subpart 2 - prescription drug plans; pdp sponsors; financing

42 USC 1395w111 - PDP regions; submission of bids; plan approval

(a) Establishment of PDP regions; service areas 

(1) Coverage of entire PDP region 
The service area for a prescription drug plan shall consist of an entire PDP region established under paragraph (2).
(2) Establishment of PDP regions 

(A) In general 
The Secretary shall establish, and may revise, PDP regions in a manner that is consistent with the requirements for the establishment and revision of MA regions under subparagraphs (B) and (C) of section 1395w–27a (a)(2) of this title.

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(B) Relation to MA regions 
To the extent practicable, PDP regions shall be the same as MA regions under section 1395w–27a (a)(2) of this title. The Secretary may establish PDP regions which are not the same as MA regions if the Secretary determines that the establishment of different regions under this part would improve access to benefits under this part.
(C) Authority for territories 
The Secretary shall establish, and may revise, PDP regions for areas in States that are not within the 50 States or the District of Columbia.
(3) National plan 
Nothing in this subsection shall be construed as preventing a prescription drug plan from being offered in more than one PDP region (including all PDP regions).
(b) Submission of bids, premiums, and related information 

(1) In general 
A PDP sponsor shall submit to the Secretary information described in paragraph (2) with respect to each prescription drug plan it offers. Such information shall be submitted at the same time and in a similar manner to the manner in which information described in paragraph (6) of section 1395w–24 (a) of this title is submitted by an MA organization under paragraph (1) of such section.
(2) Information described 
The information described in this paragraph is information on the following:
(A) Coverage provided 
The prescription drug coverage provided under the plan, including the deductible and other cost-sharing.
(B) Actuarial value 
The actuarial value of the qualified prescription drug coverage in the region for a part D eligible individual with a national average risk profile for the factors described in section 1395w–115 (c)(1)(A) of this title (as specified by the Secretary).
(C) Bid 
Information on the bid, including an actuarial certification of
(i) the basis for the actuarial value described in subparagraph (B) assumed in such bid;

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(ii) the portion of such bid attributable to basic prescription drug coverage and, if applicable, the portion of such bid attributable to supplemental benefits;
(iii) assumptions regarding the reinsurance subsidy payments provided under section 1395w–115 (b) of this title subtracted from the actuarial value to produce such bid; and
(iv) administrative expenses assumed in the bid.
(D) Service area 
The service area for the plan.
(E) Level of risk assumed 

(i) In general Whether the PDP sponsor requires a modification of risk level under clause (ii) and, if so, the extent of such modification. Any such modification shall apply with respect to all prescription drug plans offered by a PDP sponsor in a PDP region. This subparagraph shall not apply to an MAPD plan.
(ii) Risk levels described A modification of risk level under this clause may consist of one or more of the following:
(I) Increase in Federal percentage assumed in initial risk corridor An equal percentage point increase in the percents applied under subparagraphs (B)(i), (B)(ii)(I), (C)(i), and (C)(ii)(I) of section 1395w–115 (e)(2) of this title. In no case shall the application of previous sentence prevent the application of a higher percentage under section 1395w–115 (e)(2)(B)(iii)1 of this title.
(II) Increase in Federal percentage assumed in second risk corridor An equal percentage point increase in the percents applied under subparagraphs (B)(ii)(II) and (C)(ii)(II) of section 1395w–115 (e)(2) of this title.
(III) Decrease in size of risk corridors A decrease in the threshold risk percentages specified in section 1395w–115 (e)(3)(C) of this title.
(F) Additional information 
Such other information as the Secretary may require to carry out this part.
(3) Paperwork reduction for offering of prescription drug plans nationally or in multi-region areas 
The Secretary shall establish requirements for information submission under this subsection in a manner that promotes the offering of such plans in more than one PDP region (including all regions) through the filing of consolidated information.
(c) Actuarial valuation 

(1) Processes 
For purposes of this part, the Secretary shall establish processes and methods for determining the actuarial valuation of prescription drug coverage, including
(A) an actuarial valuation of standard prescription drug coverage under section 1395w–102 (b) of this title;
(B) actuarial valuations relating to alternative prescription drug coverage under section 1395w–102 (c)(1) of this title;
(C) an actuarial valuation of the reinsurance subsidy payments under section 1395w–115 (b) of this title;
(D) the use of generally accepted actuarial principles and methodologies; and
(E) applying the same methodology for determinations of actuarial valuations under subparagraphs (A) and (B).
(2) Accounting for drug utilization 
Such processes and methods for determining actuarial valuation shall take into account the effect that providing alternative prescription drug coverage (rather than standard prescription drug coverage) has on drug utilization.
(3) Responsibilities 

(A) Plan responsibilities 
PDP sponsors and MA organizations are responsible for the preparation and submission of actuarial valuations required under this part for prescription drug plans and MAPD plans they offer.
(B) Use of outside actuaries 
Under the processes and methods established under paragraph (1), PDP sponsors offering prescription drug plans and MA organizations offering MAPD plans may use actuarial opinions certified by independent, qualified actuaries to establish actuarial values.
(d) Review of information and negotiation 

(1) Review of information 
The Secretary shall review the information filed under subsection (b) of this section for the purpose of conducting negotiations under paragraph (2).
(2) Negotiation regarding terms and conditions 
Subject to subsection (i) of this section, in exercising the authority under paragraph (1), the Secretary
(A) has the authority to negotiate the terms and conditions of the proposed bid submitted and other terms and conditions of a proposed plan; and
(B) has authority similar to the authority of the Director of the Office of Personnel Management with respect to health benefits plans under chapter 89 of title 5.
(e) Approval of proposed plans 

(1) In general 
After review and negotiation under subsection (d) of this section, the Secretary shall approve or disapprove the prescription drug plan.
(2) Requirements for approval 
The Secretary may approve a prescription drug plan only if the following requirements are met:
(A) Compliance with requirements 
The plan and the PDP sponsor offering the plan comply with the requirements under this part, including the provision of qualified prescription drug coverage.
(B) Actuarial determinations 
The Secretary determines that the plan and PDP sponsor meet the requirements under this part relating to actuarial determinations, including such requirements under section 1395w–102 (c) of this title.
(C) Application of FEHBP standard 

(i) In general The Secretary determines that the portion of the bid submitted under subsection (b) of this section that is attributable to basic prescription drug coverage is supported by the actuarial bases provided under such subsection and reasonably and equitably reflects the revenue requirements (as used for purposes of section 300e–1 (8)(C) of this title) for benefits provided under that plan, less the sum (determined on a monthly per capita basis) of the actuarial value of the reinsurance payments under section 1395w–115 (b) of this title.
(ii) Supplemental coverage The Secretary determines that the portion of the bid submitted under subsection (b) of this section that is attributable to supplemental prescription drug coverage pursuant to section 1395w–102 (a)(2) of this title is supported by the actuarial bases provided under such subsection and reasonably and equitably reflects the revenue requirements (as used for purposes of section 300e–1 (8)(C) of this title) for such coverage under the plan.
(D) Plan design 

(i) In general The Secretary does not find that the design of the plan and its benefits (including any formulary and tiered formulary structure) are likely to substantially discourage enrollment by certain part D eligible individuals under the plan.
(ii) Use of categories and classes in formularies The Secretary may not find that the design of categories and classes within a formulary violates clause (i) if such categories and classes are consistent with guidelines (if any) for such categories and classes established by the United States Pharmacopeia.
(f) Application of limited risk plans 

(1) Conditions for approval of limited risk plans 
The Secretary may only approve a limited risk plan (as defined in paragraph (4)(A)) for a PDP region if the access requirements under section 1395w–103 (a) of this title would not be met for the region but for the approval of such a plan (or a fallback prescription drug plan under subsection (g) of this section).
(2) Rules 
The following rules shall apply with respect to the approval of a limited risk plan in a PDP region:
(A) Limited exercise of authority 
Only the minimum number of such plans may be approved in order to meet the access requirements under section 1395w–103 (a) of this title.
(B) Maximizing assumption of risk 
The Secretary shall provide priority in approval for those plans bearing the highest level of risk (as computed by the Secretary), but the Secretary may take into account the level of the bids submitted by such plans.
(C) No full underwriting for limited risk plans 
In no case may the Secretary approve a limited risk plan under which the modification of risk level provides for no (or a de minimis) level of financial risk.
(3) Acceptance of all full risk contracts 
There shall be no limit on the number of full risk plans that are approved under subsection (e) of this section.
(4) Risk-plans defined 
For purposes of this subsection:
(A) Limited risk plan 
The term limited risk plan means a prescription drug plan that provides basic prescription drug coverage and for which the PDP sponsor includes a modification of risk level described in subparagraph (E) of subsection (b)(2) of this section in its bid submitted for the plan under such subsection. Such term does not include a fallback prescription drug plan.
(B) Full risk plan 
The term full risk plan means a prescription drug plan that is not a limited risk plan or a fallback prescription drug plan.
(g) Guaranteeing access to coverage 

