Medicare: Prescription Drug Proposals

Medicare: Prescription Drug Proposals

Order Code RL30250
CRS Report for Congress
Received through the CRS Web
Medicare: Prescription Drug Proposals
Updated June 8, 2000
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
The Medicare program provides significant health insurance coverage for its 39 million aged
and disabled beneficiaries. However, the program fails to offer protection against the costs
of most outpatient prescription drugs. President Clinton has offered a Medicare reform plan
(S. 2342). A key component of this proposal is the establishment of an optional prescription
drug benefit for all beneficiaries. Another Medicare reform plan (S. 1895) has been
introduced by Senator Breaux (formerly co-Chairman of The National Bipartisan Commission
on the Future of Medicare) and Senator Frist; this measure provides access for Medicare
beneficiaries to high option plans with drug coverage. The Senate Democrats have introduced
a measure similar to the President’s plan.
A number of other bills whose primary focus is prescription drug coverage for the Medicare
population have been introduced in the 106th Congress. This report provides an overview of
the President’s plan and the legislation introduced to date in the 106th Congress. It will be
updated as additional bills are introduced. It will also track any legislative action. This report
is a supplement to CRS Report RL30147, Medicare: Prescription Drug Coverage for
Medicare Beneficiaries.

Medicare: Prescription Drug Proposals
Summary
The Medicare program provides significant health insurance coverage for its 39
million aged and disabled beneficiaries. However, the program fails to offer
protection against the costs of most outpatient prescription drugs. Many observers
contend that this is a significant coverage gap. The absence of a significant drug
benefit is not a new concern. The potential cost of adding prescription drug coverage
has been the primary impediment to its implementation.
Beginning in 1999, the issue received renewed attention as part of the overall
discussion of Medicare reform. The National Bipartisan Commission on the Future
of Medicare was charged with making recommendations concerning a number of
program issues. The Commission failed to get the necessary votes for a reform
proposal. The plan designed by Senator Breaux and Congressman Thomas (Co-
Chairmen of the Commission) failed 10-7. A modified version of this reform plan was
introduced by Senators Breaux and Frist as S. 1895. This measure provides access
for Medicare beneficiaries to high option plans with drug coverage. A modified
version of S. 1895 is currently being developed.
On June 29, 1999, President Clinton announced the Administration’s Medicare
reform plan. Legislative language was sent to the Congress March 20, 2000. It was
introduced by Senator Moynihan (S. 2342) on April 4, 2000. A key component of the
proposal is the establishment of an optional prescription drug benefit for all
beneficiaries. Beneficiaries would pay a monthly premium of $26 a month beginning
in 2003 (the program’s first year) rising to $51 a month when the program is fully
phased-in in 2009. There would be no deductible; the program would pay half of
drug costs beginning with the first prescription filled. Beneficiaries would be liable for
the remaining 50%. The federal government would pay a maximum of $1,000 per
person per year in 2003, rising to $2,500 per person per year in 2009. On May 10,
2000, Senator Daschle introduced the Senate Democrats’ plan (S. 2541) which is
similar to the Administration’s bill except that the program would begin in 2002.
On April 12, 2000, the House GOP announced the outlines of its drug plan.
Under the proposal, beneficiaries could choose from a variety of private sector plans.
There would be a maximum limit on beneficiary out-of-pocket costs (“stop-loss”
coverage); and assistance would be provided to low-income seniors. The plan is
currently being drafted.
A number of other bills whose primary focus is prescription drug coverage for
the Medicare population have been introduced in the 106th Congress. This report
provides an overview of legislation introduced to date in the 106th Congress. It will
be updated as additional bills are introduced. It will also track any legislative action.
This report is a supplement to CRS Report RL30147, Medicare: Prescription
Drug Coverage for Medicare Beneficiaries. That report provides an overview of
prescription drug coverage currently available to beneficiaries, presents information
on the utilization of drugs by the target population, and outlines some of the major
issues that would need to be considered in the design of a drug benefit.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
New Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bills Directed Toward Amounts Seniors Pay for Drugs . . . . . . . . . . . . . . . 7
Summary of Proposals to Establish a New Benefit . . . . . . . . . . . . . . . . . . . . . . . 8
Medicare Outpatient Prescription Drug Coverage Act of 1999
[H.R. 1109 (Engel et al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Access to Prescription Medications in Medicare Act of 1999
[H.R. 1495 (Stark et al.) and S. 841 (Kennedy et al.)] . . . . . . . . . . . 10
Medicare Chronic Disease Prescription Drug Benefit Act of 1999
[H.R. 1796 (Cardin, et al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Medicare Prescription Drug Benefit Act of 1999 [H.R. 2012 (Deutsch
and Wexler)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Seniors Prescription Insurance Coverage Equity (SPICE) Act of 1999
[H.R. 2782 (Pallone and Roukema) and S. 1480 (Snowe and Wyden)] 14
New Insurance Coverage Equity (NICE) Act of 1999 [H.R. 3482
(Maloney)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Healthy Seniors Promotion Act of 1999 [S. 1204 (Graham)] . . . . . . . . . . 17
Medicare Outpatient Prescription Drug Coverage Act of 1999
[S. 1535 (Grams)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Medicare Preservation and Improvement Act of 1999 [S. 1895 (Breaux
and Frist, et al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Voluntary Medicare Prescription Drug Plan Act of 2000 [S. 2319
(Bob Smith and Allard)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Medicare Modernization Act of 2000 - President’s Bill [S. 2342 (Moynihan,
by request)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Medicare Expansion for Needed Drugs (MEND) Act of 2000 [S. 2541
(Daschle, et. al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Summary of Bills to Add a Non-Medicare Benefit for the Medicare Population 33
Medicare Beneficiary Prescription Drug Assistance and Stop-Loss
Protection Act of 1999 [ H.R. 2925 (Bilirakis, et al.)] . . . . . . . . . . . . 33
Medicare Low-Income Prescription Drug Assistance Act of 2000
[H.R. 4235 (Foley)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Healthy Seniors Act of 1999 [S. 1837 (Baucus)] . . . . . . . . . . . . . . . . . . . 37
Medigap Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
DrugGap Insurance for Seniors Act of 1999 [S. 1725 (Jeffords)] . . . . . . . 39
Seniors Security Act of 2000 [S. 2237 (Craig)] . . . . . . . . . . . . . . . . . . . . 39
Financing Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Medicare Prescription Drug Coverage Act of 1999 [H.R. 886 (Frank, et al.),
S. 696 (Wellstone)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Measures Directed Toward Amounts Seniors Pay For Drugs . . . . . . . . . . . . . . 40

Prescription Drug Fairness for Seniors Act [H.R. 664 (Allen, et al.),
S. 731 (Kennedy, et al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Making Affordable Prescriptions Available for Seniors Act [H.R. 723
(Kennedy, et al.)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Tax Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Taxpayer Refund and Relief Act of 1999 [H.R. 2488 (Archer, et al.)] . . . 41

Medicare: Prescription Drug Proposals
Introduction
The Medicare program provides significant health insurance coverage for its 39
million aged and disabled beneficiaries. However, the program fails to offer
protection against the costs of most outpatient prescription drugs. Many observers
contend that this is a significant coverage gap. Even though 65% of beneficiaries
have some private or public coverage for these costs, they state that many persons do
not have adequate supplemental coverage for drug costs and note that beneficiaries
themselves pay for half of their drug costs out-of-pocket.
The absence of a significant drug benefit is not a new concern. However, the
potential cost of adding prescription drug coverage has been the primary impediment
to its implementation. Recently the issue has received renewed attention as part of
the overall discussion of Medicare reform.
The Balanced Budget Act of 1997 (BBA 97) established the National Bipartisan
Commission on the Future of Medicare. This Commission was charged with making
recommendations concerning a number of specific program issues. The Commission
was required to report its recommendations to Congress by March 1, 1999.
However, by statute, any recommendations had to have the approval of 11 of the 17
Commission members.
Coverage of prescription drugs was one of the most difficult issues facing the
Commission. Senator Breaux (Statutory Chairman) and Congressman Thomas
(Administrative Chairman) offered a Medicare reform proposal to the Commission
members. This proposal established a new drug benefit for the low income population.
On March 16, 1999, the Commission voted 10-7 for the Breaux-Thomas plan. Since
the proposal failed to get the necessary 11 votes, no formal report was made to the
Congress or the President.
On June 29, 1999, President Clinton announced the Administration’s Medicare
reform plan. Further details were issued by the White House on July 2, 1999.
Legislative language was sent to the Congress March 20, 2000. It was introduced by
Senator Moynihan (S. 2342) on April 4, 2000. A key component of the President’s
proposal is the establishment of an optional prescription drug benefit for all
beneficiaries. The benefit would be phased-in over 6 years.
On November 9, 1999, Senators Breaux, Frist, Kerry and Hagel introduced the
Medicare Preservation and Improvement Act of 1999 (S. 1895). This measure builds
on, but contains a number of changes to, the measure considered by the National
Commission. The bill provides for comprehensive Medicare reform. It establishes, a
competitive premium system under which beneficiaries could choose from competing

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private health plans to obtain their health services; they could also remain in the
traditional fee-for-service program. Private health plans and the government run fee-
for-service program would be required to offer high option plans which included
prescription drug benefits.
A number of other bills whose primary focus is prescription drug coverage for
the Medicare population have been introduced in the 106th Congress. The following
bills would add a new benefit to the Medicare program itself: Medicare Outpatient
Prescription Drug Coverage Act of 1999 [H.R. 1109 (Engel, et al.)]; Access to
Prescription Medications in Medicare Act of 1999 [H.R. 1495 (Stark, et al.) and S.
841 (Kennedy, et al.)]; Medicare Chronic Disease Prescription Drug Benefit Act of
1999 [H.R. 1796 (Cardin et al.)]; Medicare Prescription Drug Benefit Act of 1999
[H.R. 2012 (Deutsch and Wexler)]; Seniors Prescription Insurance Coverage Equity
(SPICE) Act of 1999 [H.R. 2782 (Pallone and Roukema) and S. 1480 (Snowe and
Wyden)], and a similar bill, New Insurance Equity (NICE) Act of 1999 [H.R. 3482
(Maloney)]; Healthy Seniors Promotion Act of 1999 [S. 1204 (Graham)], Medicare
Ensuring Prescription Drugs for Seniors Act of 1999 [S. 1535 (Grams)] and
Voluntary Medicare Prescription Drug Plan Act of 2000 [Smith and Allard (S.
2319)].
One measure, Medicare Beneficiary Prescription Drug Assistance and Stop-Loss
Protection Act of 1999 [H.R. 2925 (Bilirakis, et al.)], adds benefits for the Medicare
population through the Public Health Service Act. Another measure, Healthy Seniors
Act of 1999 [S. 1837 (Baucus)] adds a benefit for the low-income through Medicaid.
Still another measure, Medicare Low-Income Prescription Drug Assistance Act of
2000 [Foley (H.R. 4235)] establishes a separate voluntary program.
One measure modifies Medigap policies to include drug-only policies and
provides assistance to low income persons purchasing drug policies [DrugGap
Insurance for Seniors Act of 1999 [S. 1725 (Jeffords)]. Another measure, Seniors
Security Act of 1999 [S. 2237 (Craig)] provides for the deductibility of premiums for
Medigap and Medicare+Choice plans which contain a drug benefit and modifies
Medigap standardized policies. One measure does not add a benefit but establishes
a financing mechanism: Medicare Prescription Drug Coverage Act of 1999 [H.R. 886
(Frank, et al.) and S. 696 (Wellstone)]. Two bills would not modify the Medicare
program, but would substantially modify the prices seniors pay for drugs:
Prescription Drug Fairness for Seniors Act [H.R. 664 (Allen, et al.) and S. 731
(Kennedy, et al.)] and Making Affordable Prescriptions Available for Seniors Act
[H.R. 723 (Kennedy, et al.)].
On April 12, 2000, the House GOP announced the outlines of its drug plan.
Under the proposal, beneficiaries could choose from a variety of private sector plans.
There would be a maximum limit on beneficiary out-of-pocket costs (“stop-loss”
coverage); and assistance would be provided to low-income seniors. The plan is
currently being drafted.
The conference report on the FY2001 budget resolution (H.Con.Res. 290,
H.Rept. 106-577, approved by both House and Senate on April 13, 2000) contains
different assumptions for the House and Senate relating to drugs for the Medicare
population. In the House, there is a $40 billion reserve fund over 5 years (2001-2005)

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for legislation that provides for Medicare reform and prescription drug coverage. In
the Senate, there is a two-part reserve fund. The first part is a 5-year $20 billion fund
for legislation that provides for prescription drugs. The second part is a $40 billion
reserve fund for legislation improving the solvency of Medicare and improving access
to prescription drugs (or continuing access provided under the first part). Funds
available under the second part would be reduced by any amounts made available
under the first part. The $40 billion figure is close to the 5-year cost estimate for the
drug benefit included in the Administration’s bill.
On May 10, 2000, Senator Daschle introduced the Senate Democrats bill (S.
2541) which was announced at the White House. This measure is substantially the
same as the prescription drug portion of the Administration bill. However, the phase-
in begins in 2002 rather than 2003.
This report provides an overview of the legislation introduced to date in the 106th
Congress. It will be updated as additional bills are introduced. It will also track any
legislative action. This report is a supplement to CRS Report RL30147,
Medicare: Prescription Drug Coverage for Medicare Beneficiaries. That report
provides an overview of prescription drug coverage currently available to
beneficiaries, presents information on the utilization of drugs by the target population,
and outlines some of the major issues that would need to be considered in the design
of a drug benefit.
Current Proposals
To date, a number of specific proposals have been offered for adding
prescription drug coverage for the Medicare population.1 Other proposals address the
question of affordability of drugs for the senior population but do not add a new
federal benefit.
New Benefit
Scope of Benefits. Several proposals add a new comprehensive benefit to
Medicare. Under the President’s plan, the Daschle bill (Senate Democrats measure),
and the SPICE proposal, any beneficiary who voluntarily enrolled in a new Medicare
Part D could obtain coverage. Under a number of the pending bills, protection would
be available to anyone who was enrolled in the existing Part B program (which covers
the costs of physicians and other medical services).
Under Breaux/Frist, access to drug coverage is an integral part of the reform
plan. The bill establishes a competitive premium system under which beneficiaries
could choose from competing private health plans to obtain their health services; they
could also remain in the traditional fee-for-service program. At their option,
1 This report does not include a discussion of legislation which is limited to one particular
category of drugs, for example bills which would eliminate the time limitation on the coverage
of immunosuppressive drugs (one of the limited category of outpatient prescription drugs
currently covered under the program).

