[Congressional Record Volume 147, Number 105 (Wednesday, July 25, 2001)]
[Senate]
[Pages S8216-S8222]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HAGEL (for himself, Mr. Ensign, and Mr. Lugar):
  S. 1239. A bill to amend title XVIII of the Social Security Act to 
provide medicare beneficiaries with a drug discount card that ensures 
access to affordable outpatient prescription drugs; to the Committee on 
Finance.
  Mr. HAGEL. Mr. President, I ask unanimous consent that the text of 
the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1239

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

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

``Sec. 1860. Definitions.

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

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

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

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

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

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

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


                             ``definitions

       ``Sec. 1860. In this part:
       ``(1) Commissioner.--The term `Commissioner' means the 
     Commissioner of Medicare Prescription Drugs appointed under 
     section 1860S(a).
       ``(2) Covered outpatient drug.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `covered outpatient drug' means--
       ``(i) a drug that may be dispensed only upon a prescription 
     and that is described in clause (i) or (ii) of subparagraph 
     (A) of section 1927(k)(2); or
       ``(ii) a biological product or insulin described in 
     subparagraph (B) or (C) of such section.
       ``(B) Exclusions.--
       ``(i) In general.--The term `covered outpatient drug' does 
     not include drugs or classes of drugs, or their medical uses, 
     which may be excluded from coverage or otherwise restricted 
     under section 1927(d)(2), other than those restricted under 
     subparagraph (E) of such section (relating to smoking 
     cessation agents).
       ``(ii) Avoidance of duplicate coverage.--A drug prescribed 
     for an individual that would otherwise be a covered 
     outpatient drug under this part shall not be considered to be 
     such a drug if payment for the drug is available under part A 
     or B (but such drug shall be so considered if such payment is 
     not available because the eligible beneficiary has exhausted 
     benefits under part A or B), without regard to whether the 
     individual is entitled to benefits under part A or enrolled 
     under part B.
       ``(3) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual who is--
       ``(A) eligible for benefits under part A or enrolled under 
     part B; and
       ``(B) not eligible for prescription drug coverage under a 
     medicaid plan under title XIX.
       ``(4) Eligible entity.--The term `eligible entity' means 
     any entity that the Commissioner determines to be appropriate 
     to provide the benefits under this part, including--
       ``(A) pharmaceutical benefit management companies;
       ``(B) wholesale and retail pharmacy delivery systems;
       ``(C) insurers;
       ``(D) Medicare+Choice organizations;
       ``(E) other entities; or
       ``(F) any combination of the entities described in 
     subparagraphs (A) through (E).
       ``(5) Poverty line.--The term `poverty line' means the 
     income official poverty line (as defined by the Office of 
     Management and Budget, and revised annually in accordance 
     with section 673(2) of the Omnibus Budget Reconciliation Act 
     of 1981) applicable to a family of the size involved.

[[Page S8217]]