(1) Solicitation of bids 

(A) In general 
Separate from the bidding process under subsection (b) of this section, the Secretary shall provide for a process for the solicitation of bids from eligible fallback entities (as defined in paragraph (2)) for the offering in all fallback service areas (as defined in paragraph (3)) in one or more PDP regions of a fallback prescription drug plan (as defined in paragraph (4)) during the contract period specified in paragraph (5).
(B) Acceptance of bids 

(i) In general Except as provided in this subparagraph, the provisions of subsection (e) of this section shall apply with respect to the approval or disapproval of fallback prescription drug plans. The Secretary shall enter into contracts under this subsection with eligible fallback entities for the offering of fallback prescription drug plans so approved in fallback service areas.
(ii) Limitation of 1 plan for all fallback service areas in a PDP region With respect to all fallback service areas in any PDP region for a contract period, the Secretary shall approve the offering of only 1 fallback prescription drug plan.
(iii) Competitive procedures Competitive procedures (as defined in section 403 (5) of title 41) shall be used to enter into a contract under this subsection. The provisions of subsection (d) of section 1395kk–1 of this title shall apply to a contract under this section in the same manner as they apply to a contract under such section.
(iv) Timing The Secretary shall approve a fallback prescription drug plan for a PDP region in a manner so that, if there are any fallback service areas in the region for a year, the fallback prescription drug plan is offered at the same time as prescription drug plans would otherwise be offered.
(V) [2] No national fallback plan The Secretary shall not enter into a contract with a single fallback entity for the offering of fallback plans throughout the United States.
(2) Eligible fallback entity 
For purposes of this section, the term eligible fallback entity means, with respect to all fallback service areas in a PDP region for a contract period, an entity that
(A) meets the requirements to be a PDP sponsor (or would meet such requirements but for the fact that the entity is not a risk-bearing entity); and
(B) does not submit a bid under subsection (b) of this section for any prescription drug plan for any PDP region for the first year of such contract period.

For purposes of subparagraph (B), an entity shall be treated as submitting a bid with respect to a prescription drug plan if the entity is acting as a subcontractor of a PDP sponsor that is offering such a plan. The previous sentence shall not apply to entities that are subcontractors of an MA organization except insofar as such organization is acting as a PDP sponsor with respect to a prescription drug plan.

(3) Fallback service area 
For purposes of this subsection, the term fallback service area means, for a PDP region with respect to a year, any area within such region for which the Secretary determines before the beginning of the year that the access requirements of the first sentence of section 1395w–103 (a) of this title will not be met for part D eligible individuals residing in the area for the year.
(4) Fallback prescription drug plan 
For purposes of this part, the term fallback prescription drug plan means a prescription drug plan that
(A) only offers the standard prescription drug coverage and access to negotiated prices described in section 1395w–102 (a)(1)(A) of this title and does not include any supplemental prescription drug coverage; and
(B) meets such other requirements as the Secretary may specify.
(5) Payments under the contract 

(A) In general 
A contract entered into under this subsection shall provide for
(i) payment for the actual costs (taking into account negotiated price concessions described in section 1395w–102 (d)(1)(B) of this title) of covered part D drugs provided to part D eligible individuals enrolled in a fallback prescription drug plan offered by the entity; and
(ii) payment of management fees that are tied to performance measures established by the Secretary for the management, administration, and delivery of the benefits under the contract.
(B) Performance measures 
The performance measures established by the Secretary pursuant to subparagraph (A)(ii) shall include at least measures for each of the following:
(i) Costs The entity contains costs to the Medicare Prescription Drug Account and to part D eligible individuals enrolled in a fallback prescription drug plan offered by the entity through mechanisms such as generic substitution and price discounts.
(ii) Quality programs The entity provides such enrollees with quality programs that avoid adverse drug reactions and overutilization and reduce medical errors.
(iii) Customer service The entity provides timely and accurate delivery of services and pharmacy and beneficiary support services.
(iv) Benefit administration and claims adjudication The entity provides efficient and effective benefit administration and claims adjudication.
(6) Monthly beneficiary premium 
Except as provided in section 1395w–113 (b) of this title (relating to late enrollment penalty) and subject to section 1395w–114 of this title (relating to low-income assistance), the monthly beneficiary premium to be charged under a fallback prescription drug plan offered in all fallback service areas in a PDP region shall be uniform and shall be equal to 25.5 percent of an amount equal to the Secretarys estimate of the average monthly per capita actuarial cost, including administrative expenses, under the fallback prescription drug plan of providing coverage in the region, as calculated by the Chief Actuary of the Centers for Medicare & Medicaid Services. In calculating such administrative expenses, the Chief Actuary shall use a factor that is based on similar expenses of prescription drug plans that are not fallback prescription drug plans.
(7) General contract terms and conditions 

(A) In general 
Except as may be appropriate to carry out this section, the terms and conditions of contracts with eligible fallback entities offering fallback prescription drug plans under this subsection shall be the same as the terms and conditions of contracts under this part for prescription drug plans.
(B) Period of contract 

(i) In general Subject to clause (ii), a contract approved for a fallback prescription drug plan for fallback service areas for a PDP region under this section shall be for a period of 3 years (except as may be renewed after a subsequent bidding process).
(ii) Limitation A fallback prescription drug plan may be offered under a contract in an area for a year only if that area is a fallback service area for that year.
(C) Entity not permitted to market or brand fallback prescription drug plans 
An eligible fallback entity with a contract under this subsection may not engage in any marketing or branding of a fallback prescription drug plan.
(h) Annual report on use of limited risk plans and fallback plans 
The Secretary shall submit to Congress an annual report that describes instances in which limited risk plans and fallback prescription drug plans were offered under subsections (f) and (g) of this section. The Secretary shall include in such report such recommendations as may be appropriate to limit the need for the provision of such plans and to maximize the assumption of financial risk under section subsection (f) of this section.
(i) Noninterference 
In order to promote competition under this part and in carrying out this part, the Secretary
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.
(j) Coordination of benefits 
A PDP sponsor offering a prescription drug plan shall permit State Pharmaceutical Assistance Programs and Rx plans under sections 1395w–133 and 1395w–134 of this title to coordinate benefits with the plan and, in connection with such coordination with such a Program, not to impose fees that are unrelated to the cost of coordination.
[1] See References in Text note below.
[2] So in original. Probably should be “(v)”.

42 USC 1395w112 - Requirements for and contracts with prescription drug plan (PDP) sponsors

(a) General requirements 
Each PDP sponsor of a prescription drug plan shall meet the following requirements:
(1) Licensure 
Subject to subsection (c) of this section, the sponsor is organized and licensed under State law as a risk-bearing entity eligible to offer health insurance or health benefits coverage in each State in which it offers a prescription drug plan.
(2) Assumption of financial risk for unsubsidized coverage 

(A) In general 
Subject to subparagraph (B), to the extent that the entity is at risk the entity assumes financial risk on a prospective basis for benefits that it offers under a prescription drug plan and that is not covered under section 1395w–115 (b) of this title.
(B) Reinsurance permitted 
The plan sponsor may obtain insurance or make other arrangements for the cost of coverage provided to any enrollee to the extent that the sponsor is at risk for providing such coverage.
(3) Solvency for unlicensed sponsors 
In the case of a PDP sponsor that is not described in paragraph (1) and for which a waiver has been approved under subsection (c) of this section, such sponsor shall meet solvency standards established by the Secretary under subsection (d) of this section.
(b) Contract requirements 

(1) In general 
The Secretary shall not permit the enrollment under section 1395w–101 of this title in a prescription drug plan offered by a PDP sponsor under this part, and the sponsor shall not be eligible for payments under section 1395w–114 or 1395w–115 of this title, unless the Secretary has entered into a contract under this subsection with the sponsor with respect to the offering of such plan. Such a contract with a sponsor may cover more than one prescription drug plan. Such contract shall provide that the sponsor agrees to comply with the applicable requirements and standards of this part and the terms and conditions of payment as provided for in this part.
(2) Limitation on entities offering fallback prescription drug plans 
The Secretary shall not enter into a contract with a PDP sponsor for the offering of a prescription drug plan (other than a fallback prescription drug plan) in a PDP region for a year if the sponsor
(A) submitted a bid under section 1395w–111 (g) of this title for such year (as the first year of a contract period under such section) to offer a fallback prescription drug plan in any PDP region;
(B) offers a fallback prescription drug plan in any PDP region during the year; or
(C) offered a fallback prescription drug plan in that PDP region during the previous year.