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beneficiaries could purchase a high option plan which included prescription drug
benefits.
An alternative approach would add benefits for the Medicare population through
the Public Health Service Act. Under this plan, catastrophic protection (“federal stop-
loss protection”) would be available for all Medicare beneficiaries if their expenses
exceeded a specified amount. Assistance for the low income would only be available
to persons in states which chose to set up state prescription drug assistance programs.
[H.R. 2925, Bilirakis].
Many of the measures would add protection for all outpatient prescription drugs
provided they met FDA (Food and Drug Administration) criteria and were medically
necessary. One bill (H.R. 1796, Cardin) would restrict coverage to prescription drugs
used to treat specified chronic conditions such as hypertension. Another measure (S.
1204, Graham) would limit coverage to preventive outpatient prescription drugs
which were the direct result of a beneficiary’s participation in a preventive screening
program.
Several measures do not establish a definition of covered benefits in law, but
rather link minimum covered benefits to a threshold level of benefits. Under the
SPICE proposal (H.R. 2782/S. 1480), this threshold would be defined by a newly
created SPICE Board and would include at least threshold benefits specified by the
National Association of Insurance Commissioners (NAIC) based on levels established
under other insurance plans. Under H.R. 2925, states would define the scope of
coverage under their drug assistance programs for the low-income. Coverage could
not be less than that offered under a benchmark program such as Medicaid, coverage
available to Blue Cross/Blue Shield enrollees under the Federal Employees Health
Benefits program (FEHBP), coverage available to state employees, or coverage
available to enrollees in the state’s largest health maintenance organization (HMO).
S. 1725 (Jeffords) would not establish a new federal benefit. Instead it would
provide for changes in Medigap policies and development of new supplemental drug-
only DrugGap policies meeting minimum coverage levels. S. 2237 (Craig) would also
modify Medigap policies. In addition, it would permit all persons (not just those that
itemize) to deduct premiums for Medigap and Medicare+Choice plans which contain
a drug benefit.
Beneficiary Cost-Sharing and Premiums. A key consideration in the
development of a Medicare drug bill is the amount beneficiaries will be asked to pay
both in cost-sharing and premium charges. Under the President’s plan and the
Daschle bill there would be no deductible; the program would pay half of the drug
costs beginning with the first prescription filled. Beneficiaries would be liable for the
remaining 50%. Most of the other proposals would not cover costs until the
beneficiary had satisfied a calendar year deductible (e.g., $200). However, many of
these plans would cover 80% of the costs once the deductible had been met. S. 1535
would establish a monthly deductible after which 75% of the recognized costs would
be paid. Under S. 1895 (Breaux/Frist), individual plans would determine beneficiary
cost-sharing. S. 2319 (Smith) provides that a beneficiary enrolled in the Rx Option
would be subject to a combined deductible ($675 in 2001) for Medicare Part A,

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Medicare Part B, and drug expenses; after the deductible is met the program would
pay 50% of drug costs up to a specified annual maximum ($5,000 in 2001).
Most proposals would limit the federal exposure. Several measures would place
an absolute cap on federal expenditures per person per year. For example, under the
President’s plan and the Daschle bill, the federal government would pay 50% of the
first $2,000 in drug costs for a maximum federal payment of $1,000. When the plan
is fully phased-in, the plan would pay the first 50% of the first $5,000 in expenses for
a maximum contribution of $2,500. Under H.R. 2012, no coverage would be
provided for costs exceeding $5,200. An alternative approach (H.R. 1495/S. 841)
would cover 80% of the costs up to $1,700, provide no coverage of costs between
$1,700 and $3,000, and offer full coverage for costs over $3,000. Under Breaux/Frist
federal assistance is limited to a specified percentage (based on income) of the portion
of the premium attributable to drug coverage; this calculation is based on the actuarial
value of the minimum benefit.
The federal stop-loss program established under H.R. 2925 (Bilirakis) would not
cover any costs until the beneficiary (who had qualified prescription drug coverage)
had incurred out-of-pocket expenditures exceeding a specified amount ($1,500 in
2000); at that point no further beneficiary cost-sharing would be required.
Cost sharing charges are in addition to any premiums that may be required.
Under the President’s plan and the Daschle bill, a separate premium, equal to 50% of
program costs, would be established for coverage under the new optional Part D.
The Administration estimates that the premium under its bill would initially be $26 per
month, rising to an estimated $51 when the plan is fully phased-in.
Many of the other bills include prescription drugs as a new Part B benefit. They
are by definition providing for an increase in the Part B premium (currently $45.50 per
month). By law, beneficiary premiums currently cover 25% of program costs (with
federal general revenues covering the remaining 75%). Certain low income
beneficiaries can have these Part B premium costs paid for by the federal/state
Medicaid program. These persons are known as either: (1) Qualified Medicare
Beneficiaries (QMBs) — persons with incomes below 100% of poverty; or (2)
Specified Low Income Medicare Beneficiaries (SLIMBs) — persons with incomes
below 120% of poverty. In certain cases, persons below 135% of poverty can qualify
for payment of their Part B premiums.
The SPICE proposal (H.R. 2782/S. 1480) would provide financial assistance, for
persons obtaining drug coverage through a Medicare+Choice plan, a Medicare
supplemental policy, or a group health plan. Federal assistance would equal at least
25% of the drug portion of the premium cost; any remaining premium, if any, would
be paid by the beneficiary. The specified levels of assistance would be reduced if
there were insufficient funds available in the newly established trust fund.
Under S. 1895 (Breaux/Frist), beneficiaries would not pay any Part B premiums
but would instead be liable for a portion of the premium for the standard or high
option plan selected by the beneficiary. (If beneficiaries selected a low cost plan, the
liability for core benefits could be zero). All persons enrolled in a high option plan

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would receive some assistance on that portion of their premium attributable to drug
coverage.
Administration. A major issue in the design of a prescription drug benefit is
how the program would be administered. Some would propose using the existing
Medicare structure with some changes to permit more private sector involvement in
the processing of claims (H.R. 1109, S. 1535). Most proposals recommend the use
of private entities, selected on a competitive basis, to administer the program. For
example, Stark/Kennedy, Cardin, Deutsch, and Graham would award competitively-
bid contracts to provide benefits in a geographic area; eligible entities would include
pharmaceutical benefit management companies, wholesale and retail pharmacist
delivery systems, insurers, other entities, or any combination of these. The President’s
plan also proposes using similar entities to administer the plan though the types of
entities are not specified in the bill. The Daschle bill specifies that the benefit would
be administered by private entities. Breaux/Frist would use similar entities to
administer high option HCFA-sponsored plans (i.e. those plans for persons remaining
in the fee-for-service program); however, it does not specify the types of entities that
could administer the new private plans.
Payments for Drugs/Cost Controls. An issue closely linked to program
administration is how payments for drugs would be determined. The industry has
registered its strong opposition to federal determination of prices — what they label
as federal price controls.
Many of the proposals would let the administering entities set up the payment
rules that would apply in a geographic area. They would also specifically permit the
use of cost control mechanisms, including formularies (which are lists of drugs which
are preferred for use by the health plan). Alternatively, two bills (Engel and Grams)
would set up specific federal payment rules; they would also prohibit the use of
formularies.
Protection for Low-Income. Many of the proposals would provide special
protections for the low income. The President’s plan and the Daschle bill would
ensure that beneficiaries with incomes below 135% of poverty would not pay for
premiums or cost-sharing charges. Persons with incomes between 135% and 150%
of poverty would receive some assistance for premium costs. Stark/Kennedy and
Cardin would provide that persons meeting the SLIMB criteria (and not otherwise
eligible for Medicaid) would receive comprehensive wrap-around coverage through
Medicaid. Under the Baucus bill, persons with incomes below 175% of poverty
would receive some assistance for out-of-pocket costs through Medicaid with persons
below poverty receiving full assistance for such costs.
The SPICE proposal would provide enhanced financial assistance in meeting
drug coverage premium costs for persons below 175% of poverty; persons below
150% of poverty would receive 100% of such costs. The Jeffords bill would provide
financial assistance to low income persons to assist them in purchasing new
supplemental DrugGAP insurance.
Under the Bilirakis bill , the state drug assistance programs would be limited to
persons whose income fell below a level set by the state between 120% and 200% of

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poverty. No cost-sharing could be imposed on persons whose income was below
120% of poverty.
Under Breaux/Frist, beneficiaries at or below 135% of poverty would pay zero
premium for enrollment in the lowest cost high option plan in their area. All other
beneficiaries enrolled in a high option plan would receive a discount on that portion
of their premium attributable to the minimum drug benefit The discount for persons
with incomes between 135% and 150% of poverty would range from 50% phasing-
down to 25%.
Financing Mechanism. Many of the bills do not specify a new funding source
for the drug benefit.
The President’s plan specifies that beneficiaries would pay monthly premiums
equal to 50% of the program’s cost for the new optional benefit. The President’s plan
includes a number of modernization proposals for the Medicare program as a whole;
the savings from these changes would finance a significant portion of the benefit.
Breaux/Frist uses current funding sources though the amount of an individual’s
premium obligation could be greater or less than the current Part B premium
depending on the plan selected; the bill would limit general revenue financing.
The SPICE proposal would be financed through a combination of increases in
tobacco taxes and amounts from the federal budget surplus. The bill specifically
provides that financial assistance under SPICE could not exceed the amount of money
available.
Many of the other proposals would add a new Part B benefit. By definition a
portion of the costs would be financed through an increase in the Part B premium
(currently $45.50 per month); the remaining costs would be financed from general
revenues. Most of the pending bills do not contain specific financing proposals for
the remainder of the costs. One measure (Frank/Wellstone) calls for the use of federal
estate tax revenues to finance a new benefit.
The sponsors of one measure, Smith/Allard, claim that implementation of the
new Rx Option would require no new federal costs and no beneficiary premiums.
Bills Directed Toward Amounts Seniors Pay for Drugs
Several measures would not add a new Medicare benefit but would limit the
prices seniors pay for prescription drugs. One measure (Allen bill) would provide for
substantial reductions in these prices. Another measure (Kennedy, H.R. 723) would
establish a pharmacy assistance program to help elderly low income persons, with no
other insurance coverage, to pay for drugs.

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Summary of Proposals to Establish a New Benefit
The following is a summary of the key features of bills introduced in the 106th
Congress which would add a new prescription drug benefit. The bills are summarized
in the order they have been introduced in the House. Senate bills with no companion
House measure are at the end.
The following major features are described for each plan: general approach,
persons covered, scope of drug benefits, administration of benefits, reimbursement,
beneficiary cost-sharing and premium charges, beneficiary protections, cost control
mechanisms/formularies, relationship to group health plans, relationship to Medigap,
relationship to Medicaid/assistance for low-income, and financing.
Medicare Outpatient Prescription Drug Coverage Act of 1999 [H.R.
1109 (Engel et al.)]
General Approach. The bill creates, beginning in 2001, a new drug benefit
under Part B. Program payments would equal 80% of program costs after the
beneficiary met a deductible ($200 in 2001). The benefit would be administered in
a manner similar, but not identical, to that used for other Part B services.
Persons Covered. Coverage is extended to all persons enrolled in Part B.
Scope of Benefits. Coverage would be extended to outpatient prescription
drugs meeting FDA criteria. (Drugs currently covered under Part B would be part
of the new benefit and subject to the new payment and cost-sharing rules.) The
current 3-year limitation on immunosuppressive drugs would be eliminated.
Administration of Benefits. The Secretary would establish a point-of-sale
electronic claims system for use by Part B carriers and participating pharmacies. (A
point-of-sale electronic system would allow for the immediate processing of claims,
including a determination of whether the deductible has been met.) The Secretary
could contract with entities other than Part B carriers for implementation and
operation of the system; such entities could include a voluntary association,
corporation, partnership, or other non-governmental organization which the Secretary
determines to be qualified to conduct such activities. The Secretary could require
carriers to subcontract with such entities to implement and operate the electronic
claims system. The Secretary would develop a standard claims form (and standard
electronic claims format) for drug claims.