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


                       ``establishment of program

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


                              ``enrollment

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


    ``providing enrollment and coverage information to beneficiaries

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


                         ``enrollee protections

       ``Sec. 1860D. (a) Guaranteed Issue and Nondiscrimination.--
       ``(1) Guaranteed issue.--
       ``(A) In general.--An eligible beneficiary who is eligible 
     to enroll with an eligible entity under section 1860B(b) for 
     prescription drug coverage under this part at a time during 
     which elections are accepted under this part with respect to 
     the coverage shall not be denied enrollment based on any 
     health status-related factor (described in section 2702(a)(1) 
     of the Public Health Service Act) or any other factor.
       ``(B) Medicare+choice limitations permitted.--The 
     provisions of paragraphs (2) and (3) (other than subparagraph 
     (C)(i), relating to default enrollment) of section 1851(g) 
     (relating to priority and limitation on termination of 
     election) shall apply to eligible entities under this 
     subsection.
       ``(2) Nondiscrimination.--An eligible entity offering 
     prescription drug coverage under this part shall not 
     establish a service area in a manner that would discriminate 
     based on health or economic status of potential enrollees.
       ``(b) Dissemination of Information.--
       ``(1) General information.--An eligible entity with a 
     contract under this part shall disclose, in a clear, 
     accurate, and standardized form to each eligible beneficiary 
     enrolled for prescription drug coverage with such entity 
     under this part at the time of enrollment and at least 
     annually thereafter, the information described in section 
     1852(c)(1) relating to such prescription drug coverage. Such 
     information includes the following:
       ``(A) Access to covered outpatient drugs, including access 
     through pharmacy networks.
       ``(B) How any formulary used by the eligible entity 
     functions.
       ``(C) Grievance and appeals procedures.
       ``(2) Disclosure upon request of general coverage, 
     utilization, and grievance information.--Upon request of an 
     eligible beneficiary, the eligible entity shall provide the 
     information described in section 1852(c)(2) (other than 
     subparagraph (D)) to such beneficiary.
       ``(3) Response to beneficiary questions.--Each eligible 
     entity offering prescription drug coverage under this part 
     shall have a mechanism for providing specific information to 
     enrollees upon request. The entity shall make available, 
     through an Internet website and in writing upon request, 
     information on specific changes in its formulary.
       ``(c) Access to Covered Benefits.--
       ``(1) Ensuring pharmacy access.--
       ``(A) In general.--Each eligible entity with a contract 
     under this part shall permit any pharmacy located in the area 
     covered by such contract to participate in the pharmacy 
     network of the eligible entity if the pharmacy agrees to 
     accept such operating terms as the eligible entity may 
     specify, including any fee schedule, requirements relating to 
     covered expenses, and quality standards relating to the 
     provision of prescription drug coverage.
       ``(B) Construction.--Nothing in this paragraph shall be 
     construed as requiring a pharmacy to participate in a 
     pharmacy network of an eligible entity with a contract under 
     this part to participate in any other coverage program of the 
     eligible entity.
       ``(2) Access to negotiated prices for prescription drugs.--
     For requirements relating to the access of an eligible 
     beneficiary to negotiated prices (including applicable 
     discounts), see section 1860F(a).
       ``(3) Requirements on development and application of 
     formularies.--Insofar as an eligible entity with a contract 
     under this part uses a formulary, the following requirements 
     must be met:
       ``(A) Formulary committee.--The eligible entity must 
     establish a pharmaceutical and therapeutic committee that 
     develops the formulary. Such committee shall include at least 
     1 physician and at least 1 pharmacist.
       ``(B) Inclusion of drugs in all therapeutic categories.--
     The formulary must include drugs within all therapeutic 
     categories and classes of covered outpatient drugs (although 
     not necessarily for all drugs within such categories and 
     classes).

[[Page S8218]]

