(i) receive complaints, grievances, and 
                        requests for information submitted by a 
                        medicare beneficiary, with respect to any 
                        aspect of the medicare program;
                            ``(ii) provide assistance with respect to 
                        complaints, grievances, and requests referred 
                        to in clause (i), including--
                                    ``(I) assistance in collecting 
                                relevant information for such 
                                beneficiaries, to seek an appeal of a 
                                decision or determination made by a 
                                fiscal intermediary, carrier, 
                                Medicare+Choice organization, an 
                                eligible entity under part D, or the 
                                Secretary; and
                                    ``(II) assistance to such 
                                beneficiaries with any problems arising 
                                from disenrollment from a 
                                Medicare+Choice plan under part C or a 
                                prescription drug plan under part D; 
                                and
                            ``(iii) submit annual reports to Congress, 
                        the Secretary, and the Medicare Competitive 
                        Policy Advisory Board describing the activities 
                        of the Office, and including such 
                        recommendations for improvement in the 
                        administration of this title as the Ombudsman 
                        determines appropriate.
                    ``(C) Coordination with state ombudsman programs 
                and consumer organizations.--The Medicare Ombudsman 
                shall, to the extent appropriate, coordinate with State 
                medical Ombudsman programs, and with State- and 
                community-based consumer organizations, to--
                            ``(i) provide information about the 
                        medicare program; and
                            ``(ii) conduct outreach to educate medicare 
                        beneficiaries with respect to manners in which 
                        problems under the medicare program may be 
                        resolved or avoided.
    ``(e) Medicare Competitive Policy Advisory Board.--
            ``(1) Establishment.--There is established within the 
        Medicare Competitive Agency the Medicare Competitive Policy 
        Advisory Board (in this section referred to as the `Board'). 
        The Board shall advise, consult with, and make recommendations 
        to the Administrator with respect to the administration of 
        parts C and D, including the review of payment policies under 
        such parts.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of parts C and D, the Board shall submit 
                to Congress and to the Administrator 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 parts, including 
                the stability and solvency of the programs under such 
                parts and the topics described in subparagraph (B). 
                Each such report shall be published in the Federal 
                Register.
                    ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                            ``(i) Fostering competition.--
                        Recommendations or proposals to increase 
                        competition under parts C and D for services 
                        furnished to medicare beneficiaries.
                            ``(ii) Education and enrollment.--
                        Recommendations for the improvement of efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C and D, and the program 
                        for enrollment under the title.
                            ``(iii) Quality.--Recommendations on ways 
                        to improve the quality of benefits provided 
                        under plans under parts C and D.
                            ``(iv) Disease management programs.--
                        Recommendations on the incorporation of disease 
                        management programs under parts C and D.
                            ``(v) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C and D in rural areas.
                    ``(C) 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.
            ``(3) Duty of administrator.--With respect to any report 
        submitted by the Board under paragraph (2)(A), not later than 
        90 days after the report is submitted, the Administrator shall 
        submit to Congress and the President an analysis of 
        recommendations made by the Board in such report. Each such 
        analysis shall be published in the Federal Register.
            ``(4) Membership.--
                    ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of 7 members to be appointed as follows:
                            ``(i) Three members shall be appointed by 
                        the President.
                            ``(ii) Two members shall be appointed by 
                        the Speaker of the House of Representatives, 
                        with the advice of the chairman and the ranking 
                        minority member of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                            ``(iii) Two members 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.
                    ``(B) 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 and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                    ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
            ``(5) Compensation.--Members of the Board shall receive, 
        for each day (including travel time) they are engaged in the 
        performance of the functions of the Board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
            ``(6) Terms of office.--
                    ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                    ``(B) Terms of initial appointees.--As designated 
                by the President at the time of appointment, of the 
                members first appointed--
                            ``(i) one shall be appointed for a term of 
                        1 year;
                            ``(ii) three shall be appointed for terms 
                        of 2 years; and
                            ``(iii) three shall be appointed for terms 
                        of 3 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancy.--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.
            ``(7) Chair.--The Chair of the Board shall be elected by 
        the members. The term of office of the Chair shall be 3 years.
            ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than 3 times during each fiscal 
        year.
            ``(9) Director and staff.--
                    ``(A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the Chair.
                    ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                    ``(C) Flexibility with respect to compensation.--
                            ``(i) In general.--The Director and staff 
                        of the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 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.
                    ``(D) Assistance from the administrator.--The 
                Administrator shall make available to the Board such 
                information and other assistance as it may require to 
                carry out its functions.
            ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
    ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Prescription Drug Account), such sums as are necessary to carry out 
this section.

   ``prescription drug account in the federal supplementary medical 
                          insurance trust fund

    ``Sec. 1860D-26. (a) Establishment.--
            ``(1) In general.--There is created within the Federal 
        Supplementary Medical Insurance Trust Fund established by 
        section 1841 an account to be known as the `Prescription Drug 
        Account' (in this section referred to as the `Account').
            ``(2) Funds.--The Account shall consist of such gifts and 
        bequests as may be made as provided in section 201(i)(1), and 
        such amounts as may be deposited in, or appropriated to, the 
        Account as provided in this part.
            ``(3) Separate from rest of trust fund.--Funds provided 
        under this part to the Account shall be kept separate from all 
        other funds within the Federal Supplementary Medical Insurance 
        Trust Fund.
    ``(b) Payments From Account.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Secretary 
        certifies are necessary to make payments to operate the program 
        under this part, including payments to eligible entities under 
        section 1860D-16, payments under 1860D-19 for low-income 
        subsidy payments for cost-sharing, reinsurance payments under 
        section 1860D-20, and payments with respect to administrative 
        expenses under this part in accordance with section 201(g).
            ``(2) Transfer to parts a and b trust funds for 
        medicare+choice payments.--The Managing Trustee shall establish 
        procedures for the transfer of funds from the Account, in an 
        amount determined appropriate by the Secretary, to the Federal 
        Hospital Insurance Trust Fund and the Federal Supplementary 
        Medical Insurance Trust Fund in order to reimburse such trust 
        funds for payments to Medicare+Choice organizations for the 
        provision of qualified prescription drug coverage pursuant to 
        section 1853(k).
            ``(3) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall transfer from 
        time to time from the Account to the Grants to States for 
        Medicaid account amounts the Secretary certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
            ``(4) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
    ``(c) Deposits Into Account.--
            ``(1) Medicaid transfer.--There is hereby transferred to 
        the Account, from amounts appropriated for Grants to States for 
        Medicaid, amounts equivalent to the aggregate amount of the 
        reductions in payments under section 1903(a)(1) attributable to 
        the application of section 1935(c).
            ``(2) Appropriations to cover benefits and administrative 
        costs.--There are appropriated to the Account in a fiscal year, 
        out of any moneys in the Treasury not otherwise appropriated, 
        an amount equal to the amount by which--
                    ``(A) the payments and transfers made from the 
                Account under subsection (b) in the year; exceed
                    ``(B) the premiums collected under section 1860D-18 
                and 1853(k)(4) (for beneficiaries receiving qualified 
                prescription drug coverage under a Medicare+Choice 
                plan).''.
    (b) Conforming Amendments to Federal Supplementary Medical 
Insurance Trust Fund.--Section 1841 (42 U.S.C. 1395t) is amended--
            (1) in the last sentence of subsection (a)--
                    (A) by striking ``and'' before ``such amounts''; 
                and
                    (B) by inserting before the period the following: 
                ``, and such amounts as may be deposited in, or 
                appropriated to, the Prescription Drug Account 
                established by section 1860D-26'';
            (2) in subsection (g), by inserting after ``by this part,'' 
        the following: ``the payments provided for under part D (in 
        which case the payments shall be made from the Prescription 
        Drug Account in the Trust Fund),'';
            (3) in subsection (h), by inserting after ``1840(d)'' the 
        following: ``and section 1860D-18 (in which case the payments 
        shall be made from the Prescription Drug Account in the Trust 
        Fund)''; and
            (4) in subsection (i), by inserting after ``section 
        1840(b)(1)'' the following: ``, section 1860D-18 (in which case 
        the payments shall be made from the Prescription Drug Account 
        in the Trust Fund),''.
    (c) Conforming References to Previous Part D.--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 F of 
such title (as in effect after such date).

SEC. 102. STUDY AND REPORT ON PERMITTING PART B ONLY INDIVIDUALS TO 
              ENROLL IN MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY 
              PROGRAM.

    (a) Study.--The Administrator of the Medicare Competitive Agency 
(as established under section 1860D-25 of the Social Security Act (as 
added by section 301(a))) shall conduct a study on the need for rules 
relating to permitting individuals who are enrolled under part B of 
title XVIII of the Social Security Act but are not entitled to benefits 
under part A of such title to buy into the medicare voluntary 
prescription drug delivery program under part D of such title (as so 
added).
    (b) Report.--Not later than January 1, 2004, the Administrator of 
the Medicare Competitive Agency shall submit a report to Congress on 
the study conducted under subsection (a), together with any 
recommendations for legislation that the Administrator determines to be 
appropriate as a result of such study.

SEC. 103. ADDITIONAL REQUIREMENTS FOR ANNUAL FINANCIAL REPORT AND 
              OVERSIGHT ON MEDICARE PROGRAM.

    (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended by 
adding at the end the following new subsection:
    ``(l) Combined Report on Operation and Status of the Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund (Including the 
Prescription Drug Account).--In addition to the duty of the Board of 
Trustees to report to Congress under subsection (b), on the date the 
Board submits the report required under subsection (b)(2), the Board 
shall submit to Congress a report on the operation and status of the 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
established under section 1841, including the Prescription Drug Account 
within such Trust Fund, (in this subsection referred to as the `Trust 
Funds'). Such report shall include the following information:
            ``(1) Overall spending from the general fund of the 
        treasury.--A statement of total amounts obligated during the 
        preceding fiscal year from the General Revenues of the Treasury 
        to the Trust Funds, separately stated in terms of the total 
        amount and in terms of the percentage such amount bears to all 
        other amounts obligated from such General Revenues during such 
        fiscal year, for each of the following amounts:
                    ``(A) Medicare benefits.--The amount expended for 
                payment of benefits covered under this title.
                    ``(B) Administrative and other expenses.--The 
                amount expended for payments not related to the 
                benefits described in subparagraph (A).
            ``(2) Historical overview of spending.--From the date of 
        the inception of the program of insurance under this title 
        through the fiscal year involved, a statement of the total 
        amounts referred to in paragraph (1), separately stated for the 
        amounts described in subparagraphs (A) and (B) of such 
        paragraph.
            ``(3) 10-year and 50-year projections.--An estimate of 
        total amounts referred to in paragraph (1), separately stated 
        for the amounts described in subparagraphs (A) and (B) of such 
        paragraph, required to be obligated for payment for benefits 
        covered under this title for each of the 10 fiscal years 
        succeeding the fiscal year involved and for the 50-year period 
        beginning with the succeeding fiscal year.
            ``(4) Relation to other measures of growth.--A comparison 
        of the rate of growth of the total amounts referred to in 
        paragraph (1), separately stated for the amounts described in 
        subparagraphs (A) and (B) of such paragraph, to the rate of 
        growth for the same period in--
                    ``(A) the gross domestic product;
                    ``(B) health insurance costs in the private sector;
                    ``(C) employment-based health insurance costs in 
                the public and private sectors; and
                    ``(D) other areas as determined appropriate by the 
                Board of Trustees.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to fiscal years beginning on or after the date of 
enactment of this Act.
    (c) Congressional Hearings.--It is the sense of Congress that the 
committees of jurisdiction of Congress shall hold hearings on the 
reports submitted under section 1817(l) of the Social Security Act (as 
added by subsection (a)).

SEC. 104. REFERENCE TO MEDIGAP PROVISIONS.

    For provisions related to medicare supplemental policies under 
section 1882 of the Social Security Act (42 U.S.C. 1395ss), see section 
202.