The law would establish a participating pharmacy program under which
pharmacies authorized under state law to dispense drugs would enter into agreements
with the Secretary to: (1) accept “assignment” (i.e., agree not to charge patients more
than the coinsurance) once the entity is notified the individual has met the deductible;
(2) agree not to refuse to dispense covered drugs and not to charge beneficiaries more
than charged to the general public; (3) keep patient records, (4) submit information
necessary to administer the benefit; and (5) consistent with state law, offer to counsel
or to provide information to beneficiaries on the appropriate use of a drug, whether

CRS-9
there are potential interactions with other drugs dispensed to the beneficiary, and
advise the beneficiary on the availability of therapeutically equivalent drugs.
A new 11-member Prescription Drug Payment Review Commission would be
established; it would consist of experts in the fields of health care economics,
medicine, pharmacology, pharmacy, and prescription drug reimbursement as well as
at least one beneficiary. The Commission would submit an annual report to Congress
concerning methods of determining payments for covered outpatient drugs. Beginning
in 2002, the report would include information on changes in prices and utilization.
The Secretary would also be required to submit an annual report on these issues.
Reimbursement. Payments would equal 80% of the lesser of the actual charge
or the payment limit. There would be two payment limits. One category is for
multiple source drugs without restrictive prescriptions. Multiple source drugs are
those for which there are two or more products rated therapeutically equivalent by the
FDA; they must also be pharmaceutically equivalent and bioequivalent. The second
category is for non-multiple source drugs and multiple source drugs with a restrictive
prescription. A drug has a restrictive prescription if the physician indicates in
handwriting (with an appropriate phrase such as “brand medically necessary”) that the
particular drug must be dispensed.
Beneficiary Cost Sharing and Premiums. The deductible would be $200 in
2001 increased in future years by the percentage increase in the Part B premium.
Coinsurance would equal 20% of the payment limit. (The deductible would not apply
to immunosuppressive drugs used during the first year following a covered organ
transplant.)
Civil monetary penalties would apply if charges by participating or
nonparticipating pharmacies to beneficiaries exceed charges to the general public.
Beneficiary Protections. The Secretary would be required to establish a
program to identify (and educate physicians and pharmacists concerning): (1)
instances or patterns of unnecessary or inappropriate prescribing or dispensing
practices for covered drugs; (2) instances or patterns of substandard care for such
drugs; and (3) potential adverse reactions. The Secretary would be required to
establish prescribing standards for each covered drug based on acceptable medical
practice.
Cost Control Mechanisms/Formularies. The Secretary would be prohibited
from establishing a formulary to exclude from coverage: (1) any specific drug or class
of drug; or (2) any specific use of a drug unless the exclusion is based on a finding
that the use is not safe and effective.
The Secretary would be required to develop, update annually, and distribute an
information guide for physicians concerning comparative AWPS of at least 500 of the
most commonly prescribed covered outpatient drugs.
Payments would generally be limited to a 30-day supply, although the Secretary
could authorize up to 90 days (or beyond in unusual cases.)

CRS-10
Relationship to Group Health Plans. No provision.
Relationship to Medigap. No provision
Relationship to Medicaid/Assistance for Low-Income. No provision.
Financing Mechanism. No provision.
Access to Prescription Medications in Medicare Act of 1999 [H.R.
1495 (Stark et al.) and S. 841 (Kennedy et al.)]
General Approach. The bill creates a new outpatient prescription drug benefit
under Part B beginning July 1, 2000. The benefit has two parts — a basic benefit
which covers costs up to $1,700 annually (subject to a deductible and coinsurance)
and a “stop loss” benefit under which the program would pay 100% of costs over
$3,000 annually. There would be no out-of-pocket costs once the beneficiary reached
$3,000 in total drug spending in a year. The benefit would be administered by private
entities under contract with Health and Human Services (HHS).
Persons Covered. Coverage would be extended to all persons enrolled under
Part B.
Scope of Benefits. Coverage would be extended to outpatient prescription
drugs meeting FDA criteria. (Drugs currently covered under Medicare Part B would
continue to be covered under the basic Part B program.) The current 3-year
limitation on immunosuppressive drugs would be eliminated.
Administration of Benefits. The Secretary would establish procedures for
entering into competitively bid contracts with eligible entities to provide drugs in a
geographic area. Eligible entities are defined as pharmaceutical benefit management
companies, wholesale and retail pharmacist delivery systems, insurers, other entities,
or any combination of these. Bids would include the amount of proposed copayment.
Contracts could be awarded on a capitation or other basis. At least two contracts
would be awarded per area unless only one entity met requirements. Contracts would
be for 2-5 years.
The Secretary would assure that the entity: (1) complies with access
requirements, (2) complies with formulary requirements (if it employs one); and (3)
makes available the full scope of benefits. The Secretary could not enter a contract
unless the Secretary determines that the average cost (excluding cost-sharing) for all
drugs provided under the contract is comparable to the average cost charged
(exclusive of cost-sharing) by large private sector purchasers.
The Secretary would establish a process for eligible beneficiaries to make an
election to enroll with any eligible entity that has been awarded a contract (similar to
the Medicare+Choice enrollment process). The Secretary would establish procedures:
(1) for enrollment of beneficiaries that fail to make an election; (2) for provision of
covered outpatient drugs to individuals in areas not covered by contracts, and (3) to

CRS-11
ensure that residents residing in different regions during the year are provided benefits
throughout the year.
Reimbursement. The Secretary would establish procedures for making
payments to an eligible entity. These entities would determine pricing policies.
Beneficiary Cost Sharing and Premiums. The deductible would be $200.
Coinsurance could not exceed 20% of cost (as stated in contract). No coverage
would be provided for costs between $1,700 and $3,000; however, the beneficiary
could continue to purchase drugs at contract price. Full coverage would be provided
for costs over $3,000. Basic and stop loss benefit amounts would be annually
adjusted based on changes in per capita prescription costs for beneficiaries.
Beneficiary Protections. The Secretary could not award a contract unless the
Secretary finds that the entity is in compliance with terms and conditions specified by
the Secretary including those relating to: (1) quality and financial standards; (2)
provision of necessary information to the Secretary; (3) establishment of educational
program, meeting criteria established by the Secretary, to assure appropriate
prescribing, dispensing, and use of covered therapies; (4) procedures to assure proper
utilization and to avoid adverse drug reactions; (5) assuring that drugs are accessible
and convenient to covered beneficiaries (including offering services 24 hours a day,
7 days a week for emergencies and offering services at a sufficient number of retail
pharmacies); (6) compensation of pharmacists for providing counseling to
beneficiaries regarding use of drugs; and (7) procedures to review and resolve
complaints and denials (that are comparable to those under Medicare+Choice). The
entity is required to safeguard the privacy of any individually identifiable information.
Cost Control Mechanisms/Formularies. The entity could employ mechanisms
to provide benefits economically including formularies, alternative methods of
distribution, generic drug substitution, and using incentives to encourage beneficiaries
to select cost effective drugs or less costly means of receiving drugs. If a formulary
is used, the entity is to (1) ensure participation of physicians and pharmacists in
development; (2) include at least one drug from each therapeutic class; (3) provide
for coverage of other non-formulary drugs when recommended by participating
providers; and (4) disclose the nature of formulary restrictions. Nothing precludes an
entity from requiring higher cost-sharing for non-formulary drugs (except when
medically indicated).
Relationship to Group Health Plans. If retirees receive at least equivalent
benefits under a group health plan, they may continue to receive services through that
plan. HHS would provide payment to the plan equal to the payment that would
otherwise have been paid on behalf of the beneficiary.
Relationship to Medigap. The Secretary and NAIC would be required to
revise the standard Medigap packages to reflect new coverage; an appropriate number
of policies would be required to offer complimentary (not duplicative) coverage.
Relationship to Medicaid/Assistance for Low-Income. The income limit for
the SLIMB program would be increased to from 120% 135% of poverty thereby
extending Part B premium assistance to this group. Beneficiaries with incomes

CRS-12
between the level for Medicaid eligibility and 135% of poverty would receive
comprehensive wrap around drug coverage through Medicaid.
Financing Mechanism. No provision. However, Senator Kennedy in his
introductory remarks suggested looking at a number of options including using a
portion of the federal budget surplus, recovering Medicare costs of treating tobacco
related illnesses, increasing the tobacco tax, and using savings achieved from
Medicare reform legislation.
Medicare Chronic Disease Prescription Drug Benefit Act of 1999
[H.R. 1796 (Cardin, et al.)]
General Approach. The bill creates, beginning in 2001, a new outpatient
chronic disease prescription drug benefit under Part B. The benefit would be
administered by private entities under contract with HHS.
Persons Covered. Coverage would be extended to all persons enrolled under
Part B.
Scope of Benefits. Coverage would be extended to outpatient prescription
drugs, meeting FDA criteria, which are used to treat the following chronic conditions:
hypertension, diabetes, congestive or ischemic heart disease, major depression, and
rheumatoid arthritis. Coverage would be limited to drugs which have been shown to
have a demonstrable effect in treating these conditions. The Secretary would
implement a process for the timely identification of such drugs; the Secretary would
utilize recommendations made by the Agency for Health Care Policy and Research.
Administration of Benefits. The Secretary would establish procedures for
entering into competitively bid contracts with eligible entities to provide drugs in a
geographic area. Eligible entities are defined as pharmaceutical benefit management
companies, wholesale and retail pharmacist delivery systems, insurers, other entities,
or any combination of these. Bids would include the amount of proposed copayment.
Contracts could be awarded on shared risk, capitation, or performance basis.
Contracts would be for 2-5 years.
The Secretary would assure that the entity: (1) complies with access
requirements; and (2) complies with formulary requirements (if it employs one). The
entity would have to make available to each beneficiary at least one drug in each
therapeutic class from those approved by the Secretary; it would also have to make
available at least one generic equivalent for each drug if available. Further, the entity
would also have to make available alternative drugs if a physician certifies that such
alternatives are medically necessary.
The Secretary would establish a process for eligible beneficiaries to make an
election to enroll with any eligible entity that has been awarded a contract (similar to
the Medicare+Choice enrollment process). The Secretary would establish procedures:
(1) for enrollment of beneficiaries that fail to make an election; (2) for provision of
covered outpatient drugs to individuals in areas not covered by contracts; and (3) to

CRS-13
ensure that residents residing in different regions during the year are provided benefits
throughout the year.
Reimbursement. The Secretary would establish procedures for making
payments to an eligible entity. These entities would determine pricing policies.
Beneficiary Cost-Sharing and Premiums. The deductible would be $250.
Coinsurance could not exceed 20% of cost (as stated in contract). No copayments
would be permitted for generic drugs.
Beneficiary Protections. The Secretary could not award a contract unless the
Secretary finds that the entity is in compliance with terms and conditions specified by
the Secretary including those relating to: (1) quality and financial standards; (2)
provision of necessary information to the Secretary; (3) establishment of educational
program, meeting criteria established by the Secretary, to assure appropriate
prescribing, dispensing, and use of covered therapies; (4) procedures to assure proper
utilization and to avoid adverse drug reactions; (5) assuring that drugs are accessible
and convenient to covered beneficiaries (including offering services 24 hours a day,
7 days a week for emergencies and offering services at a sufficient number of retail
pharmacies); (6) compensation of pharmacists for providing counseling to
beneficiaries regarding use of drugs; and (7) procedures to review and resolve
complaints and denials (that are comparable to those under Medicare+Choice. The
entity is required to safeguard the privacy of any individually identifiable information.
Cost Control Mechanisms/Formularies. The entity could employ mechanisms
to provide benefits economically including formularies, alternative methods of
distribution, generic drug substitution, and using incentives to encourage beneficiaries
to select less costly means of receiving drugs. If a formulary is used, the entity is to
(1) ensure participation of physicians and pharmacists in development; (2) include at
least one drug from each therapeutic class and provide at least one generic equivalent
where available; (3) provide for coverage of other non-formulary drugs when
recommended by participating providers; and (4) disclose the nature of formulary
restrictions. Nothing precludes an entity from requiring higher cost-sharing for non-
formulary drugs (except when medically indicated).
Relationship to Group Health Plans. No provision
Relationship to Medigap. No provision
Relationship to Medicaid/Assistance for Low-Income. Persons meeting
SLIMB criteria would have their cost sharing charges paid by Medicaid.
Persons could receive benefits through an existing state non-Medicaid
prescription drug program. The state program could not impose cost-sharing in excess
of that specified under this bill. HHS would make payments to the state program;
these could not exceed what would be paid in the absence of the state program.
Financing Mechanism. No provision.