       ``(C) Appeals and exceptions to application.--The entity 
     must have, as part of the appeals process under subsection 
     (f)(2), a process for appeals for denials of coverage based 
     on such application of the formulary.
       ``(d) Cost and Utilization Management; Quality Assurance; 
     Medication Therapy Management Program.--
       ``(1) In general.--For purposes of providing access to 
     negotiated benefits under section 1860F(a) and the 
     catastrophic benefit described in section 1860F(b), the 
     eligible entity shall have in place--
       ``(A) an effective cost and drug utilization management 
     program, including appropriate incentives to use generic 
     drugs, when appropriate;
       ``(B) quality assurance measures and systems to reduce 
     medical errors and adverse drug interactions, including a 
     medication therapy management program described in paragraph 
     (2); and
       ``(C) a program to control fraud, abuse, and waste.
       ``(2) Medication therapy management program.--
       ``(A) In general.--A medication therapy management program 
     described in this paragraph is a program of drug therapy 
     management and medication administration provided by a 
     community-based pharmacy that is designed to ensure that 
     prescription drugs made available under this part are 
     appropriately used to achieve therapeutic goals and reduce 
     the risk of adverse events, including adverse drug 
     interactions.
       ``(B) Elements.--Such program shall include--
       ``(i) enhanced beneficiary understanding of such 
     appropriate use through beneficiary education, counseling, 
     and other appropriate means; and
       ``(ii) increased beneficiary adherence with prescription 
     medication regimens through medication refill reminders, 
     special packaging, and other appropriate means.
       ``(C) Development of program in cooperation with licensed 
     pharmacists.--The program shall be developed in cooperation 
     with licensed pharmacists and physicians.
       ``(D) Considerations in pharmacy fees.--An eligible entity 
     with a contract under this part shall establish fees for 
     pharmacists, pharmacies, and others providing services under 
     the medication therapy management program that take into 
     account the resources and time used in implementing the 
     program.
       ``(3) Treatment of accreditation.--Section 1852(e)(4) 
     (relating to treatment of accreditation) shall apply to 
     prescription drug coverage provided under this part with 
     respect to the following requirements, in the same manner as 
     they apply to Medicare+Choice plans under part C with respect 
     to the requirements described in a clause of section 
     1852(e)(4)(B):
       ``(A) Subsection (c)(1) (relating to access to covered 
     benefits).
       ``(B) Subsection (g) (relating to confidentiality and 
     accuracy of enrollee records).
       ``(e) Grievance Mechanism.--Each eligible entity shall 
     provide meaningful procedures for hearing and resolving 
     grievances between the organization (including any entity or 
     individual through which the eligible entity provides covered 
     benefits) and eligible beneficiaries enrolled with the entity 
     under this part in accordance with section 1852(f).
       ``(f) Coverage Determinations, Reconsiderations, and 
     Appeals.--
       ``(1) In general.--An eligible entity shall meet the 
     requirements of section 1852(g) with respect to covered 
     benefits under the prescription drug coverage it offers under 
     this part in the same manner as such requirements apply to a 
     Medicare+Choice organization with respect to benefits it 
     offers under a Medicare+Choice plan under part C.
       ``(2) Appeals of formulary determinations.--Under the 
     appeals process under paragraph (1) an individual who is 
     enrolled with an eligible entity with a contract under this 
     part for prescription drug coverage may appeal any denial of 
     coverage of a prescription drug to obtain coverage for a 
     medically necessary covered outpatient drug that is not on 
     the formulary of the eligible entity (established under 
     subsection (c)) if the prescribing physician determines that 
     the therapeutically similar drug that is on the formulary is 
     not effective for the enrollee or has significant adverse 
     effects for the enrollee.
       ``(g) Confidentiality and Accuracy of Enrollee Records.--An 
     eligible entity shall meet the requirements of section 
     1852(h) with respect to enrollees under this part in the same 
     manner as such requirements apply to a Medicare+Choice 
     organization with respect to enrollees under part C.