For purposes of this paragraph, an entity shall be treated as submitting a bid with respect to a prescription drug plan or offering a fallback prescription drug plan if the entity is acting as a subcontractor of a PDP sponsor that is offering such a plan. The previous sentence shall not apply to entities that are subcontractors of an MA organization except insofar as such organization is acting as a PDP sponsor with respect to a prescription drug plan.

(3) Incorporation of certain medicare advantage contract requirements 
Except as otherwise provided, the following provisions of section 1395w–27 of this title shall apply to contracts under this section in the same manner as they apply to contracts under section 1395w–27 (a) of this title:
(A) Minimum enrollment 
Paragraphs (1) and (3) of section 1395w–27 (b) of this title, except that
(i) the Secretary may increase the minimum number of enrollees required under such paragraph (1) as the Secretary determines appropriate; and
(ii) the requirement of such paragraph (1) shall be waived during the first contract year with respect to an organization in a region.
(B) Contract period and effectiveness 
Section 1395w–27 (c) of this title, except that in applying paragraph (4)(B) of such section any reference to payment amounts under section 1395w–23 of this title shall be deemed payment amounts under section 1395w–115 of this title.
(C) Protections against fraud and beneficiary protections 
Section 1395w–27 (d) of this title.
(D) Additional contract terms 
Section 1395w–27 (e) of this title; except that section 1395w–27 (e)(2) of this title shall apply as specified to PDP sponsors and payments under this part to an MAPD plan shall be treated as expenditures made under part D.
(E) Intermediate sanctions 
Section 1395w–27 (g) of this title (other than paragraph (1)(F) of such section), except that in applying such section the reference in section 1395w–27 (g)(1)(B) of this title to section 1395w–24 of this title is deemed a reference to this part.
(F) Procedures for termination 
Section 1395w–27 (h) of this title.
(c) Waiver of certain requirements to expand choice 

(1) Authorizing waiver 

(A) In general 
In the case of an entity that seeks to offer a prescription drug plan in a State, the Secretary shall waive the requirement of subsection (a)(1) of this section that the entity be licensed in that State if the Secretary determines, based on the application and other evidence presented to the Secretary, that any of the grounds for approval of the application described in paragraph (2) have been met.
(B) Application of regional plan waiver rule 
In addition to the waiver available under subparagraph (A), the provisions of section 1395w–27a (d) of this title shall apply to PDP sponsors under this part in a manner similar to the manner in which such provisions apply to MA organizations under part C of this subchapter, except that no application shall be required under paragraph (1)(B) of such section in the case of a State that does not provide a licensing process for such a sponsor.
(2) Grounds for approval 

(A) In general 
The grounds for approval under this paragraph are
(i) subject to subparagraph (B), the grounds for approval described in subparagraphs (B), (C), and (D) of section 1395w–25 (a)(2) of this title; and
(ii) the application by a State of any grounds other than those required under Federal law.
(B) Special rules 
In applying subparagraph (A)(i)
(i) the ground of approval described in section 1395w–25 (a)(2)(B) of this title is deemed to have been met if the State does not have a licensing process in effect with respect to the PDP sponsor; and
(ii) for plan years beginning before January 1, 2008, if the State does have such a licensing process in effect, such ground for approval described in such section is deemed to have been met upon submission of an application described in such section.
(3) Application of waiver procedures 
With respect to an application for a waiver (or a waiver granted) under paragraph (1)(A) of this subsection, the provisions of subparagraphs (E), (F), and (G) of section 1395w–25 (a)(2) of this title shall apply, except that clauses (i) and (ii) of such subparagraph (E) shall not apply in the case of a State that does not have a licensing process described in paragraph (2)(B)(i) in effect.
(4) References to certain provisions 
In applying provisions of section 1395w–25 (a)(2) of this title under paragraphs (2) and (3) of this subsection to prescription drug plans and PDP sponsors
(A) any reference to a waiver application under section 1395w–25 of this title shall be treated as a reference to a waiver application under paragraph (1)(A) of this subsection; and
(B) any reference to solvency standards shall be treated as a reference to solvency standards established under subsection (d) of this section.
(d) Solvency standards for non-licensed entities 

(1) Establishment and publication 
The Secretary, in consultation with the National Association of Insurance Commissioners, shall establish and publish, by not later than January 1, 2005, financial solvency and capital adequacy standards for entities described in paragraph (2).
(2) Compliance with standards 
A PDP sponsor that is not licensed by a State under subsection (a)(1) of this section and for which a waiver application has been approved under subsection (c) of this section shall meet solvency and capital adequacy standards established under paragraph (1). The Secretary shall establish certification procedures for such sponsors with respect to such solvency standards in the manner described in section 1395w–25 (c)(2) of this title.
(e) Licensure does not substitute for or constitute certification 
The fact that a PDP sponsor is licensed in accordance with subsection (a)(1) of this section or has a waiver application approved under subsection (c) of this section does not deem the sponsor to meet other requirements imposed under this part for a sponsor.
(f) Periodic review and revision of standards 

(1) In general 
Subject to paragraph (2), the Secretary may periodically review the standards established under this section and, based on such review, may revise such standards if the Secretary determines such revision to be appropriate.
(2) Prohibition of midyear implementation of significant new regulatory requirements 
The Secretary may not implement, other than at the beginning of a calendar year, regulations under this section that impose new, significant regulatory requirements on a PDP sponsor or a prescription drug plan.
(g) Prohibition of State imposition of premium taxes; relation to State laws 
The provisions of sections 1395w–24 (g) and 1395w–26 (b)(3) of this title shall apply with respect to PDP sponsors and prescription drug plans under this part in the same manner as such sections apply to MA organizations and MA plans under part C of this subchapter.

42 USC 1395w113 - Premiums; late enrollment penalty

(a) Monthly beneficiary premium 

(1) Computation 

(A) In general 
The monthly beneficiary premium for a prescription drug plan is the base beneficiary premium computed under paragraph (2) as adjusted under this paragraph.
(B) Adjustment to reflect difference between bid and national average bid 

(i) Above average bid If for a month the amount of the standardized bid amount (as defined in paragraph (5)) exceeds the amount of the adjusted national average monthly bid amount (as defined in clause (iii)), the base beneficiary premium for the month shall be increased by the amount of such excess.
(ii) Below average bid If for a month the amount of the adjusted national average monthly bid amount for the month exceeds the standardized bid amount, the base beneficiary premium for the month shall be decreased by the amount of such excess.
(iii) Adjusted national average monthly bid amount defined For purposes of this subparagraph, the term adjusted national average monthly bid amount means the national average monthly bid amount computed under paragraph (4), as adjusted under section 1395w–115 (c)(2) of this title.
(C) Increase for supplemental prescription drug benefits 
The base beneficiary premium shall be increased by the portion of the PDP approved bid that is attributable to supplemental prescription drug benefits.
(D) Increase for late enrollment penalty 
The base beneficiary premium shall be increased by the amount of any late enrollment penalty under subsection (b) of this section.
(E) Decrease for low-income assistance 
The monthly beneficiary premium is subject to decrease in the case of a subsidy eligible individual under section 1395w–114 of this title.
(F) Uniform premium 
Except as provided in subparagraphs (D) and (E), the monthly beneficiary premium for a prescription drug plan in a PDP region is the same for all part D eligible individuals enrolled in the plan.
(2) Base beneficiary premium 
The base beneficiary premium under this paragraph for a prescription drug plan for a month is equal to the product[1]
(A) the beneficiary premium percentage (as specified in paragraph (3)); and
(B) the national average monthly bid amount (computed under paragraph (4)) for the month.
(3) Beneficiary premium percentage 
For purposes of this subsection, the beneficiary premium percentage for any year is the percentage equal to a fraction
(A) the numerator of which is 25.5 percent; and
(B) the denominator of which is 100 percent minus a percentage equal to
(i) the total reinsurance payments which the Secretary estimates are payable under section 1395w–115 (b) of this title with respect to the coverage year; divided by
(ii) the sum of
(I) the amount estimated under clause (i) for the year; and
(II) the total payments which the Secretary estimates will be paid to prescription drug plans and MAPD plans that are attributable to the standardized bid amount during the year, taking into account amounts paid by the Secretary and enrollees.
(4) Computation of national average monthly bid amount 