CRS-14
Medicare Prescription Drug Benefit Act of 1999 [H.R. 2012 (Deutsch
and Wexler)]
This bill is virtually identical to H.R. 1495/S. 841 except for the cost sharing
provisions. H.R. 2012 specifies that the deductible would be $200 in 2000 increased
in future years by the percentage increase in the per capita cost of drugs under the
program. Coinsurance could not exceed 20% of the cost (as stated in the contract).
Coverage would be provided for costs up to $5,200 (adjusted in future years by
changes in per capita costs). No coverage would be provided for costs over that
amount; however, the beneficiary could continue to purchase drugs at the contract
price.
The other main difference from H.R. 1495/S. 841 is that H.R. 2012 does not
include a requirement that an eligible entity administering the benefit be required to
compensate pharmacists for providing counseling to beneficiaries on the use of drugs.
Seniors Prescription Insurance Coverage Equity (SPICE) Act of
1999 [H.R. 2782 (Pallone and Roukema) and S. 1480 (Snowe and
Wyden)]
General Approach. The SPICE bill creates a new voluntary prescription drug
benefit under a new Part D. Beneficiaries would be able to obtain SPICE coverage
through enrollment in a Medicare+Choice plan, enrollment in a SPICE Medicare
supplemental policy, or coverage under a group health plan. The policies would be
required to meet a minimum threshold level of benefits. All persons who enroll in
SPICE would receive financial assistance. At a minimum enrollees would receive
assistance equal to 25% of the premium cost. Low-income persons below 175% of
poverty would receive enhanced premium support, with those under 150% of poverty
receiving 100% premium support. However, the specified levels of financial
assistance would be reduced if there were insufficient funds available in the SPICE
trust fund.
Persons Covered. Coverage would be extended to all persons, entitled to both
Parts A and B, who voluntarily enroll in the program. Penalties would be established
for delayed enrollment.
Scope of Benefits. “SPICE prescription drug coverage” would be coverage the
SPICE Board determined met certain conditions. The benefits would be: (1) limited
to outpatient prescription drugs, (2) include at least specified threshold benefits as
developed by NAIC; and (3) exclude coverage for drugs already covered by
Medicare. Further, the benefits must be accessible and convenient, and access must
be provided on a timely basis to new outpatient prescription drugs as they become
available. Plans could not contain language excluding coverage relating to a pre-
existing condition.
The SPICE Board would request NAIC to revise model standards for Medigap
policies for the purpose of defining “outpatient prescription drugs” and specifying a
threshold level of SPICE drug coverage. The definition of outpatient drugs would
take into account the definition of covered drugs under Medicaid. The threshold level

CRS-15
would take into account the level of such coverage (including deductibles and cost-
sharing requirements) offered under the FEHBP and under other large group health
plans. The threshold level could permit (if determined appropriate) coverage of drugs
(except those used for promotion of smoking cessation) that are restricted or
excluded under Medicaid.
All “SPICE prescription drug coverage” must include at least the specified
threshold level of benefits and may include coverage above the threshold level.
Administration of Benefits. The program would be administered by a seven
member SPICE Board which would be broadly representative of consumers, private
plan insurers (including those that offer fee-for-service and managed care plans),
HCFA, and state insurance commissioners. The Board, which would run a SPICE
Office within HHS, would be separate from HCFA. The SPICE Board would
administer the SPICE benefit. It would be required to conduct a series of ongoing
studies relating to the benefit.
The SPICE Board would broadly disseminate information to beneficiaries on the
SPICE benefit program, including information on penalties for delayed enrollment.
The SPICE Board would establish the procedures through which a beneficiary could
elect to enroll, disenroll, and change enrollment in a SPICE Medicare supplement
policy or a Medicare+Choice plan that includes SPICE drug coverage. The Board
would: (1) use rules similar to those established for Medicare+Choice enrollment
(including annual open enrollment periods and guaranteed issue during any enrollment
period); (2) permit special enrollment periods for persons enrolled in a
Medicare+Choice plan or group health plan with SPICE coverage who lose such
coverage or experience a significant adverse income level change (as defined by the
Board) which changes the level of financial assistance available; and (3) provide for
coordination with HHS.
The SPICE Board would establish procedures for reducing the amount of
financial assistance provided if an eligible individual fails to obtain or maintain SPICE
coverage. The procedures could be similar to the Part B delayed enrollment penalty
provisions that apply under current law. Late enrollment penalties would not apply
to a Medicare+Choice or group health plan enrollee who lost SPICE coverage
because the plan dropped such coverage or terminated; this exception would be
contingent upon the beneficiary seeking to obtain SPICE coverage at the next
available opportunity.
The SPICE Board would also establish procedures for persons desiring enhanced
financial assistance to apply voluntarily for an income determination by the Board.
Financial assistance would be paid by the SPICE Board to the appropriate
SPICE supplement policy, Medicare+Choice plan, or group health plan. The payment
would not be made unless an application had been submitted to the Board (in
accordance with procedures established by it) and approved by the Board. Further,
a SPICE supplement policy or Medicare+Choice plan would have to meet enrollment
requirements established by the Board. The Board could disapprove or revoke the
approval of an application of such supplement policy or Medicare+Choice plan if the
Board finds that the entity offering the coverage is purposefully engaged in activities

CRS-16
designed to result in favorable selection of beneficiaries obtaining coverage through
the plan.
Financial assistance under SPICE could not exceed the amount of money
available in the SPICE trust fund. The Board’s annual report would include a report
on the financial status of the SPICE trust fund. If necessary (based on such status)
it would also include a statement on how any required reduction in financial assistance
in the subsequent year would be made. (See Cost-Sharing below.) The report could
also include recommendations concerning expanding the amount of financial
assistance, to the extent funds were available.
Reimbursement. The SPICE Board would provide the financial assistance for
a beneficiary directly to the issuer of the SPICE supplement policy, the
Medicare+Choice organization, or the sponsor of the group health plan. Entities
receiving assistance would have to provide assurances that they reduced the amount
charged the beneficiary by an equivalent amount.
Beneficiary Cost-Sharing and Premiums. All persons with SPICE coverage
would receive financial assistance equal to at least 25% of the “applicable cost” of
coverage. Persons below 150% of poverty would receive 100% of such cost. The
support would be scaled-down from 100% to 25% for those with incomes between
150% and 175% of the poverty line. “Applicable cost” is defined as: (1) the premium
for a SPICE supplemental policy; (2) the actuarial value of the portion of the adjusted
community rate for the Medicare+Choice plan that is related to providing SPICE
coverage; or (3) the actuarial portion of a group health plan premium related to
providing SPICE coverage. The financial assistance for persons enrolled in a
Medicare+Choice plan cannot exceed that portion of the enrollment premium that is
related to drug coverage.
Financial assistance under SPICE could not exceed the amount of money
available in the SPICE trust fund. If the SPICE Board determined that the amounts
in the trust fund were insufficient for the following year, it would be required to take
the following steps. First, it would reduce the minimum financial assistance
percentage from 25% to not less than 10%. If this reduction was insufficient, the
Board would next reduce the income thresholds specified for the low-income. If
these reductions was still not sufficient, the Board would immediately report to
Congress and suspend the provision of financial assistance.
The SPICE bill does not specify any cost-sharing that may be required by the
plans.
Beneficiary Protections. The SPICE Board would be required to study ways
in which drug utilization could be used to provide better overall care for beneficiaries.
Cost-Control Mechanisms/Formularies. An entity offering SPICE coverage
would be permitted to use reasonable cost containment methods such as formularies,
mail order services, and generic drug substitution, consistent with the requirements
of SPICE and applicable law. If a formulary is used: (1) it must be based on the
medical needs of beneficiaries; (2) the entity offering coverage must have an appeals
process in place that is similar to or better than that available under Medicare+Choice;

CRS-17
(3) the procedures do not impose a significant financial burden on beneficiaries or
delay the provision of medically necessary drugs; and (4) the entity offering coverage
provides at least a 60 day notice of any change in the formulary.
Relationship to Group Health Plans. Group health plans providing SPICE
prescription drug coverage would receive financial assistance on behalf of enrolled
beneficiaries.
Relationship to Medigap. The definition of standardized Medigap benefit
packages would be changed. One package would cover only outpatient prescription
drugs. This drug-only package would be consistent with SPICE prescription drug
coverage and be offered only through the SPICE Board. The package would permit
coverage that exceeded the threshold levels.
No other Medigap policies could include drug coverage except that persons who
currently have such policies would be permitted to retain and renew them provided
that: (1) they are informed that so long as they keep such a policy they cannot
purchase a SPICE medicare supplemental policy; and (2) they are offered a Medigap
policy which is comparable to the policy which they currently have (except for
prescription drug coverage).
The SPICE Board, in conjunction with the NAIC, would be required to study
permitting a Medicare supplement benefit package which included drugs but was not
a drugs-only policy. The Board would submit its recommendations to Congress.
Relationship to Medicaid/Assistance for Low-Income. Low-income
beneficiaries would receive enhanced financial assistance. (See Beneficiary Cost-
Sharing and Premiums, above.)
Financing Mechanism. A separate SPICE trust fund would be created.
Income to the trust fund would consist of: (1) the amount of the increase in the
tobacco taxes (as provided for under the bill), and (2) amounts from the on-budget
surplus.
New Insurance Coverage Equity (NICE) Act of 1999 [H.R. 3482
(Maloney)]
This bill is identical to H.R. 2782 (the SPICE bill) except: (1) all references to
SPICE are changed to NICE; and (2) there is no funding from tobacco taxes.
Healthy Seniors Promotion Act of 1999 [S. 1204 (Graham)]
General Approach. The bill contains a number of provisions focusing on health
promotion and disease prevention among the elderly. It authorizes coverage for
several additional preventive benefits under Medicare and adds coverage for
preventive outpatient drugs beginning in 2002. The drug benefit would be subject to
an annual limit ($750 in 2002). The following discussion summarizes the drug
provision of the bill.

CRS-18
Persons Covered. Coverage would be extended to all persons enrolled under
Part B.
Scope of Benefits. Covered drugs would be limited to preventive outpatient
prescription drugs (not otherwise covered by Medicare) which are the direct result
of an individual’s participation in: 1) a screening mammography; 2) screening pap
smear or screening pelvic exam; 3) prostate cancer screening test; 4) colorectal cancer
screening test; 5) diabetes outpatient self-management training service; 6) bone mass
measurement; 7) cessation of tobacco use training program; 8) screening for
hypertension; 9) counseling for hormone replacement therapy; 10) screening for
glaucoma; and 11) any other preventive service added by the Secretary. Screening
services in items 1-6 are covered under current law while those in items 7-10 are new
preventive benefits added by the bill. The Secretary is required to ensure that all
preventive outpatient prescription drugs that are reasonable and necessary to prevent
or slow the deterioration of, and improve or maintain the health of eligible
beneficiaries are offered under a contract with an eligible entity.
Administration of Benefits. The Secretary would establish procedures for
entering into competitively bid contracts with eligible entities to provide drugs in a
geographic area. Eligible entities are defined as pharmaceutical benefit management
companies, wholesale and retail pharmacist delivery systems, insurers, or any
combination of these. Bids would include the amount of proposed coinsurance.
Contracts could be awarded on shared risk, capitation, or performance basis. At least
two contracts would be awarded per area unless only one bidding entity meets the
criteria. Contracts would be for 2-5 years.
The Secretary would ensure that the entity complies with access requirements
and makes available the full scope of benefits.
The Secretary would establish a process for eligible beneficiaries to make an
election to enroll with any eligible entity that has been awarded a contract (similar to
the Medicare+Choice enrollment process). The Secretary would establish procedures:
(1) for enrollment of beneficiaries that fail to make an election; (2) for provision of
covered outpatient drugs to individuals in areas not covered by contracts; and (3) to
ensure that residents residing in different regions during the year are provided benefits
throughout the year.
Reimbursement. The Secretary would establish procedures for making
payments to an eligible entity. These entities would determine pricing policies.
Beneficiary Cost-Sharing and Premiums. The deductible would be $50.
Coinsurance could not exceed 20% of the cost (as stated in the contract). Each time
a prescription was filled, a beneficiary would be liable for a copayment equal to the
lesser of the cost of the drug (minus the deductible and coinsurance) or $5.
Program payments would cease after the aggregate amount of preventive
outpatient prescription drugs exceeded $750 in a year (based on the cost as stated in
the contract); however, beneficiaries could continue to purchase drugs at the contract
price. The $750 limit would be increased each year by changes in the per capita cost
of prescription drugs for beneficiaries.

CRS-19
Beneficiary Protections. The Secretary could not award a contract unless the
Secretary finds that the entity is in compliance with terms and conditions specified by
the Secretary including those relating to: (1) quality and financial standards; (2)
provision of necessary information to the Secretary; (3) procedures to assure proper
utilization and to avoid adverse drug reactions; (4) assuring that drugs are accessible
and convenient to covered beneficiaries (including offering services 24 hours a day,
7 days a week for emergencies and offering services at a sufficient number of retail
pharmacies); and (5) procedures to review and resolve complaints and denials (that
are comparable to those under Medicare+Choice. The entity is required to safeguard
the privacy of any individually identifiable information.
Cost-Control Mechanisms/Formularies. The entity could employ mechanisms
to provide benefits economically including formularies, alternative methods of
distribution, generic drug substitution, and using incentives to encourage beneficiaries
to select less costly means of receiving drugs.
Relationship to Group Health Plans. No provision.
Relationship to Medigap. No provision.
Relationship to Medicaid/Assistance for Low-Income. Medicaid coverage
for preventive outpatient prescription drugs would be provided under Medicaid for
persons with incomes below 135% of poverty. Full federal funding would be
provided for any additional costs. States would be required to maintain their
expenditures for any state-funded prescription drug program at least at the FY1999
level.
Financing Mechanism. Fifty percent of any amount received by the federal
government from any legislation providing for a global tobacco settlement would be
transferred to Part B. This money would be used to enhance the drug benefit
consistent with recommendations made in an Institute of Medicine study (which is
required under the under the bill).
Medicare Outpatient Prescription Drug Coverage Act of 1999 [S.
1535 (Grams)]
General Approach. The bill creates, beginning in 2001, a new drug benefit
under Part B. Program payments would equal 75% of the recognized payment
amount after the beneficiary met a monthly deductible ($150 in 2001). The deductible
would be waived for persons with incomes below 135% of poverty. The benefit
would be administered in a manner similar, but not identical, to that used for other
Part B services.
Persons Covered. Coverage is extended to all persons enrolled in Part B.
Scope of Benefits. Coverage is extended to outpatient prescription drugs
meeting FDA criteria. (Drugs currently covered under Part B would be part of the
new benefit and subject to the new payment and cost-sharing rules.) The current 3-
year limitation on immunosuppressive drugs would be eliminated.