SEC. 105. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
            (1) Requirement.--Section 1902 (42 U.S.C. 1396a) is 
        amended--
                    (A) in subsection (a)--
                            (i) by striking ``and'' at the end of 
                        paragraph (64);
                            (ii) by striking the period at the end of 
                        paragraph (65) and inserting ``; and''; and
                            (iii) by inserting after paragraph (65) the 
                        following new paragraph:
            ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
            (2) New section.--Title XIX (42 U.S.C. 1396 et seq.) is 
        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 
        1860D-19;
            ``(2) inform the Administrator of the Medicare Competitive 
        Agency of such determinations in cases in which such 
        eligibility is established; and
            ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 1860D-19).
    ``(b) Payments for Additional Administrative Costs.--
            ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows:
                    ``(A) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable Federal 
                matching rate shall be increased by 20 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(B) For expenditures attributable to costs 
                incurred during 2006, the otherwise applicable Federal 
                matching rate shall be increased by 40 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(C) For expenditures attributable to costs 
                incurred during 2007, the otherwise applicable Federal 
                matching rate shall be increased by 60 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(D) For expenditures attributable to costs 
                incurred during 2008, the otherwise applicable Federal 
                matching rate shall be increased by 80 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(E) For expenditures attributable to costs 
                incurred after 2008, the otherwise applicable Federal 
                matching rate shall be increased to 100 percent.
            ``(2) Coordination.--The State shall provide the Secretary 
        with such information as may be necessary to properly allocate 
        administrative expenditures described in paragraph (1) that may 
        otherwise be made for similar eligibility determinations.''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
            (1) In general.--Section 1903(a)(1) (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 added 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 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) Standard prescription drug coverage under 
                medicare.--With respect 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)--
                            ``(i) the total amount of payments made (or 
                        not collected from the individuals) in the 
                        quarter under section 1860D-19 (relating to 
                        premium and cost-sharing prescription drug 
                        subsidies for low-income medicare 
                        beneficiaries) that are attributable to such 
                        individuals; and
                            ``(ii) the actuarial value of standard 
                        coverage (as determined under section 1860D-
                        6(f)) provided for all such individuals.
                    ``(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) 2006 is 80 percent;
                    ``(C) 2007 is 70 percent;
                    ``(D) 2008 is 60 percent; or
                    ``(E) a year after 2008 is 50 percent.''.
    (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as 
added by subsection (a)(2) and amended by subsection (b)(2), is 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 enrolled under part D of title XVIII and 
        entitled to 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 Medicare Prescription Drug plan or the 
        Medicare+Choice plan selected by the individual to receive part 
        D benefits.
            ``(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 
        enroll in part D, that the individual elect to enroll under 
        such part.''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1935, as added by subsection 
        (a)(2) and amended by subsections (b)(2) and (c), is 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 drugs (as defined in section 
                1860D(a)(2)) 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 the annual 
                        percentage increase specified in section 1860D-
                        6(c)(5) for the year involved.
            ``(4) Report.--The Secretary shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Secretary deems 
        appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (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 under a Medicare 
                                Prescription Drug plan under part D of 
                                title XVIII with respect to covered 
                                drugs, under a Medicare+Choice plan 
                                under part C of such title with respect 
                                to such drugs, or under a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860D-20(f)(1)) with 
                                respect to such drugs, on behalf of 
                                eligible beneficiaries (as defined in 
                                section 1860D(a)(3).''.

SEC. 106. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE PAYMENT 
              ADVISORY COMMISSION (MEDPAC).

    (a) Expansion of Membership.--
            (1) In general.--Section 1805(c) (42 U.S.C. 1395b-6(c)) is 
        amended--
                    (A) in paragraph (1), by striking ``17'' and 
                inserting ``19''; and
                    (B) in paragraph (2)(B), by inserting ``experts in 
                the area of pharmacology and prescription drug benefit 
                programs,'' after ``other health professionals,''.
            (2) Initial terms of additional members.--
                    (A) In general.--For purposes of staggering the 
                initial terms of members of the Medicare Payment 
                Advisory Commission under section 1805(c)(3) of the 
                Social Security Act (42 U.S.C. 1395b-6(c)(3)), the 
                initial terms of the 2 additional members of the 
                Commission provided for by the amendment under 
                paragraph (1)(A) are as follows:
                            (i) One member shall be appointed for 1 
                        year.
                            (ii) One member shall be appointed for 2 
                        years.
                    (B) Commencement of terms.--Such terms shall begin 
                on January 1, 2004.
    (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 1395b-
6(b)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Voluntary prescription drug delivery 
                program.--Specifically, the Commission shall review, 
                with respect to the voluntary prescription drug 
                delivery program under part D, competition among 
                eligible entities offering Medicare Prescription Drug 
                plans and beneficiary access to such plans and covered 
                drugs, particularly in rural areas.''.

SEC. 107. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

    (a) Administrator as Member of the Board of Trustees of the 
Medicare Trust Funds.--Sections 1817(b) and 1841(b) (42 U.S.C. 
1395i(b), 1395t(b)) are each 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 Administrator of the 
Medicare Competitive Agency, all ex officio,''.
    (b) Increase in Grade to Executive Level III for the Administrator 
of the Centers for Medicare & Medicaid Services.--
            (1) In general.--Section 5314 of title 5, United States 
        Code, is amended by adding at the end the following:
            ``Administrator of the Centers for Medicare & Medicaid 
        Services.''.
            (2) Conforming amendment.--Section 5315 of such title is 
        amended by striking ``Administrator of the Health Care 
        Financing Administration.''.
            (3) Effective date.--The amendments made by this subsection 
        take effect on March 1, 2003.

            TITLE II--OPTION FOR ENHANCED MEDICARE BENEFITS

SEC. 201. OPTION FOR ENHANCED MEDICARE BENEFITS.

    (a) Establishment.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 101, is amended by inserting after part D the 
following new part:

                  ``Part E--Enhanced Medicare Benefits

      ``entitlement to elect to receive enhanced medicare benefits

    ``Sec. 1860E-1. (a) In General.--The Secretary shall establish 
procedures under which each eligible beneficiary shall be entitled to 
elect to receive enhanced medicare benefits under this part instead of 
the benefits under parts A and B.
    ``(b) Enhanced Medicare Benefits To Be Available in 2005.--The 
Secretary shall establish the procedures under subsection (a) in a 
manner such that enhanced medicare benefits are first provided for 
months beginning with January 2005.
    ``(c) Preservation of Original Medicare Fee-For-Service Benefits.--
Nothing in this part shall be construed to limit the right of an 
individual who is entitled to benefits under part A or enrolled under 
part B to receive benefits under such part if an election to receive 
enhanced medicare benefits under this part is not in effect with 
respect to such individual.

                 ``scope of enhanced medicare benefits

    ``Sec. 1860E-2. (a) In General.--Except for the modifications 
described in the succeeding provisions of this section, enhanced 
medicare benefits shall be identical to the benefits that are available 
under parts A and B.
    ``(b) Unified Deductible.--
            ``(1) In general.--In the case of an eligible beneficiary 
        who has elected to receive enhanced medicare benefits under 
        this part--
                    ``(A) the amount otherwise payable under part A and 
                the total amount of expenses incurred by an eligible 
                beneficiary during a year which would (except for this 
                section) constitute incurred expenses from which 
                benefits payable under section 1833(a) are 
                determinable, shall be reduced under sections 1813(b) 
                and 1833(b) by the amount of the unified deductible 
                under paragraph (2); and
                    ``(B) the eligible beneficiary shall be responsible 
                for the payment of such amount.
            ``(2) Amount of unified deductible.--
                    ``(A) In general.--The amount of the unified 
                deductible under this subsection shall be--
                            ``(i) for 2005, $300; or
                            ``(ii) for a subsequent year, the amount 
                        specified in this subparagraph for the 
                        preceding year increased by the percentage 
                        increase in the per capita actuarial value of 
                        benefits under parts A and B for such 
                        subsequent year.
                    ``(B) Rounding.--If any amount determined under 
                subparagraph (A) is not a multiple of $1, such amount 
                shall be rounded to the nearest multiple of $1.
            ``(3) Application.--The unified deductible under this 
        subsection for a year shall be applied--
                    ``(A) with respect to benefits under part A, on the 
                basis of the amount that is payable for such benefits 
                without regard to any other copayments or coinsurance 
                and before the application of any such copayments or 
                coinsurance;
                    ``(B) with respect to benefits under part B, on the 
                basis of the total amount of the expenses incurred by 
                an eligible beneficiary during a year which would, 
                except for the application of the deductible, 
                constitute incurred expenses from which benefits 
                payable under section 1833(a) are determinable, without 
                regard to any other copayments or coinsurance and 
                before the application of any such copayments or 
                coinsurance; and
                    ``(C) instead of the deductibles described in 
                sections 1813(b) and 1833(b).
    ``(c) Serious Illness Protection.--
            ``(1) In general.--In the case of an eligible beneficiary 
        who has elected to receive enhanced medicare benefits under 
        this part, if the amount of the out-of-pocket cost-sharing of 
        such beneficiary for a calendar year equals or exceeds the 
        serious illness protection threshold for that year--
                    ``(A) the beneficiary shall not be responsible for 
                additional out-of-pocket cost-sharing incurred during 
                that year; and
                    ``(B) the Secretary shall establish procedures 
                under which the Secretary shall pay on behalf of the 
                beneficiary the amount of the additional out-of-pocket 
                cost-sharing described in subparagraph (A) from the 
                Federal Hospital Insurance Trust Fund and the Federal 
                Supplementary Medical Insurance Trust Fund, in such 
                proportion as the Secretary determines appropriate.
            ``(2) Serious illness protection threshold.--
                    ``(A) In general.--The amount of the serious 
                illness protection threshold under this subsection 
                shall be--
                            ``(i) for 2005, $6,000; or
                            ``(ii) for a subsequent year, the amount 
                        specified in this subparagraph for the 
                        preceding year increased by the percentage 
                        increase in the per capita actuarial value of 
                        benefits under parts A and B for such 
                        subsequent year.
                    ``(B) Rounding.--If any amount determined under 
                subparagraph (A) is not a multiple of $1, such amount 
                shall be rounded to the nearest multiple of $1.
            ``(3) Out-of-pocket cost-sharing defined.--In this 
        subsection, the term `out-of-pocket cost-sharing' means, with 
        respect to an eligible beneficiary, the amount of costs 
        incurred by the beneficiary that are attributable to 
        deductibles, coinsurance, and copayments imposed under part A 
        or B (as modified by this part), without regard to whether the 
        beneficiary or another person, including a State program or 
        other third-party coverage, has paid for such costs.
    ``(d) Enhanced Hospital Benefits.--
            ``(1) Elimination of durational limits on inpatient 
        hospital services.--In the case of an eligible beneficiary who 
        has elected to receive enhanced medicare benefits under this 
        part--
                    ``(A) there shall be no spell of illness limit or 
                lifetime limit on inpatient hospital services under 
                subsections (a)(1) and (b)(1) of section 1812 during 
                the period in which the election of the beneficiary to 
                receive enhanced medicare benefits under this part is 
                in effect; and
                    ``(B) section 1812(c) shall not be applied during 
                such period.
            ``(2) Revision of inpatient hospital coinsurance.--
                    ``(A) In general.--In the case of an eligible 
                beneficiary who has elected to receive enhanced 
                medicare benefits under this part, after the 
                application of the unified deductible under subsection 
                (b), instead of imposing any coinsurance under the 
                second sentence of section 1813(a)(1), the amount 
                payable under part A for inpatient hospital services or 
                inpatient critical access hospital services furnished 
                to the eligible beneficiary during any year, shall be 
                reduced by the amount of the inpatient hospital 
                copayment specified in subparagraph (B) for each period 
                of hospitalization and the beneficiary shall be 
                responsible for payment of such amount for each such 
                period.
                    ``(B) Amount of inpatient hospital copayment.--
                            ``(i) In general.--The amount of the 
                        inpatient hospital copayment under this 
                        paragraph shall be--
                                    ``(I) for 2005, $400; or
                                    ``(II) for a subsequent year, the 
                                amount specified in this clause for the 
                                preceding year increased by the 
                                percentage increase in the per capita 
                                actuarial value of benefits under parts 
                                A and B for such subsequent year.
                            ``(ii) Rounding.--If any amount determined 
                        under clause (i) is not a multiple of $1, such 
                        amount shall be rounded to the nearest multiple 
                        of $1.
                    ``(C) Period of hospitalization defined.--In this 
                subsection, the term `period of hospitalization' means 
                the period that begins on the date that the eligible 
                beneficiary is admitted to the hospital and ends on the 
                date on which the beneficiary has not been hospitalized 
                for a 72-hour period.
                    ``(D) Collection of copayments.--For purposes of 
                section 1866(a)(2)(A), hospitals shall substitute the 
                imposition of the inpatient hospital copayment under 
                this paragraph for the hospital coinsurance described 
                in the second sentence of section 1813(a)(1).
    ``(e) Elimination of Cost-Sharing for Preventive Health Care Items 
and Services.--
            ``(1) In general.--In the case of an eligible beneficiary 
        who has elected to receive enhanced medicare benefits under 
        this part, the unified deductible under subsection (b) and 
        deductibles and the coinsurance otherwise applicable under 
        subsections (a) and (b) of section 1833 shall not be applied 
        with respect to expenses incurred for any preventive health 
        care items and services (and no charges may be imposed under 
        section 1866(a)(2) where such deductibles and coinsurance are 
        not imposed).
            ``(2) Preventive health care items and services defined.--
        In this subsection, the term `preventive health care items and 
        services' means any of the following health care items and 
        services:
                    ``(A) Screening mammography under section 
                1861(s)(13).
                    ``(B) Screening pap smear and screening pelvic 
                examinations under section 1861(s)(14).
                    ``(C) Bone mass measurement under section 
                1861(s)(15).
                    ``(D) Prostate cancer screening tests under section 
                1861(s)(2)(P).
                    ``(E) Colorectal cancer screening under section 
                1861(s)(2)(R).
                    ``(F) Blood testing strips, lancets, and blood 
                glucose monitors for individuals with diabetes under 
                section 1861(n).
                    ``(G) Diabetes outpatient self-management training 
                services under section 1861(s)(2)(S).
                    ``(H) Pneumococcal, influenza, and hepatitis B 
                vaccines and administration under section 1861(s)(10).
                    ``(I) Screening for glaucoma under section 
                1861(s)(2)(U).
                    ``(J) Medical nutrition therapy services under 
                section 1861(s)(2)(V).
    ``(f) Simplification of Cost-Sharing.--In the case of an eligible 
beneficiary who has elected to receive enhanced medicare benefits under 
this part, the following cost-sharing rules shall apply:
            ``(1) Modification of skilled nursing facility cost-
        sharing.--Instead of the coinsurance established under section 
        1813(b) for extended care services, under section 1888(e)--
                    ``(A) the payment amount under paragraph (1)(B) of 
                such section shall be equal to the amount otherwise 
                provided minus the amount described in subparagraph 
                (B); and
                    ``(B) the eligible beneficiary shall be responsible 
                for a copayment amount for each of the 100 days of care 
                for which payment is made on behalf of an eligible 
                beneficiary under that section equal to--
                            ``(i) for 2005, $60; and
                            ``(ii) for a subsequent year, the amount 
                        specified in this subparagraph for the 
                        preceding year increased by the percentage 
                        increase in the per capita actuarial value of 
                        benefits under parts A and B for such 
                        subsequent year.
                If any amount determined under this subparagraph is not 
                a multiple of $1, such amount shall be rounded to the 
                nearest multiple of $1.
            ``(2) Application of home health service coinsurance.--
                    ``(A) In general.--The amount of the payment 
                otherwise made under section 1895 for home health 
                services (other than such services for which payment is 
                made under section 1834(a)) shall be reduced by the 
                amount described in clause (ii).
                    ``(B) Copayment amount.--
                            ``(i) In general.--Subject to clause (ii), 
                        the eligible beneficiary shall be responsible 
                        for a copayment amount for each of the first 5 
                        visits during an episode of care for which 
                        payment is made on behalf of an eligible 
                        beneficiary under section 1895 equal to--
                                    ``(I) for 2005, $10; and
                                    ``(II) for a subsequent year, the 
                                amount specified in this clause for the 
                                preceding year increased by the 
                                percentage increase in the per capita 
                                actuarial value of benefits under parts 
                                A and B for such subsequent year.
                        If any amount determined under this clause is 
                        not a multiple of $1, such amount shall be 
                        rounded to the nearest multiple of $1.
                            ``(ii) Annual limit.--For each year in 
                        which an election to receive enhanced medicare 
                        benefits under this part is in effect, the 
                        eligible beneficiary shall not be responsible 
                        for the payment of any copayment amount under 
                        this subparagraph after the date on which the 
                        amount of payments made as a result of the 
                        application of this paragraph equals $300.
            ``(3) Blood deductible.--The Secretary shall not apply the 
        deductible under sections 1813(a)(2) and 1833(b) for blood or 
        blood cells furnished to an eligible beneficiary during the 
        period in which an election of the beneficiary to receive 
        enhanced medicare benefits under this part is in effect.