(A) In general 
For each year (beginning with 2006) the Secretary shall compute a national average monthly bid amount equal to the average of the standardized bid amounts (as defined in paragraph (5)) for each prescription drug plan and for each MAPD plan described in section 1395w–21 (a)(2)(A)(i) of this title. Such average does not take into account the bids submitted for MSA plans, MA private fee-for-service plan, and specialized MA plans for special needs individuals, PACE programs under section 1395eee of this title (pursuant to section 1395w–131 (f) of this title), and under reasonable cost reimbursement contracts under section 1395mm (h) of this title (pursuant to section 1395w–131 (e) of this title).
(B) Weighted average 

(i) In general The monthly national average monthly bid amount computed under subparagraph (A) for a year shall be a weighted average, with the weight for each plan being equal to the average number of part D eligible individuals enrolled in such plan in the reference month (as defined in section 1395w–27a (f)(4) of this title).
(ii) Special rule for 2006 For purposes of applying this paragraph for 2006, the Secretary shall establish procedures for determining the weighted average under clause (i) for 2005.
(5) Standardized bid amount defined 
For purposes of this subsection, the term standardized bid amount means the following:
(A) Prescription drug plans 

(i) Basic coverage In the case of a prescription drug plan that provides basic prescription drug coverage, the PDP approved bid (as defined in paragraph (6)).
(ii) Supplemental coverage In the case of a prescription drug plan that provides supplemental prescription drug coverage, the portion of the PDP approved bid that is attributable to basic prescription drug coverage.
(B) MA–PD plans 
In the case of an MAPD plan, the portion of the accepted bid amount that is attributable to basic prescription drug coverage.
(6) PDP approved bid defined 
For purposes of this part, the term PDP approved bid means, with respect to a prescription drug plan, the bid amount approved for the plan under this part.
(b) Late enrollment penalty 

(1) In general 
Subject to the succeeding provisions of this subsection, in the case of a part D eligible individual described in paragraph (2) with respect to a continuous period of eligibility, there shall be an increase in the monthly beneficiary premium established under subsection (a) of this section in an amount determined under paragraph (3).
(2) Individuals subject to penalty 
A part D eligible individual described in this paragraph is, with respect to a continuous period of eligibility, an individual for whom there is a continuous period of 63 days or longer (all of which in such continuous period of eligibility) beginning on the day after the last date of the individuals initial enrollment period under section 1395w–101 (b)(2) of this title and ending on the date of enrollment under a prescription drug plan or MAPD plan during all of which the individual was not covered under any creditable prescription drug coverage.
(3) Amount of penalty 

(A) In general 
The amount determined under this paragraph for a part D eligible individual for a continuous period of eligibility is the greater of
(i) an amount that the Secretary determines is actuarially sound for each uncovered month (as defined in subparagraph (B)) in the same continuous period of eligibility; or
(ii) 1 percent of the base beneficiary premium (computed under subsection (a)(2) of this section) for each such uncovered month in such period.
(B) Uncovered month defined 
For purposes of this subsection, the term uncovered month means, with respect to a part D eligible individual, any month beginning after the end of the initial enrollment period under section 1395w–101 (b)(2) of this title unless the individual can demonstrate that the individual had creditable prescription drug coverage (as defined in paragraph (4)) for any portion of such month.
(4) Creditable prescription drug coverage defined 
For purposes of this part, the term creditable prescription drug coverage means any of the following coverage, but only if the coverage meets the requirement of paragraph (5):
(A) Coverage under prescription drug plan or MA–PD plan 
Coverage under a prescription drug plan or under an MAPD plan.
(B) Medicaid 
Coverage under a medicaid plan under subchapter XIX of this chapter or under a waiver under section 1315 of this title.
(C) Group health plan 
Coverage under a group health plan, including a health benefits plan under chapter 89 of title 5 (commonly known as the Federal employees health benefits program), and a qualified retiree prescription drug plan (as defined in section 1395w–132 (a)(2) of this title).
(D) State pharmaceutical assistance program 
Coverage under a State pharmaceutical assistance program described in section 1395w–133 (b)(1) of this title.
(E) Veterans’ coverage of prescription drugs 
Coverage for veterans, and survivors and dependents of veterans, under chapter 17 of title 38.
(F) Prescription drug coverage under medigap policies 
Coverage under a medicare supplemental policy under section 1395ss of this title that provides benefits for prescription drugs (whether or not such coverage conforms to the standards for packages of benefits under section 1395ss (p)(1) of this title).
(G) Military coverage (including TRICARE) 
Coverage under chapter 55 of title 10.
(H) Other coverage 
Such other coverage as the Secretary determines appropriate.
(5) Actuarial equivalence requirement 
Coverage meets the requirement of this paragraph only if the coverage is determined (in a manner specified by the Secretary) to provide coverage of the cost of prescription drugs the actuarial value of which (as defined by the Secretary) to the individual equals or exceeds the actuarial value of standard prescription drug coverage (as determined under section 1395w–111 (c) of this title).
(6) Procedures to document creditable prescription drug coverage 

(A) In general 
The Secretary shall establish procedures (including the form, manner, and time) for the documentation of creditable prescription drug coverage, including procedures to assist in determining whether coverage meets the requirement of paragraph (5).
(B) Disclosure by entities offering creditable prescription drug coverage 

(i) In general Each entity that offers prescription drug coverage of the type described in subparagraphs (B) through (H) of paragraph (4) shall provide for disclosure, in a form, manner, and time consistent with standards established by the Secretary, to the Secretary and part D eligible individuals of whether the coverage meets the requirement of paragraph (5) or whether such coverage is changed so it no longer meets such requirement.
(ii) Disclosure of non-creditable coverage In the case of such coverage that does not meet such requirement, the disclosure to part D eligible individuals under this subparagraph shall include information regarding the fact that because such coverage does not meet such requirement there are limitations on the periods in a year in which the individuals may enroll under a prescription drug plan or an MAPD plan and that any such enrollment is subject to a late enrollment penalty under this subsection.
(C) Waiver of requirement 
In the case of a part D eligible individual who was enrolled in prescription drug coverage of the type described in subparagraphs (B) through (H) of paragraph (4) which is not creditable prescription drug coverage because it does not meet the requirement of paragraph (5), the individual may apply to the Secretary to have such coverage treated as creditable prescription drug coverage if the individual establishes that the individual was not adequately informed that such coverage did not meet such requirement.
(7) Continuous period of eligibility 

(A) In general 
Subject to subparagraph (B), for purposes of this subsection, the term continuous period of eligibility means, with respect to a part D eligible individual, the period that begins with the first day on which the individual is eligible to enroll in a prescription drug plan under this part and ends with the individuals death.
(B) Separate period 
Any period during all of which a part D eligible individual is entitled to hospital insurance benefits under part A of this subchapter and
(i) which terminated in or before the month preceding the month in which the individual attained age 65; or
(ii) for which the basis for eligibility for such entitlement changed between section 426 (b) of this title and section 426 (a) of this title, between 426(b)[2] of this title and section 426–1 of this title, or between section 426–1 of this title and section 426 (a) of this title,

shall be a separate continuous period of eligibility with respect to the individual (and each such period which terminates shall be deemed not to have existed for purposes of subsequently applying this paragraph).