CRS-20
Administration of Benefits. The Secretary would establish a point-of-sale
electronic claims system for use by Part B carriers and participating pharmacies. (A
point-of-sale electronic system would allow for the immediate processing of claims,
including a determination of whether the deductible has been met.) The Secretary
could contract with entities other than Part B carriers for implementation and
operation of the system; such entities could include a voluntary association,
corporation, partnership, or other non-governmental organization which the Secretary
determines to be qualified to conduct such activities. The Secretary could require
carriers to subcontract with such entities to implement and operate the electronic
claims system. The Secretary would develop a standard claims form (and standard
claims format) for drug claims.
The law would establish a participating pharmacy program under which
pharmacies authorized under state law to dispense drugs would enter into agreements
with the Secretary to: (1) accept “assignment” (i.e., agree not to charge patients more
than the coinsurance) once the entity is notified the individual has met the deductible;
(2) agree not to refuse to dispense covered drugs and not to charge beneficiaries more
than charged to the general public; (3) keep patient records, (4) submit information
necessary to administer the benefit; and (5) consistent with state law, offer to counsel
or to provide information to beneficiaries on the appropriate use of a drug, whether
there are potential interactions with other drugs dispensed to the beneficiary, and
advise the beneficiary on the availability of therapeutically equivalent drugs.
A new 11-member Prescription Drug Payment Review Commission would be
established; it would consist of experts in the fields of health care economics,
medicine, pharmacology, pharmacy, and prescription drug reimbursement as well as
representatives of the prescription drug manufacturing industry and at least one
beneficiary. The Commission would submit an annual report to Congress concerning
methods of determining payments for covered outpatient drugs. Beginning in 2002,
the report would include information on changes in prices and utilization. The
Secretary would also be required to submit an annual report on these issues.
Reimbursement. Payments would equal 75% of the lesser of the actual charge
or the average wholesale price.
Beneficiary Cost Sharing and Premiums. The deductible would be $150 a
month ($300 for a couple) in 2001 increased in future years by the percentage
increase in the Part B premium. Coinsurance would equal 25% of the recognized
payment amount.
Civil monetary penalties would apply if charges by participating or
nonparticipating pharmacies to beneficiaries exceed charges to the general public.
Beneficiary Protections. Participating pharmacies would be required,
consistent with state law, to offer to counsel or provide information to beneficiaries
on the appropriate use of a drug and whether there are potential interactions with
other drugs dispensed to the beneficiary.
Cost Control Mechanisms/Formularies. The Secretary would be prohibited
from establishing a formulary to exclude from coverage: (1) any specific drug or class

CRS-21
of drug; or (2) any specific use of a drug unless the exclusion is based on a finding
that the use is not safe and effective.
Payments would generally be limited to a 30-day supply, although the Secretary
could authorize up to 90 days (or beyond in unusual cases.)
Relationship to Group Health Plans. No provision.
Relationship to Medigap. No provision
Relationship to Medicaid/Assistance for Low-Income. The deductible would
not apply to persons below 135% of poverty.
Financing. No provision.
Medicare Preservation and Improvement Act of 1999 [S. 1895
(Breaux and Frist, et al.)]
General Approach. The bill provides for comprehensive Medicare reform. It
establishes, effective January 1, 2003, a competitive premium system under which
beneficiaries could choose from competing private health plans to obtain their health
services; they could also remain in the traditional fee-for-service program. Private
health plans and the government run fee-for-service program would be required to
offer high option plans which included prescription drug benefits.
Persons Covered. All Medicare beneficiaries would have to be enrolled in both
Parts A and B. Beneficiaries, at their option, could choose to enroll in a high option
plan.
Scope of Benefits. All plans would be required to offer the core benefits
(essentially current Medicare benefits). High option plans would have to offer: (1)
at least the core benefits; (2) stop loss coverage for out-of-pocket costs for core
benefits exceeding a specified threshold ($2,000 in 2003); and (3) prescription drug
coverage. The minimum drug benefit for high option plans would be actuarially
equivalent to $800 on Jan. 1, 2003; this amount would be adjusted in future years for
any increase in the reasonable costs of drugs in the preceding year. The government-
run fee-for-service plan would be required to offer high option plans that covered
prescription drugs.
Administration of Benefit. An independent seven member Medicare Board
would be established to administer the competitive premium system. The Board
would enter into and enforce contracts with entities offering plans, including
contracting with HCFA for the offering of the HCFA-sponsored plans. It would
coordinate the determination of eligibility and enrollment with the Commissioner of
Social Security. The Board would disseminate information on available plans to
beneficiaries, and establish a beneficiary education program. The Board would not
be responsible for the establishment and operation of HCFA-sponsored plans but
would have oversight authority (including overseeing the financial solvency of HCFA-

CRS-22
sponsored plans). HCFA would be reorganized with a new Division of HCFA-
Sponsored Plans which would have oversight of the fee-for-service program and the
HCFA-sponsored high option plans; it would not have oversight over other plans.
Each entity intending to offer a Medicare plan in a year would submit to the
Board information on the plan’s benefits, proposed premium bid, and service area.
The Board could approve the offering of a standard plan only if the entity offered a
high option plan. The Board would approve a plan provided it met certain
requirements. The benefits must include at least the core benefits and must not be
designed in such a manner as to result in favorable selection of beneficiaries. Premium
rates must be adequate in terms of actuarial soundness to assure financial solvency of
the entity offering the plan. The service area must be adequate and cannot be
designed so as to discriminate based on health status, economic status, or prior receipt
of health care of beneficiaries. The Board could negotiate with any entity regarding
the terms and conditions of the plan. (The bill does not specify which kinds of entities
may apply). It can approve a plan only if it finds that the terms and conditions are
consistent with Medicare requirements.
HCFA would be reorganized with a Division of HCFA-Sponsored Plans. It
would offer one standard Medicare plan throughout the U.S. which would include
only the core benefits. It would also offer at least one high option plan in each area.
HCFA-sponsored plans would be required to meet the same requirements as private
plans including those pertaining to submission of plan information to the Board and
approval of plans by the Board. Premiums for the standard plan and each HCFA-
sponsored high option plan would be computed separately to ensure that each is self-
sustaining. The Division of HCFA-sponsored plans would bear full financial risk for
the provision of services under HCFA sponsored plans (except for drug benefits under
high option plans).
The Division of HCFA-Sponsored plans would contract with private entities for
the provision of outpatient prescription drug benefits under a high option plan. These
entities could include insurers, pharmaceutical benefit managers, chain pharmacies,
groups of independent pharmacies, and other private entities determined appropriate
by the Board. Contracts could be awarded on a local, regional, or national basis.
Drug benefits could only be offered through private entities who would bear full
financial risk for the drug benefits. However, the Board would establish an
arrangement through which the Board would guarantee benefits in areas where
contracts with private entities were not in effect; the guarantee would be for the
actuarial equivalence of the minimum drug benefit required under high option plans.
The Board would establish Medicare Consumer Coalitions to conduct
information programs for beneficiaries. Coalitions would be nonprofit organizations
whose board was composed primarily of Medicare beneficiaries.
Reimbursement. The Board would negotiate premiums with health plans,
compute payments to plans (including geographic and risk adjusters), and make
payments to plans. Plans would determine payments for services.
Beneficiary Cost-Sharing and Premiums. Beneficiaries would not pay Part
B premiums. They would pay plan premiums if they chose higher cost plans subject

CRS-23
to higher premiums. There would be no beneficiary premium for plans costing 85%
or less of the national weighted average (NWA) premium. For premiums between
85% and 100% of the NWA premium, beneficiaries would pay 80% of the excess
over 85% of the NWA premium. For premiums equal to or exceeding 100% of the
NWA premium, beneficiaries would pay 12% of the NWA premium plus the full
amount by which the plan premium exceeds the NWA premium. Only the costs of the
core benefit package would count toward the computation. If the only Medicare
plans offered in an area are HCFA-sponsored plans, the beneficiary obligation for the
standard plan could not exceed 12% of the NWA premium and the obligation for any
high option plan could not exceed 12% of the NWA premium plus the amount by
which the obligation for the high option plan exceeds the obligation for the standard
plan. Beneficiary premiums would be collected in the same manner as Part B
premiums are currently collected (i.e., as a deduction from social security checks).
Beneficiaries at or below 135% of poverty would pay zero premium for
enrollment in the lowest cost high option plan in their area. (See low-income
discussion.) All other beneficiaries enrolled in a high option plan would receive a
discount on that portion of their premium attributable to the drug benefits (based on
the actuarial value of the minimum benefit, i.e., $800 in 2003). The discount for
persons with incomes between 135% and 150% of poverty would range from 50%
phasing-down to 25%. The discount for persons with incomes over 150% of poverty
would equal 25%. The amount of the discount would be treated as taxable income
for persons over 135% of poverty.
The Board could permit reasonable variation in cost-sharing for private plans so
long as the actuarial equivalence of cost-sharing is maintained. Plans could provide,
as an additional benefit, lower cost sharing than otherwise specified under Medicare.
Beneficiary Protections. Plans and entities offering the plans would be required
to meet requirements applicable to Medicare+Choice programs including those
relating to the offering of Medicare benefits and protection for beneficiaries.
Cost-Control Mechanisms/Formularies. Entities could use cost control
mechanisms customarily used in employer-sponsored plans, including formularies,
tiered copayments, selective contracting with providers of drugs, and mail order
pharmacies.
HCFA could ensure continued solvency of HCFA-sponsored plans through
improvements in efficiencies and economies.
Relationship to Group Health Plans. Not specified.
Relationship to Medigap. Beginning January 1, 2003, only beneficiaries
enrolled in HCFA-sponsored standard plans could purchase or renew Medigap
policies.
Relationship to Medicaid/Assistance for Low-Income. Beneficiaries at or
below 135% of poverty would pay zero premium for enrollment in the lowest cost
high option plan in their area. If they enrolled in another plan, they would be liable
for any additional premium over that otherwise applicable for the lowest cost high

CRS-24
option plan. The Board would establish an arrangement under which each state
would make low-income eligibility determinations (with 50% federal matching).
States would be required to continue state contributions. This “maintenance of
effort” requirement would require states to pay the following amounts for persons
eligible for both Medicare and full Medicaid coverage: (1) the lesser of 12% of the
NWA premium or the beneficiary obligation for the HCFA-sponsored standard plan,
whichever is lower; (2) all coinsurance, deductibles, and cost-sharing imposed under
the Medicare plan in which the beneficiary is enrolled; (3) any additional costs
incurred in excess of stop-loss coverage for the core benefits; and (4) to the extent
consistent with the state Medicaid plan, any additional costs in excess of the limit
imposed for coverage of drugs under the plan. For the QMB-only population, state
contributions would be limited to items #1 and #2, except that cost-sharing
contributions would not apply for coverage of drugs. For other low-income persons,
the state contribution would be limited to item #1. Federal matching would apply for
these contributions.
Financing Mechanism. No additional revenue source is specified. The plan
would combine the Part A and Part B trust funds into a single Medicare Trust Fund.
Income to the fund would include current payroll taxes, beneficiary premiums, general
revenue contributions, and any additional fees imposed by the Board. The Board
would annually report to Congress on the portion of expenses paid by general
revenues, the first fiscal year when this percentage would exceed 40% (defined as
programmatic insolvency), and the first fiscal year in which the fund would be unable
to pay expenses. General revenue financing could not exceed 40% of expenses (not
including administrative costs). The Board could impose assessments on plans for
Board expenses.
Provision would be made to provide, prior to January 1, 2003, for initial capital
for HCFA-sponsored plans. At the direction of the Board, such amounts as may be
necessary would be transferred from the trust funds to cover initial capitalization,
working capital, and a contingency reserve. These amounts would be kept in a
separate account.
Voluntary Medicare Prescription Drug Plan Act of 2000 [S. 2319
(Bob Smith and Allard)]
General Approach. The bill establishes, under a new Part D, a voluntary
Medicare prescription drug plan - Rx Option, effective January 1, 2001. A beneficiary
enrolled in the Rx Option would be subject to a combined deductible ($675 in 2001)
for Medicare Part A, Medicare Part B, and drug expenses. After the deductible is met
the program would pay 50% of drug costs up to a specified annual maximum ($5,000
in 2001).
Persons Covered. Voluntary coverage would be offered to all beneficiaries who
are enrolled in both Part A and Part B. Not included are persons enrolled in a
Medicare+Choice plan or eligible for Medicaid drug benefits. An individual enrolling
in Rx Option would be required to stay in the plan for at least 2 years (except that