                        ``annual enrollment fee

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


                      ``benefits under the program

       ``Sec. 1860F. (a) Access to Negotiated Prices.--
       ``(1) Negotiated prices.--
       ``(A) In general.--Subject to subparagraph (B), each 
     eligible entity with a contract under this part shall provide 
     each eligible beneficiary enrolled with the entity with 
     access to negotiated prices (including applicable discounts) 
     for such prescription drugs as the eligible entity determines 
     appropriate. If such a beneficiary becomes eligible for the 
     catastrophic benefit under subsection (b), the negotiated 
     prices (including applicable discounts) shall continue to be 
     available to the beneficiary for those prescription drugs for 
     which payment may not be made under section 1860H(b). For 
     purposes of this subparagraph, the term `prescription drugs' 
     is not limited to covered outpatient drugs, but does not 
     include any over-the-counter drug that is not a covered 
     outpatient drug.
       ``(B) Limitations.--
       ``(i) Formulary restrictions.--Insofar as an eligible 
     entity with a contract under this part uses a formulary, the 
     negotiated prices (including applicable discounts) for 
     prescription drugs shall only be available for drugs included 
     in such formulary.
       ``(ii) Avoidance of duplicate coverage.--The negotiated 
     prices (including applicable discounts) for prescription 
     drugs shall not be available for any drug prescribed for an 
     eligible beneficiary if payment for the drug is available 
     under part A or B (but such negotiated prices shall be 
     available if payment under part A or B is not available 
     because the beneficiary has not met the deductible or has 
     exhausted benefits under part A or B).
       ``(2) Discount card.--The Commissioner shall develop a 
     uniform standard card format to be issued by each eligible 
     entity that may be used by an enrolled beneficiary to ensure 
     the access of such beneficiary to negotiated prices under 
     paragraph (1).
       ``(3) Ensuring discounts in all areas.--The Commissioner 
     shall develop procedures that ensure that each eligible 
     beneficiary that resides in an area where no eligible entity 
     has been awarded a contract under this part is provided with 
     access to negotiated prices for prescription drugs (including 
     applicable discounts).
       ``(b) Catastrophic Benefit.--
       ``(1) In general.--Subject to paragraph (4) (relating to 
     eligibility for the catastrophic benefit) and any formulary 
     used by the eligible entity with which the eligible 
     beneficiary is enrolled, the catastrophic benefit shall be 
     administered as follows:
       ``(A) Beneficiaries with annual incomes below 200 percent 
     of the poverty line.--In the case of an eligible beneficiary 
     whose modified adjusted gross income (as defined in paragraph 
     (4)(E)) is below 200 percent of the poverty line, the 
     beneficiary shall not be responsible for making a payment for 
     a covered outpatient drug provided to the beneficiary in a 
     year to the extent that the out-of-pocket expenses of the 
     beneficiary for such drug, when added to the out-of-pocket 
     expenses of the beneficiary for covered outpatient drugs 
     previously provided in the year, exceed $1,200.
       ``(B) Beneficiaries with annual incomes between 200 and 400 
     percent of the poverty line.--In the case of an eligible 
     beneficiary whose modified adjusted gross income (as so 
     defined) exceeds 200 percent, but does not exceed 400 
     percent, of the poverty line, the beneficiary shall not be 
     responsible for making a payment for a covered outpatient 
     drug provided to the beneficiary in a year to the extent that 
     the out-of-pocket expenses of the beneficiary for such drug, 
     when added to the out-of-pocket expenses of the beneficiary 
     for covered outpatient drugs previously provided in the year, 
     exceed $2,500.
       ``(C) Beneficiaries with annual incomes above 400 percent 
     of the poverty line.--In the case of an eligible beneficiary 
     whose modified adjusted gross income (as so defined) exceeds 
     400 percent of the poverty line, the beneficiary shall not be 
     responsible for making a payment for a covered outpatient 
     drug provided to the beneficiary in a year to the extent that 
     the out-of-pocket expenses of the beneficiary for such drug, 
     when added to the out-of-pocket expenses of the beneficiary

[[Page S8219]]