(c) Collection of monthly beneficiary premiums 

(1) In general 
Subject to paragraphs (2) and (3), the provisions of section 1395w–24 (d) of this title shall apply to PDP sponsors and premiums (and any late enrollment penalty) under this part in the same manner as they apply to MA organizations and beneficiary premiums under part C of this subchapter, except that any reference to a Trust Fund is deemed for this purpose a reference to the Medicare Prescription Drug Account.
(2) Crediting of late enrollment penalty 

(A) Portion attributable to increased actuarial costs 
With respect to late enrollment penalties imposed under subsection (b) of this section, the Secretary shall specify the portion of such a penalty that the Secretary estimates is attributable to increased actuarial costs assumed by the PDP sponsor or MA organization (and not taken into account through risk adjustment provided under section 1395w–115 (c)(1) of this title or through reinsurance payments under section 1395w–115 (b) of this title) as a result of such late enrollment.
(B) Collection through withholding 
In the case of a late enrollment penalty that is collected from a part D eligible individual in the manner described in section 1395w–24 (d)(2)(A) of this title, the Secretary shall provide that only the portion of such penalty estimated under subparagraph (A) shall be paid to the PDP sponsor or MA organization offering the part D plan in which the individual is enrolled.
(C) Collection by plan 
In the case of a late enrollment penalty that is collected from a part D eligible individual in a manner other than the manner described in section 1395w–24 (d)(2)(A) of this title, the Secretary shall establish procedures for reducing payments otherwise made to the PDP sponsor or MA organization by an amount equal to the amount of such penalty less the portion of such penalty estimated under subparagraph (A).
(3) Fallback plans 
In applying this subsection in the case of a fallback prescription drug plan, paragraph (2) shall not apply and the monthly beneficiary premium shall be collected in the manner specified in section 1395w–24 (d)(2)(A) of this title (or such other manner as may be provided under section 1395s of this title in the case of monthly premiums under section 1395r of this title).
[1] So in original. The word “of” probably should appear after “product”.
[2] So in original. Probably should be “section 426 (b)”.

42 USC 1395w114 - Premium and cost-sharing subsidies for low-income individuals

(a) Income-related subsidies for individuals with income up to 150 percent of poverty line 

(1) Individuals with income below 135 percent of poverty line 
In the case of a subsidy eligible individual (as defined in paragraph (3)) who is determined to have income that is below 135 percent of the poverty line applicable to a family of the size involved and who meets the resources requirement described in paragraph (3)(D) or who is covered under this paragraph under paragraph (3)(B)(i), the individual is entitled under this section to the following:
(A) Full premium subsidy 
An income-related premium subsidy equal to
(i) 100 percent of the amount described in subsection (b)(1) of this section, but not to exceed the premium amount specified in subsection (b)(2)(B) of this section; plus
(ii) 80 percent of any late enrollment penalties imposed under section 1395w–113 (b) of this title for the first 60 months in which such penalties are imposed for that individual, and 100 percent of any such penalties for any subsequent month.
(B) Elimination of deductible 
A reduction in the annual deductible applicable under section 1395w–102 (b)(1) of this title to $0.
(C) Continuation of coverage above the initial coverage limit 
The continuation of coverage from the initial coverage limit (under paragraph (3) of section 1395w–102 (b) of this title) for expenditures incurred through the total amount of expenditures at which benefits are available under paragraph (4) of such section, subject to the reduced cost-sharing described in subparagraph (D).
(D) Reduction in cost-sharing below out-of-pocket threshold 

(i) Institutionalized individuals In the case of an individual who is a full-benefit dual eligible individual and who is an institutionalized individual or couple (as defined in section 1396a (q)(1)(B) of this title), the elimination of any beneficiary coinsurance described in section 1395w–102 (b)(2) of this title (for all amounts through the total amount of expenditures at which benefits are available under section 1395w–102 (b)(4) of this title).
(ii) Lowest income dual eligible individuals In the case of an individual not described in clause (i) who is a full-benefit dual eligible individual and whose income does not exceed 100 percent of the poverty line applicable to a family of the size involved, the substitution for the beneficiary coinsurance described in section 1395w–102 (b)(2) of this title (for all amounts through the total amount of expenditures at which benefits are available under section 1395w–102 (b)(4) of this title) of a copayment amount that does not exceed $1 for a generic drug or a preferred drug that is a multiple source drug (as defined in section 1396r–8 (k)(7)(A)(i) of this title) and $3 for any other drug, or, if less, the copayment amount applicable to an individual under clause (iii).
(iii) Other individuals In the case of an individual not described in clause (i) or (ii), the substitution for the beneficiary coinsurance described in section 1395w–102 (b)(2) of this title (for all amounts through the total amount of expenditures at which benefits are available under section 1395w–102 (b)(4) of this title) of a copayment amount that does not exceed the copayment amount specified under section 1395w–102 (b)(4)(A)(i)(I) of this title for the drug and year involved.
(E) Elimination of cost-sharing above annual out-of-pocket threshold 
The elimination of any cost-sharing imposed under section 1395w–102 (b)(4)(A) of this title.
(2) Other individuals with income below 150 percent of poverty line 
In the case of a subsidy eligible individual who is not described in paragraph (1), the individual is entitled under this section to the following:
(A) Sliding scale premium subsidy 
An income-related premium subsidy determined on a linear sliding scale ranging from 100 percent of the amount described in paragraph (1)(A) for individuals with incomes at or below 135 percent of such level to 0 percent of such amount for individuals with incomes at 150 percent of such level.
(B) Reduction of deductible 
A reduction in the annual deductible applicable under section 1395w–102 (b)(1) of this title to $50.
(C) Continuation of coverage above the initial coverage limit 
The continuation of coverage from the initial coverage limit (under paragraph (3) of section 1395w–102 (b) of this title) for expenditures incurred through the total amount of expenditures at which benefits are available under paragraph (4) of such section, subject to the reduced coinsurance described in subparagraph (D).
(D) Reduction in cost-sharing below out-of-pocket threshold 
The substitution for the beneficiary coinsurance described in section 1395w–102 (b)(2) of this title (for all amounts above the deductible under subparagraph (B) through the total amount of expenditures at which benefits are available under section 1395w–102 (b)(4) of this title) of coinsurance of 15 percent instead of coinsurance of 25 percent in section 1395w–102 (b)(2) of this title.
(E) Reduction of cost-sharing above annual out-of-pocket threshold 
Subject to subsection (c) of this section, the substitution for the cost-sharing imposed under section 1395w–102 (b)(4)(A) of this title of a copayment or coinsurance not to exceed the copayment or coinsurance amount specified under section 1395w–102 (b)(4)(A)(i)(I) of this title for the drug and year involved.
(3) Determination of eligibility 

(A) Subsidy eligible individual defined 
For purposes of this part, subject to subparagraph (F), the term subsidy eligible individual means a part D eligible individual who
(i) is enrolled in a prescription drug plan or MAPD plan;
(ii) has income below 150 percent of the poverty line applicable to a family of the size involved; and
(iii) meets the resources requirement described in subparagraph (D) or (E).
(B) Determinations 

(i) In general The determination of whether a part D eligible individual residing in a State is a subsidy eligible individual and whether the individual is described in paragraph (1) shall be determined under the State plan under subchapter XIX of this chapter for the State under section 1396u–5 (a) of this title or by the Commissioner of Social Security. There are authorized to be appropriated to the Social Security Administration such sums as may be necessary for the determination of eligibility under this subparagraph.
(ii) Effective period Determinations under this subparagraph shall be effective beginning with the month in which the individual applies for a determination that the individual is a subsidy eligible individual and shall remain in effect for a period specified by the Secretary, but not to exceed 1 year.
(iii) Redeterminations and appeals through medicaid Redeterminations and appeals, with respect to eligibility determinations under clause (i) made under a State plan under subchapter XIX of this chapter, shall be made in accordance with the frequency of, and manner in which, redeterminations and appeals of eligibility are made under such plan for purposes of medical assistance under such subchapter.
(iv) Redeterminations and appeals through Commissioner With respect to eligibility determinations under clause (i) made by the Commissioner of Social Security
(I) redeterminations shall be made at such time or times as may be provided by the Commissioner; and
(II) the Commissioner shall establish procedures for appeals of such determinations that are similar to the procedures described in the third sentence of section 1383 (c)(1)(A) of this title.
(v) Treatment of medicaid beneficiaries Subject to subparagraph (F), the Secretary
(I) shall provide that part D eligible individuals who are full-benefit dual eligible individuals (as defined in section 1396u–5 (c)(6) of this title) or who are recipients of supplemental security income benefits under subchapter XVI of this chapter shall be treated as subsidy eligible individuals described in paragraph (1); and
(II) may provide that part D eligible individuals not described in subclause (I) who are determined for purposes of the State plan under subchapter XIX of this chapter to be eligible for medical assistance under clause (i), (iii), or (iv) of section 1396a (a)(10)(E) of this title are treated as being determined to be subsidy eligible individuals described in paragraph (1).