CRS-25
they would be permitted to disenroll no later than the last day of the first full month
following the month of election).
Scope of Benefits. After the beneficiary had met the combined deductible, the
program would pay 50% of drug costs up to $5,000 in 2001. In future years the cap
would be increased by the percentage increase in the prescription drug component of
the consumer price index.
Administration of Benefits. The Secretary would contract with private entities
to provide the benefit. Private entities would include insurers (including issuers of
Medigap policies), pharmaceutical benefit managers, chain pharmacies, groups of
independent pharmacies, and other private entities the Secretary determines are
appropriate. Contracts could be awarded on a local, regional, or national basis. Drug
benefits could only be offered through a contact with a private entity. No private
entity could be excluded from offering benefits if it met all the requirements
established by the Secretary.
The Secretary would establish a process for enrollment of individuals under the
Rx Option that is based on the process for enrollment in Medicare+Choice.
Reimbursement. No provision
Beneficiary Cost-Sharing and Premiums. Beneficiaries enrolled in the Rx
Option would be subject to the new combined deductible for Part A, Part B, and drug
expenses. The deductible would be $675 in 2001, increased in future years by the
percentage increase in the medical component of the consumer price index. This
deductible would replace the existing Part A and Part B deductible for Rx Option
enrollees. (Current Part A and B coinsurance rules would continue to apply.) Drugs
would be subject to 50% cost-sharing up to the cap. There would be no premium for
the Rx Option.
Beneficiary Protections. No provision
Cost Control Mechanisms/Formularies. No provision
Relationship to Group Health Plans. No provision
Relationship to Medigap. The NAIC would revise the existing standardized
Medigap plans for persons enrolled in the RX Option so that policy holders are
required to pay annual out-of-pocket expenses (other than premiums) in an amount
equal to the combined deductible before the plan begins making payments. Medigap
plans which currently cover some drug expenses (i.e. “H”, “I,” and “J”) could not
duplicate coverage under the Rx Option. Persons enrolling in the Rx Optoion could
only enroll in a plan meeting these requirements except in the case of the renewal of
already existing policies.
Relationship to Medicaid/Assistance for Low-Income. No provision
Financing Mechanism. None specified. Senator Smith’s floor statements
quote assessments from actuaries (including a former HCFA Chief Actuary) that the

CRS-26
legislation would be cost neutral to Medicare. (Part of the estimate is attributable to
the fact that studies have shown that per capita Medicare costs are higher for persons
with Medigap policies covering the Part A and B deductibles. This legislation would
prohibit Medigap coverage of these deductibles for persons electing the Rx Option.)
Medicare Modernization Act of 2000 - President’s Bill [S. 2342
(Moynihan, by request)]
General Approach. S. 2342 is the President’s plan for comprehensive Medicare
reform. A major component of the plan is the establishment of a new optional
Medicare prescription drug benefit under a newly established Part D. The plan would
pay for 50% of beneficiaries drug costs, beginning with the first prescription filled, up
to a maximum program payment of $1,000 in the first year (2003) and $2,500 in 2009
when the program is fully phased in. (The drug portion of S. 2342 is similar to the
plan outlined by the Administration on July 2, 1999. Two major changes are a one
year delay in the implementation date and the establishment of a catastrophic
prescription drug coverage reserve fund.).
Persons Covered. Coverage would be extended to all persons, otherwise
eligible for Medicare, who enroll in Part D. Persons would only have one chance to
enroll. For current beneficiaries, there would be an open enrollment period for the
first year the program is in effect (2003). For other persons, the enrollment
opportunity would generally occur when an individual first becomes eligible for
Medicare. There would be two exceptions. Beneficiaries who are covered by their
employer while still working (or by an employer of a working spouse) would have a
one-time enrollment opportunity after retirement (or after retirement or death of the
working spouse). Beneficiaries covered under a retiree health plan would have a one-
time enrollment opportunity if the former employer drops retiree drug coverage.
During 2003 and 2004, the Secretary would conduct a study concerning the feasibility
of establishing an annual open enrollment period.
Scope of Benefits. In general, all therapeutic classes of drugs would be covered.
In addition, beneficiaries would be guaranteed access to off-formulary drugs when
medically necessary and have basic appeal rights when coverage is denied. The
exceptions would be for classes of drugs currently excluded under Medicaid except
that: 1) the Secretary may specifically provide for such coverage; and 2) smoking
cessation drugs excluded under Medicaid would be covered under Part D. Drugs
currently covered under Medicare would continue to be covered under the Part B
program.
Administration of Benefits. The Secretary would contract with an entity which
would competitively bid to serve as a benefit manager for the new drug benefit in a
geographic region. At least 15 regions would be designated; only one contract would
be awarded in each region. The initial contract would be awarded for 3-5 years and
could be renewed noncompetitively. Any entity that is capable of administering the
drug benefit could compete for the contract. (Specific types of entities are not
enumerated in the bill; however they have been described as including pharmacy
benefit managers (PBMs), retail drug chains, health plans or insurers, states (through
mechanisms established for Medicaid) or multiple entities in collaboration (such as

CRS-27
alliances of pharmacies) provided the collaboration is not anti-competitive). The
entity’s contract proposal would include: a cost proposal setting forth proposed
administrative charges; a proposal for drug prices including annual increases in prices;
details of cost and utilization management; information as the Secretary may require
on past performance; information on ownership and shared financial interests with
other entities involved in benefit delivery; and a proposal for deterring medical errors
related to drugs. The Secretary would consider the comparative merits of the
applications as determined on the basis of past performance and other factors.
Contracts with benefit managers could include incentive payments for cost and
utilization management and quality improvement.
The benefit manager for an area would:1) establish, through negotiations with
manufacturers, wholesalers, and pharmacies, a schedule of prices for drugs; 2) enter
into participation agreements with pharmacies; 3) track enrolled individuals; 4)
process claims; 5) meet cost and utilization management and quality assurance
measures; 6) have in place education and information activities; 7) have in effect
beneficiary protections, and 8) maintain adequate records.
Pharmacies meeting certain requirements would be eligible to enter an agreement
with a benefit manager to furnish covered prescription drugs to enrolled individuals.
The requirements include: licensing; access and quality standards; adherence to
established prices; having in effect management information systems (including
electronic systems) and procedures for carrying out required functions; maintenance
of adequate records; implementation of effective measures for quality assurance, cost
management, and reduction of medical errors with respect to drugs; and adherence
to confidentiality standards.
Enrollees in managed care plans would receive their benefit through the
Medicare+Choice plans.
Reimbursement. Medicare would not set prices for drugs. Prices would be
determined through negotiations between the benefit managers for an area and drug
manufacturers, wholesalers, and pharmacies. It is expected that this process would
result in discounts. The proposal would require that beneficiaries would continue to
have access to negotiated prices even after they had exceeded the cap.
Beneficiary Cost-Sharing and Premiums. There is no deductible. The
program would pay half of the negotiated price beginning with the first prescription
filled. Beneficiaries would be liable for the remaining 50%. Benefit managers could
propose a higher government percentage for generic drugs, drugs on the formulary,
or mail order drugs provided that aggregate costs will not be increased.
The program would be phased-in over the 2003-2009 period. In 2003 and 2004,
the federal government would pay up to a maximum of $1,000 per person per year
(out of the first $2,000 in total spending). In 2005 and 2006, the government would
pay up to $1,500 (out of the first $3,000 in total spending). In 2007 and 2008, it
would pay up to $2,000 (out of the first $4,000 in total spending). In 2009, it would
pay up to $2,500 (out of the first $5,000 in total spending). Beginning in 2010, the
limit would be increased by the increase in the consumer price index. (The

CRS-28
Administration has estimated that 90% of beneficiaries would not reach the cap when
the program was fully implemented.)
Beneficiaries would pay a premium equal to 50% of program costs; the
remaining 50% would be paid by the federal government. (Premiums paid by former
employers would equal two-thirds of the total). The Administration estimates that the
premium for 2003 would be $26 per month, rising to $51 per month in 2009. (CBO
estimates the 2003 premium at $24.10, rising to $48.20 in 2009 and $50.90 in 2010)
Premiums would be collected in the same way as Part B premiums; for most persons
this is a deduction from monthly social security checks.
The bill also establishes a catastrophic prescription drug coverage reserve fund.
Specified amounts are credited to the fund over for 2006-2010, with a total of $35
billion credited to the fund over the period. However, there are no specifics of how
this fund would be used.
Beneficiary Protections. Benefit managers would be required to have in effect
systems to safeguard the confidentiality of health information. They would also be
required to have in place grievance and appeals procedures as specified by the
Secretary.
Cost Control Mechanisms/Formularies. Benefit managers could use various
cost containment tools in administering the program, subject to limitations and
guidelines set in the contract. They would be permitted to use formularies. However,
beneficiaries would be guaranteed access to off-formulary drugs when medically
necessary and would have appeal rights when coverage was denied. The Secretary
could not authorize a particular formulary or institute a price structure for benefits or
otherwise interfere with the competitive nature of providing the benefit through
benefit managers.
Relationship to Group Health Plans. Employers would receive a partial drug
premium subsidy if their retiree health coverage for drugs is at least as good as the
Part D benefit. The subsidy would equal two-thirds of the amount that would
otherwise be provided to the benefit manager for Medicare Part D enrollees. The
Secretary would make these premium subsidy payments to the health plan sponsor
used by the employer.
Relationship to Medigap. Medigap policies would be revised to conform to
the revised program structure.
Relationship to Medicaid/Assistance for Low-Income. The bill would make
available Part D protection for all beneficiaries, including the low-income. Medicare
would therefore pick up some costs currently paid by Medicaid. States would be
permitted to pay Part D premiums for individuals who are dually eligible for Medicare
and Medicaid instead of providing drug benefits through Medicaid. If they elect this
option, they must cover all dually eligible individuals under Part D and must purchase
all prescriptions for such individuals in accordance with Part D requirements, without
regard to whether or not the benefit limit for an individual has been reached.

CRS-29
Under the bill, Medicaid would pay the Part D drug premiums and coinsurance
charges (up to the benefit limit) for Medicare beneficiaries up to 100% of poverty,
using the current federal/state matching rate.
“Qualified Medicare drug beneficiaries” (defined as persons with incomes
between 100% and 150% of poverty and assets below $4,000 for an individual and
$6,000 for a couple) would receive assistance through Medicaid (except for dually
eligible persons noted above). However, unlike regular Medicaid, benefits for this
population would be paid 100% by the federal government. Medicaid would pay Part
D drug premiums and coinsurance charges (up to the benefit limit) for beneficiaries
with incomes between 100% and 135% of poverty. Medicaid would pay a portion
of the beneficiary premium, determined on a linear sliding scale based on income, for
persons with incomes between 135% and 150% of poverty.
Medicaid drug price rebates would not apply to prescription drugs purchased
under Part D.
Financing Mechanism. The Administration estimated net federal costs (after
deduction of beneficiary premiums) at $38.1 billion over 5 years (2001-2005) and
$160 billion over 10 years (2001-2010). A portion of the costs would be financed by
savings achieved through efficiencies and economies included under the larger reform
plan. CBO estimates net 5-year costs at $34.5 billion and net 10-year costs at $149
billion.
A separate account - the Prescription Drug Insurance Account- would be set up
within the Federal Supplementary Insurance Trust fund. Premiums would be credited
to the account and benefit payments made from the account.
Medicare Expansion for Needed Drugs (MEND) Act of 2000 [S. 2541
(Daschle, et. al.)]
General Approach. S. 2541 is the Senate Democrats bill which was announced
May 10, 2000, at the White House. This measure is substantially the same as the
prescription drug portion of the Administration bill (S. 2342). The following are the
major changes incorporated in S. 2541: (1) the phase-in begins in 2002 rather than
2003; (2) the benefit would be administered by “private entities” rather than “benefit
managers,” the requirements for contact proposals from these entities are revised,
and there is no provision for noncompetitive renewal of contracts; 3) the amount in
the catastrophic reserve fund is increased and the Secretary is required to report
recommendations on structuring a catastrophic drug benefit within 6 months of
enactment; and 4) the measure includes provisions designed to provide special
attention for rural and hard to serve areas. S. 2541 does not include the non-drug
provisions (such as Medicare modernization) incorporated in the President’s plan; it
does require several studies relating to expanding Medicare’s preventive benefits.
S. 2541 provides for the establishment of a new optional Medicare prescription
drug benefit under a newly established Part D. The plan would pay for 50% of
beneficiaries drug costs, beginning with the first prescription filled, up to a maximum

CRS-30
program payment of $1,000 in the first year (2002) and $2,500 in 2009 when the
program is fully phased in.
Persons Covered. Coverage would be extended to all persons, otherwise
eligible for Medicare, who enroll in Part D. Persons would only have one chance to
enroll. For current beneficiaries, there would be an open enrollment period for the
first year the program is in effect (2002). For other persons, the enrollment
opportunity would generally occur when an individual first becomes eligible for
Medicare. There would be two exceptions. Beneficiaries who are covered by their
employer while still working (or by an employer of a working spouse) would have a
one-time enrollment opportunity after retirement (or after retirement or death of the
working spouse). Beneficiaries covered under a retiree health plan would have a one-
time enrollment opportunity if the former employer drops retiree drug coverage.
During 2002 and 2003, the Secretary would conduct a study concerning the feasibility
of establishing an annual open enrollment period.
Scope of Benefits. In general, all therapeutic classes of drugs would be covered.
In addition, beneficiaries would be guaranteed access to off-formulary drugs when
medically necessary and have basic appeal rights when coverage is denied. The
exceptions would be for classes of drugs currently excluded under Medicaid except
that; 1) the Secretary may specifically provide for such coverage; 2) such drug is
certified as medically necessary by a health care professional; and 3) smoking
cessation drugs excluded under Medicaid would be covered under Part D. Drugs
currently covered under Medicare (including self-administered drugs) would continue
to be covered under the Part B program. The current durational limits on coverage
of immunosuppressive drugs following an organ transplant would be eliminated; these
drugs would be covered under Part B.
Administration of Benefits. The Secretary would contract with a private entity
which would competitively bid to administer the new drug benefit in a geographic
region. At least 15 regions would be designated; only one contract would be awarded
in each region. The initial contract would be awarded for 2-5 years and would be
subject to review after 2 years. A private entity that is capable of administering the
drug benefit could compete for the contract. An eligible entity is a prescription drug
vendor, wholesale and retail pharmacist delivery system, health care provider or
insurer, any other type of entity the Secretary may specify, or a consortium of such
entities. The entity’s contract proposal would include material and information
required by the Secretary including a detailed description of: 1) the schedule of
negotiated prices that will be charged to enrollees, 2) how the entity will deter medical
errors related to prescription drugs, and 3) proposed contracts with local pharmacy
providers designed to ensure access, including compensation for local pharmacists’
services. Contracts with private entities could include incentive payments for cost and
utilization management and quality improvement.
The private entity for an area would:1) establish, through negotiations with
manufacturers, wholesalers, and pharmacies, a schedule of prices for drugs; 2) enter
into participation agreements with pharmacies; 3) process claims; 4) meet cost and
utilization management and quality assurance measures; 5) have in place education
and information activities; 6) have in effect beneficiary protections, and 7) maintain
adequate records.