     for covered outpatient drugs previously provided in the year, 
     exceed $5,000.
       ``(2) Annual percentage increase.--
       ``(A) In general.--In the case of any calendar year after 
     2003, the dollar amounts in paragraph (1) shall be increased 
     by an amount equal to--
       ``(i) such dollar amount; multiplied by
       ``(ii) the inflation adjustment determined under section 
     1860E(a)(2)(B) for such calendar year.
       ``(B) Rounding.--If any increase determined under 
     subparagraph (A) is not a multiple of $1, such increase shall 
     be rounded to the nearest multiple of $1.
       ``(3) Eligible entity not at risk for catastrophic 
     benefit.--
       ``(A) In general.--The Commissioner, and not the eligible 
     entity, shall be at risk for the provision of the 
     catastrophic benefit under this subsection.
       ``(B) Provisions relating to payments to eligible 
     entities.--For provisions relating to payments to eligible 
     entities for administering the catastrophic benefit under 
     this subsection, see section 1860H.
       ``(4) Catastrophic benefit not available to certain high 
     income individuals.--
       ``(A) In general.--An eligible beneficiary enrolled under 
     this part whose modified adjusted gross income for a taxable 
     year exceeds 600 percent of the poverty line shall not be 
     eligible for the catastrophic benefit under this subsection.
       ``(B) Beneficiary still eligible for discount benefit.--
     Nothing in subparagraph (A) shall be construed as affecting 
     the eligibility of a beneficiary described in such 
     subparagraph for the benefits under subsection (a).
       ``(C) Procedures for determining modified adjusted gross 
     income.--
       ``(i) In general.--The Commissioner shall establish 
     procedures for determining the modified adjusted gross income 
     of eligible beneficiaries enrolled under this part.
       ``(ii) Consultation.--The Commissioner shall consult with 
     the Secretary of the Treasury in making the determinations 
     described in clause (i).
       ``(iii) Disclosure of information.--Notwithstanding section 
     6103(a) of the Internal Revenue Code of 1986, the Secretary 
     of the Treasury may, upon written request from the 
     Commissioner, disclose to officers and employees of the 
     Medicare Prescription Drug Agency such return information as 
     is necessary to make the determinations described in clause 
     (i). Return information disclosed under the preceding 
     sentence may be used by officers and employees of the 
     Medicare Prescription Drug Agency only for the purposes of, 
     and to the extent necessary in, making such determinations.
       ``(D) Definition of modified adjusted gross income.--In 
     this paragraph, the term `modified adjusted gross income' 
     means adjusted gross income (as defined in section 62 of the 
     Internal Revenue Code of 1986)--
       ``(i) determined without regard to sections 135, 911, 931, 
     and 933 of such Code; and
       ``(ii) increased by the amount of interest received or 
     accrued by the taxpayer during the taxable year which is 
     exempt from tax under such Code.
       ``(5) Ensuring catastrophic benefit in all areas.--The 
     Commissioner shall develop procedures for the provision of 
     the catastrophic benefit under this subsection to each 
     eligible beneficiary that resides in an area where there are 
     no eligible entities that have been awarded a contract under 
     this part.


     ``selection of entities to provide prescription drug coverage

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


  ``payments to eligible entities for administering the catastrophic 
                                benefit

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


                    ``determination of income levels

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


                            ``Appropriations

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

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


                  ``medicare prescription drug agency

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


          ``commissioner; deputy commissioner; other officers

       ``Sec. 1860T. (a) Commissioner of Medicare Prescription 
     Drugs.--
       ``(1) Appointment.--There shall be in the Agency a 
     Commissioner of Medicare Prescription Drugs (in this subpart 
     referred to as the `Commissioner') who shall be appointed by 
     the President, by and with the advice and consent of the 
     Senate.
       ``(2) Compensation.--The Commissioner shall be compensated 
     at the rate provided for level I of the Executive Schedule.
       ``(3) Term.--
       ``(A) In general.--The Commissioner shall be appointed for 
     a term of 6 years.
       ``(B) Continuance in office.--In any case in which a 
     successor does not take office at the end of a Commissioner's 
     term of office, such Commissioner may continue in office 
     until the appointment of a successor.
       ``(C) Delayed appointments.--A Commissioner appointed to a 
     term of office after the commencement of such term may serve 
     under such appointment only for the remainder of such term.
       ``(D) Removal.--An individual serving in the office of 
     Commissioner may be removed from office only under a finding 
     by the President of neglect of duty or malfeasance in office.
       ``(4) Responsibilities.--The Commissioner shall be 
     responsible for the exercise of all powers and the discharge 
     of all duties of the Agency, and shall have authority and 
     control over all personnel and activities thereof.
       ``(5) Promulgation of rules and regulations.--
       ``(A) In general.--The Commissioner may prescribe such 
     rules and regulations as the Commissioner determines 
     necessary or appropriate to carry out the functions of the 
     Agency.
       ``(B) Rulemaking.--The regulations prescribed by the 
     Commissioner shall be subject to the rulemaking procedures 
     established under section 553 of title 5, United States Code.
       ``(6) Delegation of authority.--