                         ``payment of benefits

    ``Sec. 1860E-3. Payment for enhanced medicare benefits on behalf of 
an eligible beneficiary who has elected to receive such benefits under 
this part shall be made in the same manner as payment for such benefits 
would have been made under parts A and B, subject to the modifications 
described in section 1860E-2, from the Federal Hospital Insurance Trust 
Fund and the Federal Supplementary Medical Insurance Trust Fund, in 
such proportion as the Secretary determines appropriate.

   ``eligible beneficiaries; election of enhanced medicare benefits; 
                        termination of election

    ``Sec. 1860E-4. (a) Eligible Beneficiary Defined.--For purposes of 
this part, the term `eligible beneficiary' has the meaning given that 
term in section 1860D(a)(3).
    ``(b) Election of Enhanced Medicare Benefits.--
            ``(1) Election by individuals who become eligible 
        beneficiaries after january 1, 2005.--
                    ``(A) Initial election.--Any individual whose 
                initial election period begins after September 30, 
                2004, shall be deemed to have elected to receive 
                enhanced medicare benefits under this part as of the 
                date on which such individual first becomes entitled to 
                benefits under part A or eligible to enroll for 
                benefits under part B, whichever is later, unless that 
                individual affirmatively elects (in such form and 
                manner as the Secretary may specify) to receive 
                benefits under parts A and B.
                    ``(B) Initial election period.--For purposes of 
                this paragraph, the term `initial election period' 
                means, with respect to an individual, the period that 
                begins on the first day of the third month before the 
                month in which such individual first becomes entitled 
                to benefits under part A or eligible to enroll for 
                benefits under part B, whichever is later, and ends 7 
                months later.
                    ``(C) Effect of election.--If an individual makes 
                an election under subparagraph (A) and such individual 
                is not entitled to benefits under part A or enrolled 
                for benefits under part B at the time of such election, 
                such individual shall be deemed--
                            ``(i) to have elected to enroll for 
                        benefits under such part under section 1818 or 
                        1837 (as appropriate) if such individual 
is eligible to enroll for benefits under such section, as of the date 
of such election; or
                            ``(ii) if such individual is not eligible 
                        to enroll for benefits under section 1818 or 
                        1837, to have elected to enroll under part B as 
                        of the first date on which the individual is 
                        eligible to enroll under such part.
            ``(2) Special election periods.--The Secretary shall 
        establish special election periods for individuals under this 
        part who have elected not to make an election (or to be deemed 
        to have made such an election) under this part that are similar 
        to the special enrollment periods under section 1837(i) for 
        individuals described in such section.
            ``(3) Transitional election for individuals who become 
        eligible beneficiaries on or before january 1, 2005.--
                    ``(A) In general.--In the case of an individual who 
                is an eligible beneficiary as of January 1, 2005, the 
                Secretary shall establish procedures under which such 
                beneficiary may affirmatively elect to receive enhanced 
                medicare benefits under this part during the 7-month 
                period that begins on April 1, 2004, and ends on 
                November 30, 2004, for such election to take effect on 
                January 1, 2005.
                    ``(B) Effect of medicare+choice enrollment.--If an 
                eligible beneficiary enrolls in a Medicare+Choice plan 
                under part C during November 2004, such individual 
                shall be deemed to have elected to receive enhanced 
                medicare benefits under subparagraph (A).
            ``(4) Changes in election.--
                    ``(A) In general.--An individual who has elected 
                (or is deemed to have elected) to receive enhanced 
                medicare benefits under this part under paragraph (1), 
                (2), or (3) may change such election during an annual, 
                coordinated election period and such election shall 
                take effect on January 1 of the subsequent year. In no 
                case shall such a change of election take effect on a 
                date other than on January 1 of a year (unless the 
                election is automatic pursuant to a termination 
                resulting from a loss or termination of coverage under 
                part A or part B).
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 2005), the month of November preceding 
                such year.
            ``(5) Procedures.--The Secretary shall establish procedures 
        for the termination and reinstatement of an election under this 
        section.
    ``(c) Coverage Terminated by Termination of Coverage Under Part A 
or B.--
            ``(1) In general.--The Secretary shall terminate an 
        individual's coverage under this part if the individual is no 
        longer enrolled in both parts A and B.
            ``(2) Effective date.--The termination described in 
        subparagraph (A) shall be effective on the effective date of 
        termination of coverage under part A or (if earlier) under part 
        B.