CRS-31
Pharmacies meeting certain requirements would be eligible to enter an agreement
with a private entity to furnish covered prescription drugs and pharmacists’ services
to enrolled individuals. The requirements include: 1) licensing; 2) limiting total
charges to negotiated prices and charges to beneficiaries to the individual’s share; and
3) compliance with performance standards relating to measures for quality assurance,
reduction of medical errors, participation in a drug utilization review program, and
ensuring compliance with confidentiality standards.
The Secretary would be required to ensure that all beneficiaries have access to
the full range of pharmaceuticals under part D. The Secretary would be required to
give special attention to access, pharmacist counseling, and delivery in rural and hard-
to-serve areas. This could include bonus payments to retail pharmacists in rural areas
and extra payments to the private entity for the cost of rapid delivery of
pharmaceuticals. A GAO report on the issue would be required within 2 years of
enactment.
Enrollees in managed care plans would receive their benefit through the
Medicare+Choice plans.
Reimbursement. Medicare would not set prices for drugs. Prices would be
determined through negotiations between the private entities for an area and drug
manufacturers, wholesalers, and pharmacies. It is expected that this process would
result in discounts. The bill would require that beneficiaries continue to have access
to negotiated prices even after they had exceeded the cap.
Beneficiary Cost-Sharing and Premiums. There is no deductible. The
program would pay half of the negotiated price beginning with the first prescription
filled. Beneficiaries would be liable for the remaining 50%. Private entities
administering the benefit could propose a higher government percentage for generic
drugs, drugs on their formulary, or mail order drugs provided that aggregate costs
will not be increased.
The program would be phased-in over the 2002-2009 period. In 2002 - 2004,
the federal government would pay up to a maximum of $1,000 per person per year
(out of the first $2,000 in total spending). In 2005 - 2007, the government would pay
up to $1,500 (out of the first $3,000 in total spending). In 2008, it would pay up to
$2,000 (out of the first $4,000 in total spending). In 2009, it would pay up to $2,500
(out of the first $5,000 in total spending). Beginning in 2010, the limit would be
increased by the increase in the consumer price index.
Beneficiaries would pay a premium equal to 50% of program costs; the
remaining 50% would be paid by the federal government. (Premiums paid by former
employers would equal two-thirds of the total). Premiums would be collected in the
same way as Part B premiums; for most persons this is a deduction from monthly
social security checks.
Within 6 months of enactment, the Secretary would be required to submit
recommendations to the Congress on structuring a catastrophic drug benefit for
Medicare beneficiaries. The recommendations must: ensure coverage of the costs of
prescription drugs above a specified level; conform to the administrative structure

CRS-32
established in the bill; have projected costs not exceeding $50 billion over the 2003-
2010 period; and take effect no later than January 1, 2003. If legislation is not enacted
by June 1, 2001, the Secretary would promulgate final regulations by January 1, 2002.
Such a final regulation could not take effect unless the Director of the Office of
Management and Budget and the Chief Actuary of HCFA certified that aggregate
federal expenses would not exceed $50 billion between 2003 and 2010. The Secretary
would be required to submit a revised recommendation if either certification were not
provided. A catastrophic reserve fund would be established; amounts appropriated to
the fund would equal $50 billion over the 2003-2010 period.
Beneficiary Protections. Private entities administering the benefit would be
required to have in effect systems to safeguard the confidentiality of health
information. They would also be required to have in place grievance and appeals
procedures as specified by the Secretary.
Cost Control Mechanisms/Formularies. Private entities could use various cost
containment tools in administering the program, subject to limitations and guidelines
set in the contract. They would be permitted to use formularies. However,
beneficiaries would be guaranteed access to off-formulary drugs when medically
necessary and would have appeal rights when coverage was denied. The Secretary
could not require a particular formulary or institute a price structure for benefits,
interfere in any way with negotiations between private entities and drug manufacturers
or wholesalers, or otherwise interfere with the competitive nature of providing the
benefit through private entities.
Relationship to Group Health Plans. Employers would receive a partial drug
premium subsidy if their retiree health coverage for drugs is at least as good as the
Part D benefit. The subsidy would equal two-thirds of the amount that would
otherwise be provided to the benefit manager for Medicare Part D enrollees. The
Secretary would make these premium subsidy payments to the health plan sponsor
used by the employer.
Relationship to Medigap. No provision.
Relationship to Medicaid/Assistance for Low-Income. The bill would make
available Part D protection for all beneficiaries, including the low-income. Medicare
would therefore pick up some costs currently paid by Medicaid. States would be
permitted to pay Part D premiums for individuals who are dually eligible for Medicare
and Medicaid instead of providing drug benefits through Medicaid. If they elect this
option, they must cover all dually eligible individuals under Part D and must purchase
all prescriptions for such individuals in accordance with Part D requirements, without
regard to whether or not the benefit limit for an individual has been reached.
Under the bill, Medicaid would pay the Part D drug premiums and coinsurance
charges (up to the benefit limit) for Medicare beneficiaries up to 100% of poverty
(and with resources not in excess of $4,000). The current federal/state matching rate
would be used.
“Qualified Medicare drug beneficiaries” (defined as persons with incomes
between 100% and 150% of poverty and assets below $4,000 for an individual and

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$6,000 for a couple) would receive assistance through Medicaid. However, unlike
regular Medicaid, benefits for this population would be paid 100% by the federal
government (except for any dually eligible persons noted above). Medicaid would
pay Part D drug premiums and coinsurance charges (up to the benefit limit) for
beneficiaries with incomes between 100% and 135% of poverty. Medicaid would pay
a portion of the beneficiary premium, determined on a linear sliding scale based on
income, for persons with incomes between 135% and 150% of poverty.
Medicaid drug price rebates would not apply to prescription drugs purchased
under Part D.
Financing Mechanism. No provision
A separate account - the Prescription Drug Insurance Account- would be set up
within the Federal Supplementary Insurance Trust fund. Premiums would be credited
to the account and benefit payments made from the account.
Summary of Bills to Add a Non-Medicare Benefit for the
Medicare Population
Medicare Beneficiary Prescription Drug Assistance and Stop-Loss
Protection Act of 1999 [ H.R. 2925 (Bilirakis, et al.)]
General Approach. The bill would amend the Public Health Service Act to
establish two programs for Medicare beneficiaries — state prescription drug
assistance and federal stop-loss drug protection. Under the state drug assistance
program, federal matching funds would be provided to states who voluntarily set up
prescription drug coverage programs for their low-income Medicare population;
coverage would be available for persons not eligible for drug coverage under the
state’s Medicaid program. The federal stop-loss protection would limit Medicare
beneficiaries out-of-pocket liability for drugs; initially the annual limit would be set
at $1,500. These two plans are described separately below.
Low-Income Assistance Program: Persons Covered. The state drug
assistance program would cover low income persons in states that chose to set up a
program. Low income persons are defined as persons: (1) eligible for Medicare Part
A and/or Part B; (2) not eligible for drug coverage under the state’s Medicaid
program; (3) whose income falls below the level set by the state which must be
between 120% and 200% of poverty; and (4) at the option of the state, has resources
below a level set by the state (which could not be lower than $4,000 for an individual,
$6,000 for a couple).
Low-Income Assistance Program: Scope of Benefits. The “scope and quality”
of drug benefits under the state assistance program would be set by the state but could
not be less than that offered under one of the following: (1) the state’s Medicaid
program; (2) the standard Blue Cross/Blue Shield plan under FEHBP; (3) the
coverage available to state employees; (4) coverage available to enrollees in the
state’s largest HMO (as defined by its commercial non-Medicaid enrollment); or (5)

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other benchmark coverage that the Secretary determines, upon application by the
state, provides comprehensive outpatient drug coverage. The term “scope and
quality” means the extent of drugs covered (including any exclusions or limitations
and the application of any formulary (including exceptions to the formulary) and
provisions to assure access to and quality of covered drugs. The term does not
include cost sharing requirements. State programs would be prohibited from
imposing any maximum annual lifetime or other durational limits. State programs
could not impose any preexisting condition exclusion.
The state drug assistance programs could not include coverage for items
currently covered under Medicare, items for which coverage is not available under
Medicaid, or drugs used for assisted suicide.
Low-Income Assistance Program: Administration of Benefits. A state
would be eligible for assistance if it submitted to the Secretary a plan which included
a written document that outlined how the state intended to use the federal funds and
the procedures to be used to provide for outreach to low-income beneficiaries.
Further, the state would have to provide a certification by the chief executive officer
of the state that the state drug assistance program is consistent with the specific
requirements of the bill.
A state would be required to provide assurances to the Secretary that: (1) it
would collect data, maintain records and furnish reports as specified by the Secretary
in order to enable the Secretary to monitor state program administration and
compliance and to evaluate and compare state programs; (2) it would afford the
Secretary access to records and information for the purposes of review and audit; and
(3) it would assess and report to the Secretary annually on state program operation.
The Secretary could not impose conditions in addition to those specified under
the bill for state drug assistance programs.
The Secretary would pay each state that submitted a drug assistance plan an
amount for each quarter (beginning on or after October 1, 1999) equal to the sum of:
(1) the enhanced federal match for expenditures for low-income beneficiaries with
family incomes below 150% of poverty; (2) the federal matching rate that applies
under the state’s Medicaid program for expenditures for other low income
beneficiaries covered under the state’s program; and (3) the enhanced matching rate
for expenditures related to outreach and other administrative activities (except that
assistance for administrative expenses cannot exceed 20% of the total federal
contribution in the first year or 10% in subsequent years). The enhanced matching
rate is defined as the federal matching rate for the state’s Medicaid program plus 30%
of the percentage point difference between this rate and 100% [for example a state
with a 60% federal Medicaid match rate would have an enhanced rate of 72% (60%
+0.3 x 40)]. In no case could the federal rate exceed 85%.
Low-Income Assistance Program: Reimbursement. The state would be
required to provide low-income assistance to each eligible person who applied for
coverage. States would be required to provide the assistance as a premium subsidy
for persons enrolled in a Medicare+Choice or group health plan that provides
qualified prescription drug coverage. The amount of the subsidy would would equal

CRS-35
the portion of the premium attributable to furnishing drug coverage. For other
persons, the state could select any method for the provision of, or payment for,
qualified coverage, provided it is separate from Medicaid.
Low-Income Assistance Program: Beneficiary Cost-Sharing and Premiums.
A state drug assistance program could not impose a premium, enrollment fee, or
deductible for drug coverage. No copayments or coinsurance charges could be
imposed for persons whose family income was below 120% of poverty. For persons
with higher incomes, cost-sharing could not exceed the greater of $5 per prescription
unit or 20% coinsurance. In the aggregate, cost-sharing could not exceed an annual
limit; the limit would be $1,500 in 2000. This limit would be increased in future years
by the percentage increase in per capita expenditures for prescription drugs over the
period July 1999 to July of the year prior to the year in question.
Low-Income Assistance Program: Beneficiary Protections. No provision.
Low-Income Assistance Program: Cost/Control Mechanisms/Formularies.
The Secretary could not require states to use any particular formulary or pricing
structure. States would be prohibited from using the Medicaid rebate system or any
other federal rebate system.
Low-Income Assistance Program: Relationship to Group Health Plans.
Low-income persons enrolled in group health plans with qualified drug coverage
would have a premium subsidy payment made in their behalf.
Low-Income Assistance Program: Relationship to Medigap. Medicare
beneficiaries provided low-income assistance would be permitted to drop a Medigap
policy which includes drug coverage and be able to purchase another policy offered
by the insurer. Beneficiaries who lose low-income prescription drug assistance would
be permitted to restore Medigap coverage that included prescription drug coverage.
In addition, the Secretary would establish a 6-month open enrollment period when all
beneficiaries would be able to obtain a Medigap policy with prescription drug
coverage.
Low-Income Assistance Program: Relationship to Medicaid/Assistance for
Low-Income. See above.
Low-Income Assistance Program: Financing. No provision.
Federal Stop-Loss Protection: Persons Covered. The federal stop-loss
protection program would be available for persons enrolled in Part A and/or B who
have qualified Medicare prescription drug coverage. Qualified coverage is defined as
drug coverage meeting the following requirements: (1) the deductible cannot exceed
$500 in a year; (2) cost-sharing (in the form of copayments, coinsurance, or both)
could not exceed 50% of the payment amount for the drug; (3) there is an annual per
beneficiary limit of not more than $1,500 on out-of-pocket expenses; and (4) the
entity offering the coverage has entered into an agreement with the entity
administering stop-loss protection under which it agrees to provide for the
information necessary to establish eligibility for program payments. Plans meeting