[[Page S8220]]

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


              ``administrative duties of the commissioner

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


      ``medicare competition and prescription drug advisory board

       ``Sec. 1860V. (a) Establishment of Board.--There is 
     established a Medicare Prescription Drug Advisory Board (in 
     this section referred to as the `Board').
       ``(b) Advice on Policies; Reports.--
       ``(1) Advice on policies.--On and after the date the 
     Commissioner takes office, the Board shall advise the 
     Commissioner on policies relating to the Medicare Outpatient 
     Prescription Drug Discount and Security Program under subpart 
     1.
       ``(2) Reports.--
       ``(A) In general.--With respect to matters of the 
     administration of subpart 1, the Board shall submit to 
     Congress and to the Commissioner of Medicare Prescription 
     Drugs such reports as the Board determines appropriate. Each 
     such report may contain such recommendations as the Board 
     determines appropriate for legislative or administrative 
     changes to improve the administration of such subpart. Each 
     such report shall be published in the Federal Register.
       ``(B) Maintaining independence of board.--The Board shall 
     directly submit to Congress reports required under 
     subparagraph (A). No officer or agency of the United States 
     may require the Board to submit to any officer or agency of 
     the United States for approval, comments, or review, prior to 
     the submission to Congress of such reports.
       ``(c) Structure and Membership of the Board.--
       ``(1) Membership.--The Board shall be composed of 7 members 
     who shall be appointed as follows:
       ``(A) Presidential appointments.--
       ``(i) In general.--Three members shall be appointed by the 
     President, by and with the advice and consent of the Senate.
       ``(ii) Limitation.--Not more than 2 such members may be 
     from the same political party.
       ``(B) Senatorial appointments.--Two members (each member 
     from a different political party) shall be appointed by the 
     President pro tempore of the Senate with the advice of the 
     Chairman and the Ranking Minority Member of the Committee on 
     Finance of the Senate.
       ``(C) Congressional appointments.--Two members (each member 
     from a different political party) shall be appointed by the 
     Speaker of the House of Representatives, with the advice of 
     the Chairman and the Ranking Minority Member of the Committee 
     on Ways and Means of the House of Representatives.
       ``(2) Qualifications.--The members shall be chosen on the 
     basis of their integrity, impartiality, and good judgment, 
     and shall be individuals who are, by reason of their 
     education, experience, and attainments, exceptionally 
     qualified to perform the duties of members of the Board.
       ``(d) Terms of Appointment.--

[[Page S8221]]

       ``(1) In general.--Subject to paragraph (2), each member of 
     the Board shall serve for a term of 6 years.
       ``(2) Continuance in office and staggered terms.--
       ``(A) Continuance in office.--A member appointed to a term 
     of office after the commencement of such term may serve under 
     such appointment only for the remainder of such term.
       ``(B) Staggered terms.--The terms of service of the members 
     initially appointed under this section shall begin on January 
     1, 2002, and expire as follows:
       ``(i) Presidential appointments.--The terms of service of 
     the members initially appointed by the President shall expire 
     as designated by the President at the time of nomination, 1 
     each at the end of--

       ``(I) 2 years;
       ``(II) 4 years; and
       ``(III) 6 years.

       ``(ii) Senatorial appointments.--The terms of service of 
     members initially appointed by the President pro tempore of 
     the Senate shall expire as designated by the President pro 
     tempore of the Senate at the time of nomination, 1 each at 
     the end of--

       ``(I) 3 years; and
       ``(II) 6 years.

       ``(iii) Congressional appointments.--The terms of service 
     of members initially appointed by the Speaker of the House of 
     Representatives shall expire as designated by the Speaker of 
     the House of Representatives at the time of nomination, 1 
     each at the end of--

       ``(I) 4 years; and
       ``(II) 5 years.