              ``premium adjustments; late election penalty

    ``Sec. 1860E-5. (a) General Rule of No Change in Amount of 
Premiums.--Except as provided in this section, an election to receive 
enhanced medicare benefits under this part shall not affect the amount 
of any premium charged under part A or B.
    ``(b) Late Election Penalty.--
            ``(1) In general.--In the case of an eligible beneficiary 
        who does not elect to receive enhanced medicare benefits under 
        this part during an election period described in paragraph (1), 
        (2), or (3) of section 1860E-4(b) of that beneficiary, 
        reinstates such an election under the procedures established 
        under paragraph (5) of such section, or otherwise does not have 
        such an election continuously in effect from the first date on 
        which such election could be in effect, the premium otherwise 
        imposed under part B (taking into account any late enrollment 
        penalty under section 1839(b)) shall be increased during the 
        period in which such individual has an election to receive 
        enhanced medicare benefits under this part in effect by an 
        amount that the Secretary determines is actuarially sound 
        (based on the financial impact on the program under this part 
        of the late election of the beneficiary or of the reinstatement 
        of an election of the beneficiary) for each full 12-month 
        period (in the same continuous period of eligibility) in which 
        the eligible beneficiary could have elected to receive enhanced 
        medicare benefits under this part but did not elect to receive 
        such benefits.
            ``(2) Procedures.--In applying the late election penalty 
        under paragraph (1), the Secretary shall establish procedures 
        for applying the penalty under this subsection that are similar 
        to the procedures for applying the late enrollment penalty 
        under section 1839(b).
    ``(c) Late Reversal of Election Penalty.--
            ``(1) In general.--In the case of an eligible beneficiary 
        who has elected to receive enhanced medicare benefits under 
        this part and terminates such election under the procedures 
        established under section 1860E-4(b)(5) on a date that is more 
        than 1 year after the date on which such beneficiary first 
        elected to receive enhanced medicare benefits under this part, 
        the premium otherwise imposed under part B (taking into account 
        any late enrollment penalty under section 1839(b)) shall be 
        increased during the period in which such individual is 
        enrolled under such part by an amount that the Secretary 
        determines is actuarially sound based on the financial impact 
        on the program under this part of the reversal of the election 
        of the beneficiary.
            ``(2) Procedures.--In applying the late reversal of 
        election penalty under paragraph (1), the Secretary shall 
        establish procedures for applying the penalty under this 
        subsection that are similar to the procedures for applying the 
        late enrollment penalty under section 1839(b).''.
    (b) Providing Information to Beneficiaries.--During 2004, the 
Secretary shall provide for an extensive, national educational and 
publicity campaign to inform eligible beneficiaries (and prospective 
eligible beneficiaries) regarding the enhanced medicare benefits to be 
made available under part E of title XVIII of the Social Security Act 
(as added by subsection (a)).
    (c) Conforming Adjustments to Part A and B Premiums.--
            (1) Effect of part e on part a premium.--Section 1818(d)(1) 
        (42 U.S.C. 1395i-2(d)(1)) is amended by adding at the end the 
        following new sentence: ``In making the estimate under the 
        previous sentence, the Secretary shall take into account the 
        effect of elections to receive enhanced medicare benefits under 
        part E on the amounts paid from such Trust Fund.''.
            (2) Effect of part e on part b premium.--Section 1839(a) 
        (42 U.S.C. 1395r(a)) is amended--
                    (A) in paragraph (1)--
                            (i) by inserting ``(including eligible 
                        beneficiaries who elect to receive enhanced 
                        medicare benefits under part E)'' after ``age 
                        65 and over''; and
                            (ii) by inserting ``(including eligible 
                        beneficiaries who elect to receive enhanced 
                        medicare benefits under part E)'' after ``age 
                        65 and older'';
                    (B) in paragraph (2), by inserting ``, as adjusted 
                under section 1860E-5'' before the period at the end;
                    (C) in paragraph (3)--
                            (i) by inserting ``(including eligible 
                        beneficiaries who elect to receive enhanced 
                        medicare benefits under part E)'' after ``age 
                        65 and over''; and
                            (ii) by inserting ``(including eligible 
                        beneficiaries who elect to receive enhanced 
                        medicare benefits under part E)'' after ``age 
                        65 and older''; and
                    (D) in paragraph (4)--
                            (i) in the first sentence, by inserting 
                        ``(including eligible beneficiaries who elect 
                        to receive enhanced medicare benefits under 
                        part E)'' after ``under age 65''; and
                            (ii) in the second sentence, by striking 
                        ``under age 65 which'' and inserting ``under 
                        age 65 (including eligible beneficiaries who 
                        elect to receive enhanced medicare benefits 
                        under part E)''.
    (d) Clarification of Application of Exclusions From Coverage to 
Part E.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended in the matter 
preceding paragraph (1) by inserting ``(including for enhanced medicare 
benefits under part E)'' after ``for items or services''.

SEC. 202. RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE PRESCRIPTION 
              DRUG COVERAGE; ESTABLISHMENT OF ENHANCED MEDICARE FEE-
              FOR-SERVICE MEDIGAP POLICIES.

    (a) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--Section 1882 (42 U.S.C. 1395ss) is amended by adding at 
the end the following new subsection:
    ``(v) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
            ``(1) Prohibition on sale, issuance, and renewal of 
        policies that provide prescription drug coverage to part d 
        enrollees.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, on or after January 1, 2005, no 
                medicare supplemental policy that provides coverage of 
                expenses for prescription drugs may be sold, issued, or 
                renewed under this section to an individual who is 
                enrolled under part D.
                    ``(B) Penalties.--The penalties described in 
                subsection (d)(3)(A)(ii) shall apply with respect to a 
                violation of subparagraph (A).
            ``(2) Issuance of substitute policies if the policyholder 
        obtains 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' 
                        (including the benefit package classified as 
                        `F' with a high deductible feature, as 
                        described in subsection (p)(11)), 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 during the 
                open enrollment period established under section 1860D-
                2(b)(2) and who submits evidence that they meet the 
                requirements under subparagraph (B) along with the 
                application for such medicare supplemental policy.
                    ``(B) Individual described.--An individual 
                described in this subparagraph is an individual who--
                            ``(i) enrolls in the medicare prescription 
                        drug delivery program 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' 
                        (including the benefit package classified as 
                        `J' with a high deductible feature, as 
                        described in section 1882(p)(11)) 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 subparagraph 
                (A) shall be enforced as though they were included in 
                subsection (s).
            ``(3) Notice required to be provided to current 
        policyholders with prescription drug coverage.--
                    ``(A) In general.--No medicare supplemental policy 
                of an issuer shall be deemed to meet the standards in 
                subsection (c) unless the issuer provides written 
                notice during the 60-day period immediately preceding 
                the period established for the open enrollment period 
                established under section 1860D-2(b)(2), to each 
                individual who is a policyholder or certificate holder 
                of a medicare supplemental policy issued by that issuer 
                that provides some coverage of expenses for 
                prescription drugs (at the most recent available 
                address of that individual) of--
                            ``(i) the ability to enroll in a new 
                        medicare supplemental policy pursuant to 
                        paragraph (2); and
                            ``(ii) the fact that, so long as such 
                        individual retains coverage under such policy, 
                        the individual shall be ineligible for coverage 
                        of prescription drugs under part D and 
ineligible to elect to receive enhanced medicare benefits under part E.
                    ``(B) Coordination.--The notice provided under 
                subparagraph (A) shall be coordinated with the notice 
                required under subsection (v)(4)(A)(i).
            ``(4) Clarification regarding one-time availability of a 
        guaranteed issue policy for beneficiaries who lose coverage 
        under a medicare+choice plan of january 1, 2005, because they 
        elect not to receive enhanced part e benefits.--In the case of 
        a beneficiary who is enrolled in a Medicare+Choice plan as of 
        December 31, 2004, will not be eligible to be enrolled under 
        such plan as of January 1, 2005, because the beneficiary has 
        elected not to receive enhanced medicare benefits under part 
        E--
                    ``(A) such beneficiary shall be deemed to be 
                described in subsection (s)(3)(B)(ii); and
                    ``(B) for purposes of (s)(3)(E)(ii), the date of 
                the termination of coverage shall be January 1, 
                2005.''.
    (b) Establishment of Enhanced Medicare Fee-For-Service Medigap 
Policies.--Section 1882 (42 U.S.C. 1395ss), as amended by subsection 
(a), is amended by adding at the end the following new subsection:
    ``(w) Enhanced Medicare Fee-For-Service Supplemental Policies.--
            ``(1) Additional benefit packages.--
                    ``(A) Establishment.--
                            ``(i) In general.--In addition to the 
                        benefit packages classified under the standards 
                        established by subsection (p)(2), there shall 
                        be established benefit packages that may only 
                        be purchased by beneficiaries who have elected 
                        to receive enhanced medicare benefits under 
                        part E that--
                                    ``(I) complement but do not 
                                duplicate enhanced medicare benefits 
                                described in section 1860E-2;
                                    ``(II) do not provide for coverage 
                                of the unified deductible under section 
                                1860E-2(b);
                                    ``(III) subject to clause (ii), do 
                                not provide coverage for more than 50 
                                percent of the amount of coinsurance 
                                and copayments applicable under section 
                                1860E-2;
                                    ``(IV) do not provide for coverage 
                                of expenses for prescription drugs;
                                    ``(V) provide a range of coverage 
                                options for beneficiaries; and
                                    ``(VI) use uniform language, 
                                definitions, and format with respect to 
                                the coverage provided under a policy.
                            ``(ii) One package required to cover all 
                        cost-sharing.--
                                    ``(I) In general.--One of the 
                                benefit packages established under 
                                clause (i) shall include coverage of 
                                all coinsurance and copayments 
                                applicable under section 1860E-2.
                                    ``(II) Availability limited to 
                                beneficiaries that enrolled in part e 
                                during certain periods.--The benefit 
                                package that includes the coverage 
                                described in subclause (II) shall only 
                                be made available to beneficiaries who 
                                elect to receive enhanced medicare 
                                benefits under part E during the 
                                beneficiary's initial election period 
                                (as defined in paragraph (1)(B) of 
                                section 1860D-4(b)), during a special 
                                election period described in paragraph 
                                (2) of such section, or during the 
                                transitional election period under 
                                paragraph (3) of such section.
                    ``(B) Manner of establishment.--The benefit 
                packages established under this section shall be 
                established in the manner described in subparagraph (E) 
                of subsection (p)(1), except that for purposes of 
                subparagraph (C) of such subsection, the standards 
                established under this subsection shall take effect not 
                later than January 1, 2005.
            ``(2) Construction of benefits in other medicare 
        supplemental policies.--Nothing in this subsection shall be 
        construed to affect the benefit packages classified as `A' 
        through `J' under the standards established by subsection 
        (p)(2) (including the benefit packages classified as `F' and 
        `J' with a high deductible feature, as described in subsection 
        (p)(11)).
            ``(3) Guaranteed issuance and renewal of enhanced medicare 
        fee-for-service supplemental policies.--The provisions of 
        subsections (q) and (s), including provisions of subsection 
        (s)(3) (relating to special enrollment periods in cases of 
        termination or disenrollment), shall apply to medicare 
        supplemental policies established under this subsection in a 
        similar manner as such provisions apply to medicare 
        supplemental policies issued under the standards established 
        under subsection (p).
            ``(4) Opportunity of current policyholders to purchase 
        enhanced medicare fee-for-service supplemental policies.--
                    ``(A) Requirements for issuers of policies with 
                respect to current policyholders.--No medicare 
                supplemental policy of an issuer with a benefit package 
                that is established under paragraph (1) shall be deemed 
                to meet the standards in subsection (c) unless the 
                issuer does all of the following:
                            ``(i) Notice to current policyholders.--
                        Provide written notice during the 60-day period 
                        immediately preceding the period established 
                        under section 1860E-4(b)(1), to each individual 
                        who is a policyholder or certificate holder of 
                        a medicare supplemental policy issued by that 
                        issuer (at the most recent available address of 
                        that individual) of the offer described in 
                        clause (ii) and of the fact that, so long as 
                        such individual retains coverage under such 
                        policy, the individual shall be ineligible to 
                        elect enhanced medicare benefits under part E.
                            ``(ii) Offer for current policyholders.--
                        Offer the policyholder or certificate holder 
                        under the terms described in subparagraph (C), 
                        during at least the period established under 
                        section 1860E-4(b)(1), a medicare supplemental 
                        policy established under paragraph (1) with the 
                        benefit package that the Secretary determines 
                        is most comparable to the policy in which the 
                        individual is enrolled with coverage effective 
                        as of the effective date of the election of the 
                        individual under part E.
                            ``(iii) Offer for individuals covered under 
                        policies issued by other issuers if that issuer 
                        is not going to offer enhanced medicare fee-
                        for-service supplemental policies.--Offer an 
                        individual described in subparagraph (B), under 
                        the terms described in subparagraph (C), and 
                        during at least the period established under 
section 1860E-4(b)(1), a medicare supplemental policy established under 
paragraph (1) with the benefit package that the Secretary determines is 
most comparable to the policy in which the individual is enrolled with 
coverage effective as of the effective date of the election of the 
individual under part E.
                The notice provided under clause (i) shall be 
                coordinated with the notice required under subsection 
                (v)(3)(A).
                    ``(B) Individual described.--An individual 
                described in this subparagraph is an individual who is 
                a policyholder or certificate holder of a medicare 
                supplemental policy issued by an issuer who is not 
                going to offer a policy with a benefit package 
                established under paragraph (1).
                    ``(C) Terms of offer described.--The terms 
                described in this subparagraph are terms which do not--
                            ``(i) deny or condition the issuance or 
                        effectiveness of a medicare supplemental policy 
                        described in subparagraph (A)(ii) that is 
                        offered and is available for issuance to new 
                        enrollees by such issuer;
                            ``(ii) discriminate in the pricing of such 
                        policy because of health status, claims 
                        experience, receipt of health care, or medical 
                        condition; or
                            ``(iii) impose an exclusion of benefits 
                        based on a preexisting condition under such 
                        policy.
            ``(5) Prohibition of sale of enhanced policies to original 
        medicare fee-for-service enrollees; prohibition of sale of 
        original policies to enhanced medicare fee-for-service 
        enrollees.--
                    ``(A) Prohibition.--No person may sell, issue, or 
                renew a medicare supplemental policy with--
                            ``(i) a benefit package established under 
                        this subsection to an individual who has not 
                        elected to receive enhanced medicare benefits 
                        under part E; or
                            ``(ii) a benefit package classified as `A' 
                        through `J' under the standards established by 
                        subsection (p)(2) (including the benefit 
                        packages classified as `F' and `J' with a high 
                        deductible feature, as described in subsection 
                        (p)(11)) to an individual who has elected to 
                        receive enhanced medicare benefits under part 
                        E.
                    ``(B) Penalty.--Any person who violates the 
                provisions of subparagraph (A) shall be subject to a 
                civil money penalty in an amount that does not exceed 
                $25,000 (or $15,000 in the case of a seller who is not 
                an issuer of a policy) for each such violation. The 
                provisions of section 1128A (other than the first 
                sentence of subsection (a) and other than subsection 
                (b)) shall apply to a civil money penalty under the 
                previous sentence in the same manner as such provisions 
                apply to a penalty or proceeding under section 
                1128A(a).
            ``(6) Other prohibitions and penalties.--Each penalty under 
        this section shall apply with respect to policies established 
        under this subsection as if such policies were issued under the 
        standards established under subsection (p), including the 
        penalties under subsections (a), (d), (p)(8), (p)(9), (q)(5), 
        (r)(6)(A), (s)(4), and (t)(2)(D).''.