Insofar as the Secretary determines that the eligibility requirements under the State plan for medical assistance referred to in subclause (II) are substantially the same as the requirements for being treated as a subsidy eligible individual described in paragraph (1), the Secretary shall provide for the treatment described in such subclause.

(C) Income determinations 
For purposes of applying this section
(i) in the case of a part D eligible individual who is not treated as a subsidy eligible individual under subparagraph (B)(v), income shall be determined in the manner described in section 1396d (p)(1)(B) of this title, without regard to the application of section 1396a (r)(2) of this title; and
(ii) the term poverty line has the meaning given such term in section 9902 (2) of this title, including any revision required by such section.

Nothing in clause (i) shall be construed to affect the application of section 1396a (r)(2) of this title for the determination of eligibility for medical assistance under subchapter XIX of this chapter.

(D) Resource standard applied to full low-income subsidy to be based on three times SSI resource standard 
The resources requirement of this subparagraph is that an individuals resources (as determined under section 1382b of this title for purposes of the supplemental security income program) do not exceed
(i) for 2006 three times the maximum amount of resources that an individual may have and obtain benefits under that program; and
(ii) for a subsequent year the resource limitation established under this clause for the previous year increased by the annual percentage increase in the consumer price index (all items; U.S. city average) as of September of such previous year.

Any resource limitation established under clause (ii) that is not a multiple of $10 shall be rounded to the nearest multiple of $10.

(E) Alternative resource standard 

(i) In general The resources requirement of this subparagraph is that an individuals resources (as determined under section 1382b of this title for purposes of the supplemental security income program) do not exceed
(I) for 2006, $10,000 (or $20,000 in the case of the combined value of the individuals assets or resources and the assets or resources of the individuals spouse); and
(II) for a subsequent year the dollar amounts specified in this subclause (or subclause (I)) for the previous year increased by the annual percentage increase in the consumer price index (all items; U.S. city average) as of September of such previous year.

Any dollar amount established under subclause (II) that is not a multiple of $10 shall be rounded to the nearest multiple of $10.

(ii) Use of simplified application form and process The Secretary, jointly with the Commissioner of Social Security, shall
(I) develop a model, simplified application form and process consistent with clause (iii) for the determination and verification of a part D eligible individuals assets or resources under this subparagraph; and
(II) provide such form to States.
(iii) Documentation and safeguards Under such process
(I) the application form shall consist of an attestation under penalty of perjury regarding the level of assets or resources (or combined assets and resources in the case of a married part D eligible individual) and valuations of general classes of assets or resources;
(II) such form shall be accompanied by copies of recent statements (if any) from financial institutions in support of the application; and
(III) matters attested to in the application shall be subject to appropriate methods of verification.
(iv) Methodology flexibility The Secretary may permit a State in making eligibility determinations for premium and cost-sharing subsidies under this section to use the same asset or resource methodologies that are used with respect to eligibility for medical assistance for medicare cost-sharing described in section 1396d (p) of this title so long as the Secretary determines that the use of such methodologies will not result in any significant differences in the number of individuals determined to be subsidy eligible individuals.
(F) Treatment of territorial residents 
In the case of a part D eligible 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 under this section but may be eligible for financial assistance with prescription drug expenses under section 1396u–5 (e) of this title.
(4) Indexing dollar amounts 

(A) Copayment for lowest income dual eligible individuals 
The dollar amounts applied under paragraph (1)(D)(ii)
(i) for 2007 shall be the dollar amounts specified in such paragraph increased by the annual percentage increase in the consumer price index (all items; U.S. city average) as of September of such previous year; or
(ii) for a subsequent year shall be the dollar amounts specified in this clause (or clause (i)) for the previous year increased by the annual percentage increase in the consumer price index (all items; U.S. city average) as of September of such previous year.

Any amount established under clause (i) or (ii), that is based on an increase of $1 or $3, that is not a multiple of 5 cents or 10 cents, respectively, shall be rounded to the nearest multiple of 5 cents or 10 cents, respectively.

(B) Reduced deductible 
The dollar amount applied under paragraph (2)(B)
(i) for 2007 shall be the dollar amount specified in such paragraph increased by the annual percentage increase described in section 1395w–102 (b)(6) of this title for 2007; or
(ii) for a subsequent year shall be the dollar amount specified in this clause (or clause (i)) for the previous year increased by the annual percentage increase described in section 1395w–102 (b)(6) of this title for the year involved.

Any amount established under clause (i) or (ii) that is not a multiple of $1 shall be rounded to the nearest multiple of $1.

(b) Premium subsidy amount 

(1) In general 
The premium subsidy amount described in this subsection for a subsidy eligible individual residing in a PDP region and enrolled in a prescription drug plan or MAPD plan is the low-income benchmark premium amount (as defined in paragraph (2)) for the PDP region in which the individual resides or, if greater, the amount specified in paragraph (3).
(2) Low-income benchmark premium amount defined 

(A) In general 
For purposes of this subsection, the term low-income benchmark premium amount means, with respect to a PDP region in which
(i) all prescription drug plans are offered by the same PDP sponsor, the weighted average of the amounts described in subparagraph (B)(i) for such plans; or
(ii) there are prescription drug plans offered by more than one PDP sponsor, the weighted average of amounts described in subparagraph (B) for prescription drug plans and MAPD plans described in section 1395w–21 (a)(2)(A)(i) of this title offered in such region.
(B) Premium amounts described 
The premium amounts described in this subparagraph are, in the case of
(i) a prescription drug plan that is a basic prescription drug plan, the monthly beneficiary premium for such plan;
(ii) a prescription drug plan that provides alternative prescription drug coverage the actuarial value of which is greater than that of standard prescription drug coverage, the portion of the monthly beneficiary premium that is attributable to basic prescription drug coverage; and
(iii) an MAPD plan, the portion of the MA monthly prescription drug beneficiary premium that is attributable to basic prescription drug benefits (described in section 1395w–22 (a)(6)(B)(ii) of this title[1]).

The premium amounts described in this subparagraph do not include any amounts attributable to late enrollment penalties under section 1395w–113 (b) of this title.

(3) Access to 0 premium plan 
In no case shall the premium subsidy amount under this subsection for a PDP region be less than the lowest monthly beneficiary premium for a prescription drug plan that offers basic prescription drug coverage in the region.
(c) Administration of subsidy program 

(1) In general 
The Secretary shall provide a process whereby, in the case of a part D eligible individual who is determined to be a subsidy eligible individual and who is enrolled in a prescription drug plan or is enrolled in an MAPD plan
(A) the Secretary provides for a notification of the PDP sponsor or the MA organization offering the plan involved that the individual is eligible for a subsidy and the amount of the subsidy under subsection (a) of this section;
(B) the sponsor or organization involved reduces the premiums or cost-sharing otherwise imposed by the amount of the applicable subsidy and submits to the Secretary information on the amount of such reduction;
(C) the Secretary periodically and on a timely basis reimburses the sponsor or organization for the amount of such reductions; and
(D) the Secretary ensures the confidentiality of individually identifiable information.

In applying subparagraph (C), the Secretary shall compute reductions based upon imposition under subsections (a)(1)(D) and (a)(2)(E) of this section of unreduced copayment amounts applied under such subsections.

(2) Use of capitated form of payment 
The reimbursement under this section with respect to cost-sharing subsidies may be computed on a capitated basis, taking into account the actuarial value of the subsidies and with appropriate adjustments to reflect differences in the risks actually involved.
(d) Relation to medicaid program 
For special provisions under the medicaid program relating to medicare prescription drug benefits, see section 1396u–5 of this title.
[1] So in original. Section 1395w–22 (a)(6) of this title does not contain a subpar. (B).