       ``(C) Reappointments.--Any person appointed as a member of 
     the Board may not serve for more than 8 years.
       ``(D) Vacancies.--Any member appointed to fill a vacancy 
     occurring before the expiration of the term for which the 
     member's predecessor was appointed shall be appointed only 
     for the remainder of that term. A member may serve after the 
     expiration of that member's term until a successor has taken 
     office. A vacancy in the Board shall be filled in the manner 
     in which the original appointment was made.
       ``(e) Chairperson.--A member of the Board shall be 
     designated by the President to serve as Chairperson for a 
     term of 4 years, coincident with the term of the President, 
     or until the designation of a successor.
       ``(f) Expenses and Per Diem.--Members of the Board shall 
     serve without compensation, except that, while serving on 
     business of the Board away from their homes or regular places 
     of business, members may be allowed travel expenses, 
     including per diem in lieu of subsistence, as authorized by 
     section 5703 of title 5, United States Code, for persons in 
     the Government employed intermittently.
       ``(g) Meeting.--
       ``(1) In general.--The Board shall meet at the call of the 
     Chairperson (in consultation with the other members of the 
     Board) not less than 4 times each year to consider a specific 
     agenda of issues, as determined by the Chairperson in 
     consultation with the other members of the Board.
       ``(2) Quorum.--Four members of the Board (not more than 3 
     of whom may be of the same political party) shall constitute 
     a quorum for purposes of conducting business.
       ``(h) Federal Advisory Committee Act.--The Board shall be 
     exempt from the provisions of the Federal Advisory Committee 
     Act (5 U.S.C. App.).
       ``(i) Personnel.--
       ``(1) Staff director.--The Board shall, without regard to 
     the provisions of title 5, United States Code, relating to 
     the competitive service, appoint a Staff Director who shall 
     be paid at a rate equivalent to a rate established for the 
     Senior Executive Service under section 5382 of title 5, 
     United States Code.
       ``(2) Staff.--
       ``(A) In general.--The Board may employ, without regard to 
     chapter 31 of title 5, United States Code, such officers and 
     employees as are necessary to administer the activities to be 
     carried out by the Board.
       ``(B) Flexibility with respect to civil service laws.--
       ``(i) In general.--The staff of the Board shall be 
     appointed without regard to the provisions of title 5, United 
     States Code, governing appointments in the competitive 
     service, and, subject to clause (ii), shall be paid without 
     regard to the provisions of chapters 51 and 53 of such title 
     (relating to classification and schedule pay rates).
       ``(ii) Maximum rate.--In no case may the rate of 
     compensation determined under clause (i) exceed the rate of 
     basic pay payable for level IV of the Executive Schedule 
     under section 5315 of title 5, United States Code.
       ``(j) Authorization of Appropriations.--There are 
     authorized to be appropriated, out of the Federal 
     Supplemental Medical Insurance Trust Fund established under 
     section 1841, and the general fund of the Treasury, such sums 
     as are necessary to carry out the purposes of this 
     section.''.
       (b) Conforming References to Previous Part D.--
       (1) In general.--Any reference in law (in effect before the 
     date of enactment of this Act) to part D of title XVIII of 
     the Social Security Act is deemed a reference to part E of 
     such title (as in effect after such date).
       (2) Secretarial submission of legislative proposal.--Not 
     later than 6 months after the date of enactment of this 
     section, the Secretary of Health and Human Services shall 
     submit to the appropriate committees of Congress a 
     legislative proposal providing for such technical and 
     conforming amendments in the law as are required by the 
     provisions of this section.
       (c) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     take effect on the date of enactment of this Act.
       (2) Timing of initial appointments.--The Commissioner and 
     Deputy Commissioner of Medicare Prescription Drugs may not be 
     appointed before March 1, 2002.

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

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

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

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

     SEC. 5. MEDIGAP REVISIONS.