                 TITLE III--MEDICARE+CHOICE COMPETITION

SEC. 301. ANNUAL CALCULATION OF BENCHMARK AMOUNTS BASED ON FLOOR RATES 
              AND LOCAL FEE-FOR-SERVICE RATES.

    (a) Annual Calculation of Benchmark Amounts Based on Floor Rates 
and Local Fee-For-Service Rates.--Section 1853(a) (42 U.S.C. 1395w-
23(a)) is amended by adding at the end the following new paragraph:
            ``(4) Annual calculation of benchmark amounts.--For each 
        year, the Secretary shall calculate a benchmark amount for each 
        Medicare+Choice payment area for each month for such year with 
        respect to coverage of enhanced medicare benefits under part E 
        equal to the greatest of the following amounts:
                    ``(A) Minimum amount.--\1/12\ of the annual 
                Medicare+Choice capitation rate determined under 
                subsection (c)(1)(B) for the payment area for the year; 
                or
                    ``(B) Local fee-for-service rate.--The local fee-
                for-service rate for such area for the year (as 
                calculated under paragraph (5)).''.
    (b) Annual Calculation of Local Fee-For-Service Rates.--Section 
1853(a) (42 U.S.C. 1395w-23(a)), as amended by subsection (a), is 
amended by adding at the end the following new paragraph:
            ``(5) Annual calculation of local fee-for-service rates.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), the term `local fee-for-service rate' means the 
                amount of payment for a month in a Medicare+Choice 
                payment area for benefits under this title and 
                associated claims processing costs for an individual 
                who has elected to receive enhanced medicare benefits 
                under part E (but, if the Medicare+Choice plan offers 
                prescription drug coverage, excluding any costs 
                associated with part D), and not enrolled in a 
                Medicare+Choice plan under this part. The Secretary 
                shall annually calculate such amount in a manner 
                similar to the manner in which the Secretary calculated 
                the adjusted average per capita cost under section 
                1876, except that such calculation shall include in 
                such amount, to the extent practicable, any amounts 
                that would have been paid under this title if 
                individuals entitled to benefits under this title had 
                not received services from facilities of the Department 
of Veterans Affairs or the Department of Defense.
                    ``(B) Removal of medical education costs from 
                calculation of local fee-for-service rate.--
                            ``(i) In general.--In calculating the local 
                        fee-for-service rate under subparagraph (A) for 
                        a year, the amount of payment described in such 
                        subparagraph shall be adjusted to exclude from 
                        such payment the payment adjustments described 
                        in clause (ii).
                            ``(ii) Payment adjustments described.--
                                    ``(I) In general.--Subject to 
                                subclause (II), the payment adjustments 
                                described in this subparagraph are 
                                payment adjustments that the Secretary 
                                estimates were payable during each 
                                month for direct graduate medical 
                                education costs under section 1886(h).
                                    ``(II) Treatment of payments 
                                covered under state hospital 
                                reimbursement system.--To the extent 
                                that the Secretary estimates that the 
                                amount of the local fee-for-service 
                                rates reflects payments to hospitals 
                                reimbursed under section 1814(b)(3), 
                                the Secretary shall estimate a payment 
                                adjustment that is comparable to the 
                                payment adjustment that would have been 
                                made under clause (i) if the hospitals 
                                had not been reimbursed under such 
                                section.
                    ``(C) Special rule for rural areas.--
                            ``(i) In general.--Subject to clause (ii), 
                        in calculating the local fee-for-service rates 
                        under subparagraph (A) for a year, the 
                        Secretary shall calculate such costs for rural 
                        areas (as defined in section 1886(d)(2)(D)) of 
                        a State as if each rural area were part of a 
                        single Medicare+Choice payment area.
                            ``(ii) Limitation.--Payment amounts 
                        determined under subparagraph (A) may not be 
                        less than the amounts that would have been paid 
                        if clause (i) did not apply.''.
    (c) CPI Increases in Floor Payment Rates.--Section 1853(c)(1)(B) 
(42 U.S.C. 1395w-23(c)(1)(B)) is amended--
            (1) in clause (iv), by striking ``and each succeeding 
        year,'' and inserting ``, 2003, and 2004,''; and
            (2) by adding at the end the following new clause:
                            ``(v) For 2005 and each succeeding year, 
                        the minimum amount specified in this clause (or 
                        clause (iv)) for the preceding year increased 
                        by the percentage increase in the Consumer 
                        Price Index for all urban consumers (U.S. urban 
                        average) for the 12-month period ending with 
                        June of the previous year.''.
    (d) Furnishing of Claims Data by VA and DoD.--Upon the request of 
the Secretary of Health and Human Services, the Secretary of Veterans 
Affairs and the Secretary of Defense shall provide such claims data as 
the Secretary of Health and Human Services may require to determine the 
amount that would have been paid under the medicare program under title 
XVIII of the Social Security Act if individuals entitled to benefits 
under such program had not received services from facilities of the 
Department of Veterans Affairs or the Department of Defense for 
purposes calculating the amounts under section 1853(a)(5) of such Act 
(as added by subsection (b)) and section 1853(c)(8) of such Act (as 
added by section 312(b)).

SEC. 302. APPLICATION OF COMPREHENSIVE RISK ADJUSTMENT METHODOLOGY.

    Section 1853(a)(3) is amended to read as follows:
            ``(3) Comprehensive risk adjustment methodology.--
                    ``(A) Application of methodology.--The Secretary 
                shall apply the comprehensive risk adjustment 
                methodology described in subparagraph (B) to 100 
                percent of the amount of the plan bids under section 
                1853(d)(1) and the weighted service area benchmark 
                amounts calculated under section 1853(d)(3).
                    ``(B) Comprehensive risk adjustment methodology 
                described.--The comprehensive risk adjustment 
                methodology described in this subparagraph is the risk 
                adjustment methodology that would apply with respect to 
                Medicare+Choice plans offered by Medicare+Choice 
                organizations in 2004, except that if such methodology 
                does not apply to groups of beneficiaries who are aged 
                or disabled and groups of beneficiaries who have end-
                stage renal disease, the Secretary shall revise such 
                methodology to apply to such groups.
                    ``(C) Uniform application to all types of plans.--
                Subject to section 1859(e)(4), the comprehensive risk 
                adjustment methodology established under this paragraph 
                shall be applied uniformly without regard to the type 
                of plan.
                    ``(D) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require Medicare+Choice 
                organizations to submit such data and other information 
                as the Secretary deems necessary.
                    ``(E) Improvement of payment accuracy.--
                Notwithstanding any other provision of this paragraph, 
                the Secretary may revise the comprehensive risk 
                adjustment methodology described in subparagraph (B) 
                from time to time to improve payment accuracy.''.

SEC. 303. ANNUAL ANNOUNCEMENT OF BENCHMARK AMOUNTS AND OTHER PAYMENT 
              FACTORS.

    Section 1853(b) (42 U.S.C. 1395w-23(b)), as amended by section 
532(d)(1) of the Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002 (Public Law 107-188; 116 Stat. 696), is 
amended--
            (1) in the heading, by striking ``Payment Rates'' and 
        inserting ``Payment Factors'';
            (2) by striking paragraph (1) and inserting the following:
            ``(1) Annual announcement.--Beginning in 2004, at the same 
        time as the Secretary publishes the risk adjusters under 
        section 1860D-11, the Secretary shall annually announce (in a 
        manner intended to provide notice to interested parties) the 
        following payment factors:
                    ``(A) The benchmark amount for each Medicare+Choice 
                payment area (as calculated under subsection (a)(4)) 
                for the year.
                    ``(B) The factors to be used for adjusting payments 
                under the comprehensive risk adjustment methodology 
                described in subsection (a)(3)(B) with respect to each 
                Medicare+Choice payment area for the year.'';
            (3) in paragraph (3), by striking ``monthly adjusted'' and 
        all that follows before the period at the end and inserting 
        ``each payment factor described in paragraph (1)''; and
            (4) by striking paragraph (4).

SEC. 304. SUBMISSION OF BIDS BY MEDICARE+CHOICE ORGANIZATIONS.

    Section 1854(a) (42 U.S.C. 1395w-24(a)), as amended by section 
532(b)(1) of the Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002 (Public Law 107-188; 116 Stat. 696), is 
amended to read as follows:
    ``(a) Submission of Bids by Medicare+Choice Organizations.--
            ``(1) In general.--Not later than the second Monday in 
        September (or July 1 of each year before 2002) and except as 
        provided in paragraph (3), each Medicare+Choice organization 
        shall submit to the Secretary, in such form and manner as the 
        Secretary may specify, for each Medicare+Choice plan that the 
        organization intends to offer in a service area in the 
        following year--
                    ``(A) notice of such intent and information on the 
                service area of the plan;
                    ``(B) the plan type for each plan;
                    ``(C) if the Medicare+Choice plan is a coordinated 
                care plan (as described in section 1851(a)(2)(A)) or a 
                private fee-for-service plan (as described in section 
                1851(a)(2)(C)), the information described in paragraph 
                (2) with respect to each payment area;
                    ``(D) the enrollment capacity (if any) in relation 
                to the plan and each payment area;
                    ``(E) the expected mix, by health status, of 
                enrolled individuals; and
                    ``(F) such other information as the Secretary may 
                specify.
            ``(2) Information required for coordinated care plans and 
        private fee-for-service plans.--For a Medicare+Choice plan that 
        is a coordinated care plan (as described in section 
        1851(a)(2)(A)) or a private fee-for-service plan (as described 
        in section 1851(a)(2)(C)), the information described in this 
        paragraph is as follows:
                    ``(A) Information required with respect to benefits 
                under part e.--Information relating to the coverage of 
                benefits under part E as follows:
                            ``(i) The plan bid, which shall consist of 
                        a dollar amount that represents the total 
                        amount that the plan is willing to accept 
                        (after the application of the comprehensive 
                        risk adjustment methodology under section 
                        1853(a)(3)) for providing coverage of the 
                        benefits under part E to an individual enrolled 
                        in the plan that resides in the service area of 
                        the plan for a month.
                            ``(ii) For the supplemental benefits 
                        package offered (if any)--
                                    ``(I) the adjusted community rate 
                                (as defined in subsection (g)(3)) of 
                                the package;
                                    ``(II) the Medicare+Choice monthly 
                                supplemental beneficiary premium (as 
                                defined in subsection (b)(2)(C));
                                    ``(III) a description of any cost-
                                sharing; and
                                    ``(IV) such other information as 
                                the Secretary considers necessary.
                            ``(iii) The assumptions that the 
                        Medicare+Choice organization used in preparing 
                        the plan bid with respect to numbers, in each 
                        payment area, of enrolled individuals and the 
                        mix, by health status, of such individuals.
                    ``(B) Information required with respect to part 
                d.--If the Medicare+Choice organization elects to offer 
                prescription drug coverage, the information required to 
                be submitted by an eligible entity under section 1860D-
                12, including the monthly premiums for standard 
                coverage and any other qualified prescription drug 
                coverage available to individuals enrolled under part 
                D.
            ``(3) Requirements for msa plans.--For an MSA plan 
        described in section 1851(a)(2)(B), the information described 
        in this paragraph is the information that such a plan would 
        have been required to submit under this part if the 21st 
        Century Medicare Act had not been enacted.
            ``(4) Review.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall review the adjusted community rates (as 
                defined in section 1854(g)(3)), the amounts of the 
                Medicare+Choice monthly basic and supplemental 
                beneficiary premiums filed under this subsection and 
                shall approve or disapprove such rates and amounts so 
                submitted. The Chief Actuary of the Medicare 
                Competitive Agency shall review the actuarial 
                assumptions and data used by the Medicare+Choice 
                organization with respect to such rates and amounts so 
                submitted to determine the appropriateness of such 
                assumptions and data.
                    ``(B) Exception.--The Secretary shall not review, 
                approve, or disapprove the amounts submitted under 
                paragraph (3).''.