42 USC 1395w115 - Subsidies for part D eligible individuals for qualified prescription drug coverage

(a) Subsidy payment 
In order to reduce premium levels applicable to qualified prescription drug coverage for part D eligible individuals consistent with an overall subsidy level of 74.5 percent for basic prescription drug coverage, to reduce adverse selection among prescription drug plans and MAPD plans, and to promote the participation of PDP sponsors under this part and MA organizations under part C of this subchapter, the Secretary shall provide for payment to a PDP sponsor that offers a prescription drug plan and an MA organization that offers an MAPD plan of the following subsidies in accordance with this section:
(1) Direct subsidy 
A direct subsidy for each part D eligible individual enrolled in a prescription drug plan or MAPD plan for a month equal to
(A) the amount of the plans standardized bid amount (as defined in section 1395w–113 (a)(5) of this title), adjusted under subsection (c)(1) of this section, reduced by
(B) the base beneficiary premium (as computed under paragraph (2) of section 1395w–113 (a) of this title and as adjusted under paragraph (1)(B) of such section).
(2) Subsidy through reinsurance 
The reinsurance payment amount (as defined in subsection (b) of this section).

This section constitutes budget authority in advance of appropriations Acts and represents the obligation of the Secretary to provide for the payment of amounts provided under this section.

(b) Reinsurance payment amount 

(1) In general 
The reinsurance payment amount under this subsection for a part D eligible individual enrolled in a prescription drug plan or MAPD plan for a coverage year is an amount equal to 80 percent of the allowable reinsurance costs (as specified in paragraph (2)) attributable to that portion of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual has incurred costs that exceed the annual out-of-pocket threshold specified in section 1395w–102 (b)(4)(B) of this title.
(2) Allowable reinsurance costs 
For purposes of this section, the term allowable reinsurance costs means, with respect to gross covered prescription drug costs under a prescription drug plan offered by a PDP sponsor or an MAPD plan offered by an MA organization, the part of such costs that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization or by (or on behalf of) an enrollee 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 basic prescription drug coverage, or, in the case of a plan providing supplemental prescription drug coverage, if such coverage were standard prescription drug coverage.
(3) Gross covered prescription drug costs 
For purposes of this section, the term gross covered prescription drug costs means, with respect to a part D eligible individual enrolled in a prescription drug plan or MAPD plan during a coverage year, the costs incurred under the plan, not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year and costs relating to the deductible. Such costs shall be determined whether they are paid by the individual or under the plan, regardless of whether the coverage under the plan exceeds basic prescription drug coverage.
(4) Coverage year defined 
For purposes of this section, the term coverage year means a calendar year in which covered part D drugs are dispensed if the claim for such drugs (and payment on such claim) is made not later than such period after the end of such year as the Secretary specifies.
(c) Adjustments relating to bids 

(1) Health status risk adjustment 

(A) Establishment of risk adjustors 
The Secretary shall establish an appropriate methodology for adjusting the standardized bid amount under subsection (a)(1)(A) of this section to take into account variation in costs for basic prescription drug coverage among prescription drug plans and MAPD plans based on the differences in actuarial risk of different enrollees being served. Any such risk adjustment shall be designed in a manner so as not to result in a change in the aggregate amounts payable to such plans under subsection (a)(1) of this section and through that portion of the monthly beneficiary prescription drug premiums described in subsection (a)(1)(B) of this section and MA monthly prescription drug beneficiary premiums.
(B) Considerations 
In establishing the methodology under subparagraph (A), the Secretary may take into account the similar methodologies used under section 1395w–23 (a)(3) of this title to adjust payments to MA organizations for benefits under the original medicare fee-for-service program option.
(C) Data collection 
In order to carry out this paragraph, the Secretary shall require
(i) PDP sponsors to submit data regarding drug claims that can be linked at the individual level to part A and part B data and such other information as the Secretary determines necessary; and
(ii) MA organizations that offer MAPD plans to submit data regarding drug claims that can be linked at the individual level to other data that such organizations are required to submit to the Secretary and such other information as the Secretary determines necessary.
(D) Publication 
At the time of publication of risk adjustment factors under section 1395w–23 (b)(1)(B)(i)(II) of this title, the Secretary shall publish the risk adjusters established under this paragraph for the succeeding year.
(2) Geographic adjustment 

(A) In general 
Subject to subparagraph (B), for purposes of section 1395w–113 (a)(1)(B)(iii) of this title, the Secretary shall establish an appropriate methodology for adjusting the national average monthly bid amount (computed under section 1395w–113 (a)(4) of this title) to take into account differences in prices for covered part D drugs among PDP regions.
(B) De minimis rule 
If the Secretary determines that the price variations described in subparagraph (A) among PDP regions are de minimis, the Secretary shall not provide for adjustment under this paragraph.
(C) Budget neutral adjustment 
Any adjustment under this paragraph shall be applied in a manner so as to not result in a change in the aggregate payments made under this part that would have been made if the Secretary had not applied such adjustment.
(d) Payment methods 

(1) In general 
Payments under this section shall be based on such a method as the Secretary determines. The Secretary may establish a payment method by which interim payments of amounts under this section are made during a year based on the Secretarys best estimate of amounts that will be payable after obtaining all of the information.
(2) Requirement for provision of information 

(A) Requirement 
Payments under this section to a PDP sponsor or MA organization are conditioned upon the furnishing to the Secretary, in a form and manner specified by the Secretary, of such information as may be required to carry out this section.
(B) Restriction on use of information 
Information disclosed or obtained pursuant to subparagraph (A) may be used by officers, employees, and contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out this section.
(3) Source of payments 
Payments under this section shall be made from the Medicare Prescription Drug Account.
(4) Application of enrollee adjustment 
The provisions of section 1395w–23 (a)(2) of this title shall apply to payments to PDP sponsors under this section in the same manner as they apply to payments to MA organizations under section 1395w–23 (a) of this title.
(e) Portion of total payments to a sponsor or organization subject to risk (application of risk corridors) 

(1) Computation of adjusted allowable risk corridor costs 

(A) In general 
For purposes of this subsection, the term adjusted allowable risk corridor costs means, for a plan for a coverage year (as defined in subsection (b)(4) of this section)
(i) the allowable risk corridor costs (as defined in subparagraph (B)) for the plan for the year, reduced by
(ii) the sum of
(I)  the total reinsurance payments made under subsection (b) of this section to the sponsor of the plan for the year, and
(II)  the total subsidy payments made under section 1395w–114 of this title to the sponsor of the plan for the year.
(B) Allowable risk corridor costs 
For purposes of this subsection, the term allowable risk corridor costs means, with respect to a prescription drug plan offered by a PDP sponsor or an MAPD plan offered by an MA organization, the part of costs (not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year) incurred by the sponsor or organization under the plan that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization 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 basic prescription drug coverage, or, in the case of a plan providing supplemental prescription drug coverage, if such coverage were basic prescription drug coverage taking into account the adjustment under section 1395w–111 (c)(2) of this title. In computing allowable costs under this paragraph, the Secretary shall compute such costs based upon imposition under paragraphs (1)(D) and (2)(E) of section 1395w–114 (a) of this title of the maximum amount of copayments permitted under such paragraphs.
(2) Adjustment of payment 

(A) No adjustment if adjusted allowable risk corridor costs within risk corridor 
If the adjusted allowable risk corridor costs (as defined in paragraph (1)) for the plan for the year are at least equal to the first threshold lower limit of the risk corridor (specified in paragraph (3)(A)(i)), but not greater than the first threshold upper limit of the risk corridor (specified in paragraph (3)(A)(iii)) for the plan for the year, then no payment adjustment shall be made under this subsection.
(B) Increase in payment if adjusted allowable risk corridor costs above upper limit of risk corridor 

(i) Costs between first and second threshold upper limits If the adjusted allowable risk corridor costs for the plan for the year are greater than the first threshold upper limit, but not greater than the second threshold upper limit, of the risk corridor for the plan for the year, the Secretary shall increase the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount equal to 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in clause (iii) are met for the year) of the difference between such adjusted allowable risk corridor costs and the first threshold upper limit of the risk corridor.
(ii) Costs above second threshold upper limits If the adjusted allowable risk corridor costs for the plan for the year are greater than the second threshold upper limit of the risk corridor for the plan for the year, the Secretary shall increase the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount equal to the sum of
(I) 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in clause (iii) are met for the year) of the difference between the second threshold upper limit and the first threshold upper limit; and
(II) 80 percent of the difference between such adjusted allowable risk corridor costs and the second threshold upper limit of the risk corridor.
(iii) Conditions for application of higher percentage for 2006 and 2007 The conditions described in this clause are met for 2006 or 2007 if the Secretary determines with respect to such year that
(I) at least 60 percent of prescription drug plans and MAPD plans to which this subsection applies have adjusted allowable risk corridor costs for the plan for the year that are more than the first threshold upper limit of the risk corridor for the plan for the year; and
(II) such plans represent at least 60 percent of part D eligible individuals enrolled in any prescription drug plan or MAPD plan.
(C) Reduction in payment if adjusted allowable risk corridor costs below lower limit of risk corridor 