       Section 1882 of the Social Security Act (42 U.S.C. 1395ss) 
     is amended by adding at the end the following new subsection:
       ``(v) Modernization of Medicare Supplemental Policies.--
       ``(1) Promulgation of model regulation.--
       ``(A) NAIC model regulation.--If, within 9 months after the 
     date of enactment of the Medicare Rx Drug Discount and 
     Security Act of 2001, the National Association of Insurance 
     Commissioners (in this subsection referred to as the `NAIC') 
     changes the 1991 NAIC Model Regulation (described in 
     subsection (p)) to revise the benefit package classified as 
     `J' under the standards established by subsection (p)(2) 
     (including the benefit package classified as `J' with a high 
     deductible feature, as described in subsection (p)(11)) so 
     that--
       ``(i) the coverage for outpatient prescription drugs 
     available under such benefit package is replaced with 
     coverage for outpatient prescription drugs that complements 
     but does not duplicate the benefits for outpatient 
     prescription drugs that beneficiaries are otherwise entitled 
     to under this title;
       ``(ii) a uniform format is used in the policy with respect 
     to such revised benefits; and
       ``(iii) such revised standards meet any additional 
     requirements imposed by the Medicare Rx Drug Discount and 
     Security Act of 2001;

     subsection (g)(2)(A) shall be applied in each State, 
     effective for policies issued to policy holders on and after 
     January 1, 2003, as if the reference to the Model Regulation 
     adopted on June 6, 1979, were a reference to the 1991 NAIC 
     Model Regulation as changed under this subparagraph (such 
     changed regulation referred to in this section as the `2003 
     NAIC Model Regulation').
       ``(B) Regulation by the secretary.--If the NAIC does not 
     make the changes in the 1991 NAIC Model Regulation within the 
     9-month period specified in subparagraph (A), the Secretary 
     shall promulgate, not later than 9 months after the end of 
     such period, a regulation and subsection (g)(2)(A) shall be 
     applied in each State, effective for policies issued to 
     policy holders on and after January 1, 2003, as if the 
     reference to the Model Regulation adopted on June 6, 1979, 
     were a reference to the 1991 NAIC Model Regulation as changed 
     by the Secretary under this subparagraph (such changed 
     regulation referred to in this section as the `2003 Federal 
     Regulation').
       ``(C) Consultation with working group.--In promulgating 
     standards under this paragraph, the NAIC or Secretary shall 
     consult with a working group similar to the working group 
     described in subsection (p)(1)(D).
       ``(D) Modification of standards if medicare benefits 
     change.--If benefits under part D of this title are changed 
     and the Secretary determines, in consultation with the NAIC, 
     that changes in the 2003 NAIC Model Regulation or 2003 
     Federal Regulation are needed to reflect such changes, the 
     preceding provisions of this paragraph shall apply to the 
     modification of standards previously established in the same 
     manner as they applied to the original establishment of such 
     standards.
       ``(2) Construction of benefits in other medicare 
     supplemental policies.--Nothing in the benefit packages 
     classified as `A' through `I' under the standards established 
     by subsection (p)(2) (including the benefit package 
     classified as `F' with a high deductible feature, as 
     described in subsection (p)(11)) shall be construed as 
     providing coverage for benefits for which payment may be made 
     under part D.
       ``(3) Application of provisions and conforming 
     references.--
       ``(A) Application of provisions.--The provisions of 
     paragraphs (4) through (10) of subsection (p) shall apply 
     under this section, except that--

[[Page S8222]]

       ``(i) any reference to the model regulation applicable 
     under that subsection shall be deemed to be a reference to 
     the applicable 2003 NAIC Model Regulation or 2003 Federal 
     Regulation; and
       ``(ii) any reference to a date under such paragraphs of 
     subsection (p) shall be deemed to be a reference to the 
     appropriate date under this subsection.
       ``(B) Other references.--Any reference to a provision of 
     subsection (p) or a date applicable under such subsection 
     shall also be considered to be a reference to the appropriate 
     provision or date under this subsection.''.
                                 ______