SEC. 305. ADJUSTMENT OF PLAN BIDS; COMPARISON OF ADJUSTED BID TO 
              BENCHMARK; PAYMENT AMOUNT.

    (a) In General.--Section 1853 (42 U.S.C. 1395w-23) is amended--
            (1) by redesignating subsections (d) through (i) as 
        subsections (e) through (j), respectively; and
            (2) by inserting after subsection (c) the following new 
        subsection:
    ``(d) Secretary's Determination of Payment Amount for Enhanced 
Medicare Benefits.--
            ``(1) Adjustment of plan bids.--The Secretary shall adjust 
        each plan bid submitted under section 1854(a) for the coverage 
        of benefits under part E using the comprehensive risk 
        adjustment methodology applicable under subsection (a)(3) based 
        on the assumptions described in section 1854(a)(2)(A)(iii) that 
        the plan used with respect to numbers of enrolled individuals.
            ``(2) Determination of weighted service area benchmark 
        amounts.--The Secretary shall calculate a weighted service area 
        benchmark amount for enhanced medicare benefits under part E 
        for each plan equal to the weighted average of the benchmark 
        amounts for enhanced medicare benefits under such part for the 
        payment areas included in the service area of the plan using 
        the assumptions described in section 1854(a)(2)(A)(iii) that 
        the plan used with respect to numbers of enrolled individuals.
            ``(3) Determination of plan benchmark.--The Secretary shall 
        calculate the plan benchmark amount by adjusting the weighted 
        service area benchmark amount determined under paragraph (1) 
        using--
                    ``(A) the comprehensive risk adjustment methodology 
                applicable under subsection (a)(3); and
                    ``(B) the assumptions contained in the plan bid 
                that the plan used with respect to numbers of enrolled 
                individuals.
            ``(4) Comparison to benchmark.--The Secretary shall 
        determine the difference between each plan bid (as adjusted 
        under paragraph (1)) and the plan benchmark amount (as 
        determined under paragraph (3)) for purposes of determining--
                    ``(A) the payment amount under paragraph (5); and
                    ``(B) the part E premium reductions and 
                Medicare+Choice monthly basic beneficiary premiums.
            ``(5) Determination of payment amount.--The Secretary shall 
        determine the payment amount for plans as follows:
                    ``(A) Bids that equal or exceed the benchmark.--The 
                amount of each monthly payment to a Medicare+Choice 
                organization with respect to each individual enrolled 
                in a plan shall be the plan benchmark amount.
                    ``(B) Bids below the benchmark.--The amount of each 
                monthly payment to a Medicare+Choice organization with 
                respect to each individual enrolled in a plan shall be 
                the plan benchmark amount reduced by 25 percent of the 
                difference between the bid and the benchmark amount and 
                further reduced by the amount of any premium reduction 
                elected by the plan under section 1854(d)(1)(A)(i).
            ``(6) Factors used in adjusting bids and benchmarks for 
        medicare+choice organizations and in determining enrollee 
        premiums.--Subject to paragraph (7), the Secretary shall use, 
        for purposes of adjusting plan bids and calculating plan 
        benchmarks under this subsection--
                    ``(A) with respect to benefits under part E--
                            ``(i) the benchmark amount for the 
                        Medicare+Choice payment area announced under 
                        section 1854(a)(1)(A); and
                            ``(ii) the health status and other 
                        demographic adjustment factors for the 
                        Medicare+Choice payment area announced under 
                        section 1854(a)(1)(B); and
                    ``(B) if the Medicare+Choice organization elects to 
                offer prescription drug coverage, the risk adjusters 
                published under section 1860D-11 applicable with 
                respect to such coverage.
            ``(7) Adjustment for national coverage determinations and 
        legislative changes in benefits.--If the Secretary makes a 
        determination with respect to coverage under this title or 
        there is a change in benefits required to be provided under 
        this part that the Secretary projects will result in a 
        significant increase in the costs to Medicare+Choice 
        organizations of providing benefits under contracts under this 
        part (for periods after any period described in section 
        1852(a)(5)), the Secretary shall appropriately adjust the 
        benchmark amounts or payment amounts (as determined by the 
        Secretary). Such projection and adjustment shall be based on an 
        analysis by the Chief Actuary of the Competitive Medicare 
        Agency of the actuarial costs associated with the new 
        benefits.''.
    (b) Conforming Amendment.--Section 1853(c)(7) (42 U.S.C. 1395w-
23(c)(7)) is repealed.

SEC. 306. DETERMINATION OF PREMIUM REDUCTIONS, REDUCED COST-SHARING, 
              ADDITIONAL BENEFITS, AND BENEFICIARY PREMIUMS.

    (a) Calculation of Beneficiary Premiums.--Section 1854 (42 U.S.C. 
1395-24) is amended by--
            (1) redesignating subsections (d) through (h) as 
        subsections (e) through (i), respectively; and
            (2) inserting after subsection (c) the following new 
        subsection:
    ``(d) Determination of Premium Reductions, Reduced Cost-Sharing, 
Additional Benefits, and Beneficiary Premiums.--
            ``(1) Bids below the benchmark.--
                    ``(A) In general.--If the Secretary determines 
                under section 1853(d)(4) that the plan benchmark amount 
                exceeds the plan bid, the Secretary shall require the 
                plan to return 75 percent of such excess to the 
                enrollee in the form of, at the option of the 
                organization offering the plan--
                            ``(i) subject to subparagraph (B), a 
                        monthly medicare premium reduction for 
                        individuals enrolled in the plan;
                            ``(ii) a reduction in the actuarial value 
                        of plan cost-sharing for plan enrollees;
                            ``(iii) subject to subparagraph (C), such 
                        additional benefits as the organization may 
                        specify; or
                            ``(iv) any combination of the reductions 
                        and benefits described in clauses (i) through 
                        (iii).
                    ``(B) Limitation on premium reductions.--The amount 
                of the reduction under subparagraph (A)(i) with respect 
                to any enrollee in a Medicare+Choice plan--
                            ``(i) may not exceed the premium described 
                        in section 1839(a)(3), as adjusted under 
                        section 1860E-5; and
                            ``(ii) shall apply uniformly to each 
                        enrollee of the Medicare+Choice plan to which 
                        such reduction applies.
                    ``(C) Requirement of enrollment in part d to 
                receive prescription drug benefits.--An organization 
                may not specify any additional benefit that provides 
                for the coverage of any prescription drug (other than 
                that required under part E).
            ``(2) Bids above the benchmark.--If the Secretary 
        determines under section 1853(d)(4) that the plan bid (as 
        adjusted under section 1853(d)(1)) exceeds the plan benchmark 
        amount (determined under section 1853(d)(3)), the amount of 
        such excess shall be the Medicare+Choice monthly basic 
        beneficiary premium (as defined in section 1854(b)(2)(A)).''.
    (b) Conforming Part E Premium Reduction Amendments.--
            (1) Adjustment and payment of part e premiums.--Section 
        1860E-5 (as added by section 201) is amended--
                    (A) in subsection (a), by inserting ``, except as 
                reduced by the amount of any reduction elected under 
                section 1854(d)(1)(A)(i)'' before the period at the 
                end; and
                    (B) by adding at the end the following new 
                subsection:
    ``(c) Medicare+Choice Premium Reductions.--In the case of an 
individual enrolled in a Medicare+Choice plan, the Secretary shall 
reduce (but not below zero) the amount of the monthly beneficiary 
premium to reflect any reduction elected under section 
1854(d)(1)(A)(i). Such premium adjustment may be provided in such 
manner as the Secretary may specify.''.
            (2) Treatment of reduction for purposes of determining 
        government contribution under part e.--Section 1844(c) (42 
        U.S.C. 1395w) is amended by striking ``section 1854(f)(1)(E)'' 
        and inserting ``section 1854(d)(1)(A)(i)''.
    (c) Sunset of Specific Requirements for Additional Benefits.--
Section 1854(g) (as redesignated by subsection (a)(1)) is amended--
            (1) in paragraph (1)(A), by striking ``Each Medicare+Choice 
        organization'' and inserting ``For years before 2005, each 
        Medicare+Choice organization''; and
            (2) in paragraph (2), by striking ``A Medicare+Choice 
        organization'' and inserting ``For years before 2005, a 
        Medicare+Choice organization''.
    (d) Limitation on Enrollee Liability.--
            (1) For benefits under part e.--Section 1854(f)(1) (as 
        redesignated by subsection (a)(1)) is amended to read as 
        follows:
            ``(1) For enhanced medicare benefits.--The sum of--
                    ``(A) the Medicare+Choice monthly basic beneficiary 
                premium (multiplied by 12) and the actuarial value of 
                the deductibles, coinsurance, and copayments (taking 
                into account any reductions in cost-sharing described 
                in subsection (d)(1)(A)(ii)) applicable on average to 
                individuals enrolled under this part with a 
                Medicare+Choice plan described in subparagraph (A) or 
                (C) of section 1851(a)(2) of an organization with 
                respect to required benefits described in section 
                1852(a)(1)(A) and any additional benefits described in 
                subsection (a)(2)(A)(iii) for a year; must equal
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals who have elected to receive 
                enhanced medicare benefits under part E if they were 
                not members of a Medicare+Choice organization for the 
                year (adjusted as determined appropriate by the 
                Secretary to account for geographic differences and for 
                plan cost and utilization differences).''.
            (2) For supplemental benefits.--Section 1854(f)(2) (as so 
        redesignated) is amended to read as follows:
            ``(2) For supplemental benefits.--If the Medicare+Choice 
        organization provides to its members enrolled under this part 
        in a Medicare+Choice plan described in subparagraph (A) or (C) 
        of section 1851(a)(2) with respect to supplemental benefits 
        relating to benefits under part E described in section 
        1852(a)(3)(A), the sum of the Medicare+Choice monthly 
        supplemental beneficiary premium (multiplied by 12) charged and 
        the actuarial value of its deductibles, coinsurance, and 
        copayments charged with respect to such benefits for a year 
        must equal the adjusted community rate (as defined in 
        subsection (g)(3)) for such benefits for the year.''.
    (e) Premiums Charged; Premium Terminology.--Section 1854(b) (42 
U.S.C. 1395w-24) is amended to read as follows:
    ``(b) Monthly Premiums Charged.--
            ``(1) In general.--
                    ``(A) Coordinated care and private fee-for-service 
                plans.--The monthly amount of the premium charged to an 
                individual enrolled in a Medicare+Choice plan (other 
                than an MSA plan) offered by a Medicare+Choice 
                organization shall be equal to the sum of the 
                following:
                            ``(i) The Medicare+Choice monthly basic 
                        beneficiary premium (if any).
                            ``(ii) The Medicare+Choice monthly 
                        supplemental beneficiary premium (if any).
                            ``(iii) The Medicare+Choice monthly 
                        obligation for qualified prescription drug 
                        coverage (if any).
                    ``(B) MSA plans.--The rules under this section that 
                would have applied with respect to an MSA plan if the 
                21st Century Medicare Act had not been enacted shall 
                continue to apply to MSA plans after the date of 
                enactment of such Act.
            ``(2) Premium terminology.--For purposes of this part:
                    ``(A) Medicare+choice monthly basic beneficiary 
                premium.--The term `Medicare+Choice monthly basic 
                beneficiary premium' means, with respect to a 
                Medicare+Choice plan, the amount required to be charged 
                under subsection (d)(2) for the plan.
                    ``(B) Medicare+choice monthly obligation for 
                qualified prescription drug coverage.--The term 
                `Medicare+Choice monthly obligation for qualified 
                prescription drug coverage' means, with respect to a 
                Medicare+Choice plan, the amount determined under 
                section 1853(k)(3).
                    ``(C) Medicare+choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice monthly 
                supplemental beneficiary premium' means, with respect 
                to a Medicare+Choice plan, the amount required to be 
                charged under subsection (f)(2) for the plan, or, in 
                the case of an MSA plan, the amount filed under 
                subsection (a)(3).
                    ``(D) Medicare+choice monthly msa premium.--The 
                term `Medicare+Choice monthly MSA premium' means, with 
                respect to a Medicare+Choice plan, the amount of such 
                premium filed under subsection (a)(3) for the plan.''.
    (f) Conforming Amendments.--
            (1) Section 1851(d)(2)(D) (42 U.S.C. 1395w-21(d)(2)(D)) is 
        amended by inserting ``and Medicare+Choice monthly obligation 
        for qualified prescription drug coverage'' after 
        ``Medicare+Choice monthly basic and supplemental beneficiary 
        premiums''.
            (2) Section 1851(g)(3)(B)(i) (42 U.S.C. 1395w-
        21(g)(3)(B)(i)) is amended by striking ``any Medicare+Choice 
        monthly basic and supplemental beneficiary premiums'' and 
        inserting ``any Medicare+Choice monthly basic beneficiary 
        premium, Medicare+Choice monthly obligation for qualified 
        prescription drug coverage, Medicare+Choice monthly 
        supplemental beneficiary premium,''.
            (3) Section 1852(c)(1)(F) (42 U.S.C. 1395w-22(c)(1)(F)) is 
        amended to read as follows:
                    ``(F) Supplemental benefits.--Supplemental benefits 
                available from the organization offering the plan, 
                including the supplemental benefits covered and the 
                Medicare+Choice monthly supplemental beneficiary 
                premium for such benefits.''.
            (4) Section 1853(f)(1) (as redesignated by section 305(1)) 
        is amended by striking ``(as defined in section 
        1854(b)(2)(C))'' and inserting ``(as defined in section 
        1854(b)(2)(D))''.
            (5) Section 1854(c) (42 U.S.C. 1395w-24(c)) is amended by 
        striking ``The Medicare+Choice monthly basic and supplemental 
        beneficiary premium'' and inserting ``The Medicare+Choice 
        monthly basic beneficiary premium, the Medicare+Choice monthly 
        obligation for qualified prescription drug coverage, or the 
        Medicare+Choice monthly supplemental beneficiary premium''.
            (6) Section 1854(e) (as redesignated by subsection (a)(1)) 
        is amended by inserting ``and the Medicare+Choice monthly 
        obligation for qualified prescription drug coverage'' after 
        ``Medicare+Choice monthly basic and supplemental beneficiary 
        premiums''.
            (7) Section 1859(c)(4) (42 U.S.C. 1395w-28(c)(4)) is 
        amended to read as follows:
            ``(4) Medicare+choice monthly basic beneficiary premium; 
        medicare+choice monthly obligation for qualified prescription 
        drug coverage; medicare+choice monthly supplemental beneficiary 
        premium.--The terms `Medicare+Choice monthly basic beneficiary 
        premium', `Medicare+Choice monthly obligation for qualified 
        prescription drug coverage', and `Medicare+Choice monthly 
        supplemental beneficiary premium' are defined in section 
        1854(b)(2).''.