(i) Costs between first and second threshold lower limits If the adjusted allowable risk corridor costs for the plan for the year are less than the first threshold lower limit, but not less than the second threshold lower limit, of the risk corridor for the plan for the year, the Secretary shall reduce the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount (or otherwise recover from the sponsor or organization an amount) equal to 50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold lower limit of the risk corridor and such adjusted allowable risk corridor costs.
(ii) Costs below second threshold lower limit If the adjusted allowable risk corridor costs for the plan for the year are less the second threshold lower limit of the risk corridor for the plan for the year, the Secretary shall reduce the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount (or otherwise recover from the sponsor or organization an amount) equal to the sum of
(I) 50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold lower limit and the second threshold lower limit; and
(II) 80 percent of the difference between the second threshold upper limit of the risk corridor and such adjusted allowable risk corridor costs.
(3) Establishment of risk corridors 

(A) In general 
For each plan year the Secretary shall establish a risk corridor for each prescription drug plan and each MAPD plan. The risk corridor for a plan for a year shall be equal to a range as follows:
(i) First threshold lower limit The first threshold lower limit of such corridor shall be equal to
(I) the target amount described in subparagraph (B) for the plan; minus
(II) an amount equal to the first threshold risk percentage for the plan (as determined under subparagraph (C)(i)) of such target amount.
(ii) Second threshold lower limit The second threshold lower limit of such corridor shall be equal to
(I) the target amount described in subparagraph (B) for the plan; minus
(II) an amount equal to the second threshold risk percentage for the plan (as determined under subparagraph (C)(ii)) of such target amount.
(iii) First threshold upper limit The first threshold upper limit of such corridor shall be equal to the sum of
(I) such target amount; and
(II) the amount described in clause (i)(II).
(iv) Second threshold upper limit The second threshold upper limit of such corridor shall be equal to the sum of
(I) such target amount; and
(II) the amount described in clause (ii)(II).
(B) Target amount described 
The target amount described in this paragraph is, with respect to a prescription drug plan or an MAPD plan in a year, the total amount of payments paid to the PDP sponsor or MAPD organization for the plan for the year, taking into account amounts paid by the Secretary and enrollees, based upon the standardized bid amount (as defined in section 1395w–113 (a)(5) of this title and as risk adjusted under subsection (c)(1) of this section), reduced by the total amount of administrative expenses for the year assumed in such standardized bid.
(C) First and second threshold risk percentage defined 

(i) First threshold risk percentage Subject to clause (iii), for purposes of this section, the first threshold risk percentage is
(I) for 2006 and 2007, and[1] 2.5 percent;
(II) for 2008 through 2011, 5 percent; and
(III) for 2012 and subsequent years, a percentage established by the Secretary, but in no case less than 5 percent.
(ii) Second threshold risk percentage Subject to clause (iii), for purposes of this section, the second threshold risk percentage is
(I) for 2006 and 2007, 5 percent;
(II) for 2008 through 2011, 10 percent; and
(III) for 2012 and subsequent years, a percentage established by the Secretary that is greater than the percent established for the year under clause (i)(III), but in no case less than 10 percent.
(iii) Reduction of risk percentage to ensure 2 plans in an area Pursuant to section 1395w–111 (b)(2)(E)(ii) of this title, a PDP sponsor may submit a bid that requests a decrease in the applicable first or second threshold risk percentages or an increase in the percents applied under paragraph (2).
(4) Plans at risk for entire amount of supplemental prescription drug coverage 
A PDP sponsor and MA organization that offers a plan that provides supplemental prescription drug benefits shall be at full financial risk for the provision of such supplemental benefits.
(5) No effect on monthly premium 
No adjustment in payments made by reason of this subsection shall affect the monthly beneficiary premium or the MA monthly prescription drug beneficiary premium.
(f) Disclosure of information 

(1) In general 
Each contract under this part and under part C of this subchapter shall provide that
(A) the PDP sponsor offering a prescription drug plan or an MA organization offering an MAPD plan shall provide the Secretary with such information as the Secretary determines is necessary to carry out this section; and
(B) the Secretary shall have the right in accordance with section 1395w–27 (d)(2)(B) of this title (as applied under section 1395w–112 (b)(3)(C) of this title) to inspect and audit any books and records of a PDP sponsor or MA organization that pertain to the information regarding costs provided to the Secretary under subparagraph (A).
(2) Restriction on use of information 
Information disclosed or obtained pursuant to the provisions of this section may be used by officers, employees, and contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out this section.
(g) Payment for fallback prescription drug plans 
In lieu of the amounts otherwise payable under this section to a PDP sponsor offering a fallback prescription drug plan (as defined in section 1395w–111 (g)(4) of this title[2]), the amount payable shall be the amounts determined under the contract for such plan pursuant to section 1395w–111 (g)(5) of this title.
[1] So in original. The word “and” probably should not appear.
[2] See References in Text note below.

42 USC 1395w116 - Medicare Prescription Drug Account in the Federal Supplementary Medical Insurance Trust Fund

(a) Establishment and operation of Account 

(1) Establishment 
There is created within the Federal Supplementary Medical Insurance Trust Fund established by section 1395t of this title an account to be known as the Medicare Prescription Drug Account (in this section referred to as the Account).
(2) Funding 
The Account shall consist of such gifts and bequests as may be made as provided in section 401 (i)(1) of this title, accrued interest on balances in the Account, and such amounts as may be deposited in, or appropriated to, such 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, but shall be invested, and such investments redeemed, in the same manner as all other funds and investments within such 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
(A) payments under section 1395w–114 of this title (relating to low-income subsidy payments);
(B) payments under section 1395w–115 of this title (relating to subsidy payments and payments for fallback plans);
(C) payments to sponsors of qualified retiree prescription drug plans under section 1395w–132 (a) of this title; and
(D) payments with respect to administrative expenses under this part in accordance with section 401 (g) of this title.
(2) Transfers to Medicaid account for increased administrative costs 
The Managing Trustee shall transfer from time to time from the Account to the Grants to States for Medicaid account amounts the Secretary certifies are attributable to increases in payment resulting from the application of section 1396u–5 (b) of this title.
(3) Payments of premiums withheld 
The Managing Trustee shall make payment to the PDP sponsor or MA organization involved of the premiums (and the portion of late enrollment penalties) that are collected in the manner described in section 1395w–24 (d)(2)(A) of this title and that are payable under a prescription drug plan or MAPD plan offered by such sponsor or organization.
(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 1395r of this title.
(c) Deposits into Account 

(1) Low-income transfer 
Amounts paid under section 1396u–5 (c) of this title (and any amounts collected or offset under paragraph (1)(C) of such section) are deposited into the Account.
(2) Amounts withheld 
Pursuant to sections 1395w–113 (c) and 1395w–24 (d) of this title (as applied under this part), amounts that are withheld (and allocated) to the Account are deposited into the Account.
(3) Appropriations to cover Government contributions 
There are authorized to be appropriated from time to time, out of any moneys in the Treasury not otherwise appropriated, to the Account, an amount equivalent to the amount of payments made from the Account under subsection (b) of this section plus such amounts as the Managing Trustee certifies is necessary to maintain an appropriate contingency margin, reduced by the amounts deposited under paragraph (1) or subsection (a)(2) of this section.
(4) Initial funding and reserve 
In order to assure prompt payment of benefits provided under this part and the administrative expenses thereunder during the early months of the program established by this part and to provide an initial contingency reserve, there are authorized to be appropriated to the Account, out of any moneys in the Treasury not otherwise appropriated, such amount as the Secretary certifies are required, but not to exceed 10 percent of the estimated total expenditures from such Account in 2006.
(5) Transfer of any remaining balance from Transitional Assistance Account 
Any balance in the Transitional Assistance Account that is transferred under section 1395w–141 (k)(5) of this title shall be deposited into the Account.