SEC. 307. ELIGIBILITY, ELECTION, AND ENROLLMENT IN COMPETITIVE 
              MEDICARE+CHOICE PLANS.

    (a) Eligibility.--Section 1851(a)(3) is amended to read as follows:
            ``(3) Medicare+choice eligible individual.--In this title, 
        the term `Medicare+Choice eligible individual' means an 
        individual who--
                    ``(A) is entitled to benefits under part A and 
                enrolled under part B; and
                    ``(B) has elected to receive enhanced medicare 
                benefits under part E.''.
    (b) Elections.--
            (1) In general.--Section 1851(a)(1)(A) is amended by 
        inserting ``(including through the election of enhanced 
        medicare benefits under part E) and, if elected by the 
        beneficiary and offered by the Medicare+Choice plan, through 
        the voluntary prescription drug delivery program under part D'' 
        after ``parts A and B''.
            (2) Default election.--Section 1851(c)(3) (42 U.S.C. 1395w-
        21(c)(3)) is amended by inserting ``to receive enhanced 
        medicare benefits under part E of the'' after ``deemed to have 
        chosen''.
            (3) Coverage election periods.--Section 1851(e)(1) (42 
        U.S.C. 1395w-21(e)(1)) is amended by striking ``entitled to 
        benefits under part A and enrolled under part B'' and inserting 
        ``eligible to elect to receive enhanced medicare benefits under 
        part E''.
            (4) Guaranteed issuance and renewal.--Section 1851(g)(3)(C) 
        (42 U.S.C. 1395w-21(g)(3)(C)) is amended--
                    (A) in clause (i), by inserting ``elected to 
                receive enhanced medicare benefits under part E of 
                the'' after ``deemed to have''; and
                    (B) in clause (ii), by striking ``deemed to have 
                chosen to change coverage to'' and inserting ``deemed 
                to have elected to receive enhanced medicare benefits 
                under part E through the''.
            (5) Effect of election of medicare+choice plan option.--
        Section 1851(i) (42 U.S.C. 1395w-21(i)) is amended--
                    (A) in paragraph (1)--
                            (i) by striking ``1853(g), 1853(h)'' and 
                        inserting ``1853(h), 1853(i)''; and
                            (ii) by inserting ``(as modified under part 
                        E)'' after ``parts A and B''; and
                    (B) in paragraph (2), by striking ``1853(e), 
                1853(g), 1853(h)'' and inserting ``1853(f), 1853(h), 
                1853(i)''.
    (c) Providing Information To Promote Informed Choice.--
            (1) General information on benefits.--Section 1851(d)(3) 
        (42 U.S.C. 1395w-21(d)(3)) is amended--
                    (A) by striking subparagraph (A) and inserting the 
                following:
                    ``(A) Benefits under enhanced medicare fee-for-
                service program option.--A general description of the 
                enhanced medicare benefits covered under the original 
                medicare fee-for-service program under parts A and B 
                for individuals who have elected to receive such 
                benefits under part E, including--
                            ``(i) covered items and services;
                            ``(ii) beneficiary cost-sharing, such as 
                        deductibles, coinsurance, and copayment 
                        amounts; and
                            ``(iii) any beneficiary liability for 
                        balance billing.'';
                    (B) by redesignating subparagraphs (B) through (E) 
                as subparagraphs (C) through (F), respectively;
                    (C) by inserting after subparagraph (A) the 
                following new subparagraph:
                    ``(B) Outpatient prescription drug coverage 
                benefits.--For Medicare+Choice eligible individuals who 
                are enrolled under part D, the information required 
                under section 1860D-4 if the Medicare+Choice 
                organization elects to offer prescription drug 
                coverage.''; and
                    (D) in subparagraph (D) (as redesignated by 
                subparagraph (B)), by inserting ``(with the enhanced 
                medicare benefits under part E)'' after ``the original 
                medicare fee-for-service program''.
            (2) Information comparing plan options.--Section 1851(d)(4) 
        (42 U.S.C. 1395w-21(d)(4)) is amended--
                    (A) in subparagraph (A), by adding at the end the 
                following new clause:
                            ``(ix) For Medicare+Choice eligible 
                        individuals who are enrolled under part D, the 
                        comparative information described in section 
                        1860D-4(b)(2) if the Medicare+Choice 
                        organization elects to offer prescription drug 
                        coverage.''; and
                    (B) in subparagraph (D), by inserting ``with 
                respect to eligible beneficiaries who elect to receive 
                enhanced medicare benefits under part E'' after ``under 
                parts A and B''.

SEC. 308. BENEFITS AND BENEFICIARY PROTECTIONS UNDER COMPETITIVE 
              MEDICARE+CHOICE PLANS.

    (a) Basic Benefits.--Section 1852(a) (42 U.S.C. 1395w-22(a)(1)(A)) 
is amended--
            (1) in paragraph (1)--
                    (A) by striking subparagraph (A) and inserting the 
                following new subparagraph:
                    ``(A) those items and services (other than hospice 
                care) for which benefits are available under parts A 
                and B to individuals residing in the area served by the 
                plan and who have elected to receive enhanced medicare 
                benefits under part E;'';
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C);
                    (C) by inserting after subparagraph (A) the 
                following new subparagraph:
                    ``(B) if the Medicare+Choice organization elects to 
                offer prescription drug coverage, prescription drug 
                coverage under part D to individuals who are enrolled 
                under that part and who reside in the area served by 
                the plan; and''; and
                    (D) in subparagraph (C) (as redesignated by 
                paragraph (2)), by striking ``1854(f)(1)(A)'' and 
                inserting ``1854(d)(1)'';
            (2) in paragraph (2), by striking ``parts A and B 
        (including any balance billing permitted under such parts'' and 
        inserting ``part E (including any balance billing permitted 
        under such part'';
            (3) in paragraph (3), by adding at the end the following 
        new subparagraph:
                    ``(D) Requirement of enrollment in part d to 
                receive prescription drug benefits.--Notwithstanding 
                the preceding provisions of this paragraph, the 
                Secretary may not approve any supplemental health care 
                benefit that provides for the coverage of any 
prescription drug (other than that required under part E).''; and
            (4) in paragraph (5), by striking ``Health Care Financing 
        Administration'' and inserting ``Medicare Competitive Agency'' 
        in the flush matter following subparagraph (B).
    (b) ESRD Antidiscrimination.--Section 1852(b)(1) (42 U.S.C. 1395w-
22(b)(1)) is amended to read as follows:
            ``(1) Beneficiaries.--A Medicare+Choice organization may 
        not deny, limit, or condition the coverage or provision of 
        benefits under this part, for individuals permitted to be 
        enrolled with the organization under this part, based on any 
        health status-related factor described in section 2702(a)(1) of 
        the Public Health Service Act.''.
    (c) Disclosure Requirements.--Section 1852(c)(1)(B) (42 U.S.C. 
1395w-22(c)(1)(B)) is amended by striking ``section 1851(d)(3)(A)'' and 
inserting ``subparagraphs (A) and (B) of section 1851(d)(3)''.
    (d) Assuring Access to Services in Medicare+Choice Private Fee-For-
Service Plans.--Section 1852(d)(4)(A) is amended by striking ``part A, 
part B, or both, for such services, or'' and inserting ``part E for 
such services (and, if the Medicare+Choice organization elects to offer 
prescription drug coverage, that are not less than the payment rates 
provided under part D for such services for Medicare+Choice eligible 
individuals enrolled under that part); or''.
    (e) Information on Beneficiary Liability for Medicare+Choice 
Private Fee-For-Service Plans.--Section 1852(k)(2)(C)(i) (42 U.S.C. 
1395w-22(k)(2)(C)(i)) is amended by striking ``parts A and B'' and 
inserting ``part E, under part D for individuals enrolled under that 
part (if the Medicare+Choice organization elects to offer prescription 
drug coverage),''.

SEC. 309. PAYMENTS TO MEDICARE+CHOICE ORGANIZATIONS FOR ENHANCED 
              MEDICARE BENEFITS UNDER PART E BASED ON RISK-ADJUSTED 
              BIDS.

    (a) In General.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-
23(a)(1)(A)) is amended to read as follows:
            ``(1) Monthly payments.--Under a contract under section 
        1857 and subject to subsections (f), (h), and (j) and section 
        1859(e)(4), the Secretary shall make, to each Medicare+Choice 
        organization, with respect to coverage of an individual for a 
        month under this part in a Medicare+Choice payment area, 
        separate monthly payments with respect to--
                    ``(A) enhanced medicare benefits under part E in 
                accordance with subsection (d); and
                    ``(B) if the Medicare+Choice organization elects to 
                offer prescription drug coverage, benefits under part D 
                in accordance with subsection (k) for individuals 
                enrolled under that part.''.
    (b) Conforming Amendment.--Section 1853(g)(1)(A) (42 U.S.C. 1395w-
23(g)(1)(A)) is amended by inserting ``as part of the enhanced medicare 
benefits elected under part E of'' before ``the original medicare fee-
for-service program option''.

SEC. 310. SEPARATE PAYMENTS TO MEDICARE+CHOICE ORGANIZATIONS FOR PART D 
              BENEFITS.

    (a) In General.--Section 1853 (42 U.S.C. 1395w-27) is amended by 
adding at the end the following new subsection:
    ``(k) Availability of Prescription Drug Benefits.--
            ``(1) Scope of prescription drug benefits.--
                    ``(A) Availability of standard coverage.--If a 
                Medicare+Choice organization elects to offer 
                prescription drug coverage under a Medicare+Choice 
                plan, such organization shall make such coverage (other 
                than that required under part E) available to each 
                enrollee under that plan who is also enrolled under 
                part D that includes only standard coverage and that 
                meets the requirements of this subsection.
                    ``(B) Additional qualified prescription drug 
                coverage.--In addition to the standard coverage option 
                made available to each enrollee under paragraph (1), a 
                Medicare+Choice plan may make available to each 
                enrollee that is also enrolled under part D, other 
                qualified prescription drug coverage (other than that 
                required under part E) that meets the requirements of 
                this subsection under a Medicare+Choice plan offered 
                under this part.
                    ``(C) Requirement of enrollment in part d to 
                receive prescription drug benefits.--A Medicare+Choice 
                organization may not provide for the coverage of any 
                prescription drugs (other than that required under part 
                E) to an enrollee unless that enrollee is also enrolled 
                under part D.
            ``(2) Payment of full amount of premium to organizations 
        for qualified prescription drug coverage.--For each year 
        (beginning with 2005), the Secretary shall pay to each 
        Medicare+Choice organization offering a Medicare+Choice plan 
        that provides qualified prescription drug coverage in which a 
        Medicare+Choice eligible individual is enrolled, an amount 
        equal to the full amount of the monthly premium submitted under 
        section 1854(a)(2)(B) on behalf of each such individual 
        enrolled in such plan for the year, as adjusted using the risk 
        adjusters that apply to the standard coverage under section 
        1853(b)(4)(B).
            ``(3) Amount of medicare+choice monthly obligation for 
        qualified prescription drug coverage.--In the case of a 
        Medicare+Choice eligible individual receiving qualified 
        prescription drug coverage under a Medicare+Choice plan, the 
        obligation for qualified prescription drug coverage of such 
        individual in a year shall be determined as follows:
                    ``(A) Premiums equal to the monthly national 
                average.--If the amount of the monthly premium for 
                qualified prescription drug coverage submitted under 
                section 1854(a)(2)(B) for the plan for the year is 
                equal to the monthly national average premium (as 
computed under section 1860D-15) for the year, the monthly obligation 
of the individual in that year shall be an amount equal to the 
applicable percent (as defined in section 1860D-17(c)) of the amount of 
the monthly national average premium.
                    ``(B) Premiums that are less than the monthly 
                national average.--If the amount of the monthly premium 
                for qualified prescription drug coverage submitted 
                under section 1854(a)(2)(B) for the plan for the year 
                is less than the monthly national average premium (as 
                computed under section 1860D-15) for the year, the 
                monthly obligation of the individual in that year shall 
                be an amount equal to--
                            ``(i) the applicable percent (as defined in 
                        section 1860D-17(c)) of the amount of the 
                        monthly national average premium; minus
                            ``(ii) the amount by which the monthly 
                        national average premium exceeds the amount of 
                        the premium submitted under section 
                        1854(a)(2)(B).
                    ``(C) Premiums that are greater than the monthly 
                national average.--If the amount of the monthly premium 
                for qualified prescription drug coverage submitted 
                under section 1854(a)(2)(B) for the plan for the year 
                exceeds the monthly national average premium (as 
                computed under section 1860D-15) for the year, the 
                monthly obligation of the individual in that year shall 
                be an amount equal to the sum of--
                            ``(i) the applicable percent (as defined in 
                        section 1860D-17(c)) of the amount of the 
                        monthly national average premium; plus
                            ``(ii) the amount by which the premium 
                        submitted under section 1854(a)(2)(B) exceeds 
                        the amount of the monthly national average 
                        premium.
            ``(4) Collection of medicare+choice monthly obligation for 
        qualified prescription drug coverage.--The provisions of 
        section 1860D-18, including subsection (b) of such section, 
        shall apply to the amount of the monthly premium required to be 
        paid by a Medicare+Choice eligible individual receiving 
        qualified prescription drug coverage under a Medicare+Choice 
        plan (as determined under paragraph (3)) in the same manner as 
        such provisions apply to the monthly beneficiary obligation 
        required to be paid by an eligible beneficiary enrolled in a 
        Medicare Prescription Drug plan.
            ``(5) 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 1860D-5, including requirements 
        relating to information dissemination and grievance and 
        appeals, in the same manner as they apply to an eligible entity 
        and a Medicare Prescription Drug plan under part D. The 
        Secretary shall waive such requirements to the extent the 
        Secretary determines that such requirements duplicate 
        requirements otherwise applicable to the organization or plan 
        under this part.
            ``(6) Coverage of prescription drugs for enrollees in plans 
        that do not offer prescription drug coverage.--If an individual 
        who is enrolled under part D is enrolled in a Medicare+Choice 
        plan that does not offer prescription drug coverage, such 
        individual shall be permitted to enroll for prescription drug 
        coverage under such part in the same manner as if such 
        individual was not enrolled in a Medicare+Choice plan.
            ``(7) Availability of premium subsidy and cost-sharing 
        reductions for low-income enrollees.--For provisions--
                    ``(A) providing premium subsidies and cost-sharing 
                reductions for low-income individuals receiving 
                qualified prescription drug coverage through a 
                Medicare+Choice plan, see section 1860D-19; and
                    ``(B) providing a Medicare+Choice organization with 
                insurance subsidy payments for providing qualified 
                prescription drug coverage through a Medicare+Choice 
                plan, see section 1860D-20.
            ``(8) 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 paragraphs (9) and (10), 
        respectively, of section 1860D.''.
    (b) Sanctions for Improper Prescription Drug Coverage.--Section 
1857(g)(1) (42 U.S.C. 1395w-27(g)(1)) is amended--
            (1) in subparagraph (F), by striking ``or'' after the 
        semicolon at the end;
            (2) in subparagraph (G), by adding ``or'' after the 
        semicolon at the end; and
            (3) by adding at the end the following new subparagraph:
                    ``(H) charges any individual an amount in excess of 
                the Medicare+Choice monthly obligation for qualified 
                prescription drug coverage under section 1853(k)(3), 
                provides coverage for prescription drugs that is not 
                qualified prescription drug coverage (as defined in 
                section 1853(k)(7)), offers prescription drug coverage, 
                but does not make standard prescription drug coverage 
                available (as defined in such section), or provides 
                coverage for prescription drugs (other than those 
                covered under part E) to an individual who is not 
                enrolled under part D;''.

SEC. 311. ADMINISTRATION BY THE MEDICARE COMPETITIVE AGENCY.

    On and after January 1, 2005, the Medicare+Choice program under 
part C of title XVIII of the Social Security Act shall be administered 
by the Medicare Competitive Agency in accordance with subpart 3 of part 
D of such title (as added by section 101), and, in accordance 
with section 1860D-25(c)(3)(C) of such Act (as added by section 101), 
each reference to the Secretary made in this title, or the amendments 
made by this title, shall be deemed to be a reference to the 
Administrator of the Medicare Competitive Agency.

SEC. 312. CONTINUED CALCULATION OF ANNUAL MEDICARE+CHOICE CAPITATION 
              RATES.

    (a) Continued Calculation.--
            (1) In general.--Section 1853(c) (as amended by subsection 
        (b)) is amended by adding at the end the following new 
        paragraph:
            ``(7) Transition to medicare+choice competition.--
                    ``(A) In general.--For each year (beginning with 
                2005) payments to Medicare+Choice plans shall not be 
                computed under this subsection, but instead shall be 
                based on the payment amount determined under subsection 
                (d).
                    ``(B) Continued calculation of capitation rates.--
                For each year (beginning with 2004) the Secretary shall 
                calculate and publish the annual Medicare+Choice 
                capitation rates under this subsection and shall use 
                the annual Medicare+Choice capitation rate determined 
                under subsection (c)(1)(B) for purposes of determining 
                the benchmark amount under subsection (a)(4).''.
            (2) Conforming amendment.--Section 1853(c)(1) (42 U.S.C. 
        1395w-23(c)(1)) is amended by striking ``For purposes of this 
        part, subject to paragraphs (6)(C) and (7),'' and inserting 
        ``For purposes of making payments under this part for years 
        before 2004 and for purposes of calculating the annual 
        Medicare+Choice capitation rates under paragraph (7) beginning 
        with such year, subject to paragraph (6)(C),'' in the matter 
        preceding subparagraph (A).
    (b) Inclusion of Costs of VA and DoD Military Facility Services in 
Continued Calculation.--Section 1853(c) (42 U.S.C. 1395w-23(c)), as 
amended by subsection (a)(1), is amended by adding at the end the 
following new paragraph:
            ``(8) Inclusion of costs of va and dod military facility 
        services to medicare-eligible beneficiaries.--For purposes of 
        determining the blended capitation rate under subparagraph (A) 
        of paragraph (1) and the minimum percentage increase under 
        subparagraph (C) of such paragraph for a year, the annual per 
        capita rate of payment for 1997 determined under section 
        1876(a)(1)(C) shall be adjusted to include in such rate, to the 
        extent practicable, the Secretary's estimate, on a per capita 
        basis, of the amount of additional payments that would have 
        been made in the area involved under this title if individuals 
        entitled to benefits under this title had not received services 
        from facilities of the Department of Veterans Affairs or the 
        Department of Defense.''.

SEC. 313. FIVE-YEAR EXTENSION OF MEDICARE COST CONTRACTS.

    (a) In General.--Section 1876(h)(5)(C) (42 U.S.C. 1395mm(h)(5)(C)), 
as redesignated by section 634(1) of BIPA (114 Stat. 2763A-568), is 
amended by striking ``2004'' and inserting ``2009''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of enactment of this Act.

SEC. 314. EFFECTIVE DATE.

    (a) In General.--Except as provided in section 306(b)(1)(B), 
section 313(b), and subsection (b), the amendments made by this title 
shall apply to plan years beginning on and after January 1, 2005.
    (b) Medicare+Choice MSA Plans.--Notwithstanding any provision of 
this title, the Secretary shall apply the payment and other rules that 
apply with respect to an MSA plan described in section 1851(a)(2)(B) of 
the Social Security Act (42 U.S.C. 1395w-21(a)(2)(B)) as if this title 
had not been enacted.
                                 <all>