CRS-36
these requirements could be Medicare+Choice plans, Medigap policies, or group
health plans.
Federal Stop-Loss Protection: Scope of Benefits. The federal stop-loss
program would pay the costs of providing benefits under a qualified Medicare
prescription drug coverage plan once a beneficiary had incurred out-of-pocket
expenses exceeding a specified amount. This amount would be $1,500 in 2000. It
would be increased in future years by the percentage increase in per capita
expenditures for prescription drugs over the period July 1999 to July of the year prior
to the year in question.
Federal Stop-Loss Protection: Administration of Benefits. The Secretary
would enter into contracts with one or more carriers or other qualified entities to
operate the stop-loss program. The program would make the stop-loss payments to
the entity providing the qualified Medicare prescription drug coverage.
Federal Stop-Loss Protection: Reimbursement. No provision.
Federal Stop-Loss Protection: Beneficiary Cost-Sharing and Premiums.
No cost sharing would be required once the beneficiary hit the stop-loss coverage
threshold.
Federal Stop-Loss Protection: Beneficiary Protections. No provision.
Federal Stop-Loss Protection: Cost/Control Mechanisms/Formularies. The
Secretary, carrier, or other qualified entity would not be authorized to deny or limit
payment under the plan. However, the Secretary, carrier or entity could compute
costs taking into account discounts or other rebates related to the provision of drug
coverage.
Federal Stop-Loss Protection: Relationship to Group Health Plans. See
above.
Federal Stop-Loss Protection: Relationship to Medigap. See low-income
program, above.
Federal Stop-Loss Protection: Relationship to Medicaid/Assistance for
Low-Income. See low-income program, above.
Federal Stop-Loss Protection: Financing. No provision.
Medicare Low-Income Prescription Drug Assistance Act of 2000
[H.R. 4235 (Foley)]
General Approach. The bill requires the Secretary of HHS to establish a
voluntary program, beginning in 2002, for low-income Medicare beneficiaries. Low-
income individuals are defined as singles with incomes under $30,000 and couples
with incomes under $60,000. Beneficiaries would pay a $20 monthly premium and

CRS-37
have payments made to the pharmacy for drugs, subject to a $10 or $20 copayment
and an annual maximum payment of $1,500.
Persons Covered. Persons enrolled in Medicare Part B with incomes under
$30,000 ($60,000 for a couple) would be able to enroll in the program. These levels
would be annually adjusted to reflect changes in average beneficiary income.
Scope of Benefits. In general, coverage would be extended to outpatient
prescription drugs meeting FDA criteria. Drugs currently covered under Medicare
would not be included.
Administration of Benefit. The Secretary would be required to establish one
or more periods of voluntary enrollment meeting certain criteria. There would be an
initial enrollment period at the beginning of the program and an initial enrollment
period for individuals meeting first meeting eligibility requirements after the program
begins. Special enrollment periods could be established to take into account loss of
other drug coverage. Generally, individuals could only disenroll on an annual basis.
Enrollment and disenrollment periods would be designed to avoid adverse selection.
The Secretary would enter into agreements, under terms and conditions deemed
appropriate, with States, carriers, and other private entities to operate the program
including making eligibility determinations, enrolling individuals, and paying of claims.
Reimbursement. Payments would be made to the pharmacy.
Beneficiary Cost-Sharing and Premiums. Beneficiaries would pay a $20
monthly premium. Premiums would be collected in the same way as Part B premiums;
for most persons this would be a deduction from social security checks. Beneficiaries
would also pay a copayment equal to $20 per prescription ($10 for generic drugs).
The Secretary could adjust these amounts to reflect changes in benefit costs.
Beneficiaries would pay all costs once the program paid $1,500 per year.
Beneficiary Protections. No provision.
Cost-Control Mechanisms and Formularies. No provision.
Relationship to Group Health Plans. No provision.
Relationship to Medigap. No provision.
Relationship to Medicaid/Assistance for Low-Income. See description above.
No provision relating to Medicaid.
Financing Mechanism. No provision.
Healthy Seniors Act of 1999 [S. 1837 (Baucus)]
General Approach. The bill provides low-income individuals with assistance,
beginning in FY2000, to meet out-of-pocket drug costs. Payment would be made

CRS-38
equal to 100% of such costs for persons below 100% of poverty; partial assistance
would be available on a sliding scale basis for persons under 175% of poverty. The
program would be administered through Medicaid.
Persons Covered. Persons covered would be individuals, enrolled in Medicare
Part B, with incomes under 175% of poverty but not otherwise eligible for Medicaid
drug benefits in the state.
Scope of Benefits. Covered drugs would be those available under the state’s
Medicaid program.
Administration of Benefits. The benefit would be administered through the
state’s Medicaid program. The Federal matching rate would be 100%. However,
states would be required to maintain the level of state expenditures for Medicare
beneficiaries that existed under any state-funded prescription drug program or
Medicaid in 1999.
Reimbursement. The program would be administered through Medicaid;
presumably Medicaid rules would apply.
Beneficiary Cost-Sharing and Premiums. There is no premium. Program
payment would be made equal to 100% of out-of-pocket costs for persons below
100% of poverty, 75% of such costs for persons with incomes between 100% and
125% of poverty, 50% of such costs for persons with incomes between 125% and
150% of poverty, and 25% of such costs for persons with incomes between 150% and
175% of poverty. Beneficiaries would be liable for that portion of out-of-pocket costs
not met by the program.
Beneficiary Protections. The program would be administered through
Medicaid; presumably Medicaid rules would apply.
Cost-Control Mechanisms and Formularies. The program would be
administered through Medicaid; presumably Medicaid rules would apply.
Relationship to Group Health Plans. No provision.
Relationship to Medigap. No provision.
Relationship to Medicaid/Assistance for Low-Income. See above.

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Medigap Proposals
DrugGap Insurance for Seniors Act of 1999 [S. 1725 (Jeffords)]
This bill provides for changes to Medigap policies and development of new
DrugGap supplemental policies. The bill directs the National Association of
Insurance Commissioners (NAIC) to modify the current standard Medigap plans and
to include some drug coverage, however limited, in each plan. In addition, there
would be three new drug-only DrugGap policies as follows: (1) standard DrugGap
benefit having a low deductible (not to exceed $250), coinsurance not to exceed 20%,
and a $5,000 maximum benefit; (2) a low-cost standard DrugGap benefit with a
higher deductible (not to exceed $750), coinsurance not exceeding 30% and a $5,000
maximum benefit; and (3) stop-loss DrugGap policy covering out-of pocket costs
exceeding $5,000 (or, for a person with one of the standard DrugGap packages,
exceeding the maximum benefit). DrugGap policies could use formularies provided
all therapeutic classes of drugs were covered and beneficiaries were guaranteed access
to off-formulary drugs when necessary and appropriate. DrugGAP policies could use
generic substitution. Policyholders would be assured access to the same prices as
negotiated by the plan. Policies could not duplicate other Medigap policies that an
individual had.
A beneficiary meeting the following requirements would be eligible to receive
assistance for the purchase of a standard DrugGAP policy plus a stop-loss DrugGAP
policy: (1) income below 50 percentage points above the state’s Medicaid eligibility
level but not exceeding 200% of poverty; (2) no drug coverage under either an
employer plan or Medicare+Choice plan; and (3) not eligible for Medicaid drug
coverage. States would administer the program and compute state weighted average
premiums. They would make payments on behalf of qualified beneficiaries: (1) equal
to the lesser of the state weighted average premium for the policy or the full quoted
premium; plus (2) for related out-of-pocket expenses as the state determines
appropriate. Payments for such costs would be made from the Part B trust fund (but
would not be used in the calculation of the Part B premium). Maintenance of state
effort would be required.
Seniors Security Act of 2000 [S. 2237 (Craig)]
The Seniors Security Act of 2000 (SSA 2000) provides income tax deductions,
beginning in 2000, for premiums for Medigap insurance policies and
Medicare+Choice plans containing drug benefits. The deduction for all persons (not
just those that itemize) would equal 100% of the amount paid for a Medigap policy
or a Medicare+Choice plan with a drug benefit with an annual actuarial value equal
to or greater than $500. The minimum value would be adjusted in future years to
reflect changes in Medicare per capita drug expenditures. The deduction would not
be available to individuals eligible for employer-sponsored coverage. (The bill also
provides for deductions for long-term care insurance.)
The Secretary of HHS would establish procedures for Medigap issuers and
Medicare+Choice plans to demonstrate that the annual actuarial value exceeds the
minimum value. The procedures established would be based on: 1) a standardized set

CRS-40
of utilization and price factors, and a standardized population that is representative
of all enrollees and calculated based on projected use if all enrollees have coverage;
2) apply the same principles and factors in comparing different packages; and 3) not
take into account the method of delivery or the means of cost control. The Medigap
issuer or organization offering the Medicare+Choice plan would be required to set
forth the value in an actuarial report meeting specified criteria.
SSA 2000 authorizes the development of additional standardized Medigap
policies by the National Association of Insurance Commissioners (NAIC). New
packages covering prescription drugs could not provide first-dollar coverage for
drugs and could provide stop-loss coverage (that limits beneficiary out-of-pocket
spending in a year). Packages could provide for the use of formularies. The Secretary
would establish special open enrollment periods for persons with existing Medigap
coverage to enroll in a new plan. For individuals enrolled in a Medigap policy with
drug coverage the period would be 180 days from the time the new coverage first
became available. For persons enrolled in a Medigap policy without drug coverage,
the period would be 63 days. The bill permits an issuer to cancel one of these new
policies provided certain criteria are met. The bill also permits the sale of non-
duplicative Medigap policies to an individual. The Medicare Payment Advisory
Commission (MedPAC) would be required to report by June 1, 2000, on issues
related to design of prescription drug benefit policies.
Financing Measure
Medicare Prescription Drug Coverage Act of 1999 [H.R. 886 (Frank,
et al.), S. 696 (Wellstone)]
The bill provides for the transfer of federal estate tax revenues to the Federal
Hospital Insurance Trust Fund under Medicare (Part A of the program). It establishes
an Outpatient Prescription Drug Account in the Trust Fund to receive such revenues
and to pay for outpatient prescription drugs furnished under the program. Within 180
days of enactment, the Secretary would be required to submit a plan to Congress
providing for the full coverage of outpatient prescription drugs for Medicare
beneficiaries. The report is to include a determination of whether the estate tax
revenues are sufficient to fund this drug benefit.
Measures Directed Toward Amounts Seniors Pay For
Drugs
Prescription Drug Fairness for Seniors Act [H.R. 664 (Allen, et al.),
S. 731 (Kennedy, et al.)]
The bill would require each participating manufacturer of a covered outpatient
drug to make available for purchase by each pharmacy quantities of covered drugs
equal to the aggregate amount of the drug sold or distributed by the pharmacy to
Medicare beneficiaries. (Covered drugs are those which are covered by Medicaid.)

CRS-41
Participating manufacturers are defined as any manufacturer of drugs or biologicals
that enters into a contract or agreement with the United States for the sale or
distribution of covered outpatient drugs to the United States. The manufacturers
would be required to make the drug available at a price equal to the lower of: (1) the
lowest price paid for the drug by any agency or department of the United States; or
(2) the manufacturer’s “best price” for the drug as that term is defined under
Medicaid.
The bill directs the Secretary to implement the requirements as expeditiously as
practicable and in a manner consistent with the obligations of the United States.
Making Affordable Prescriptions Available for Seniors Act [H.R. 723
(Kennedy, et al.)]
The bill would establish a pharmacy assistance program under the Public Health
Service Act. The assistance would be provided in the manner the Secretary
determined to be the most cost effective including indemnification, vouchers,
coupons, or direct provider reimbursement through the Medicaid claims payment
system. No cash payment could be made to an eligible person before presentation of
a receipt or other invoice. Persons eligible for the benefit would be persons over age
65 with no other drug coverage whose income did not exceed 175% of poverty. The
assistance could not exceed $500 per person per year.
The Secretary could impose an enrollment fee of up to $15 per year. The
Secretary would be required to develop copayment requirements and could establish
deductibles to control program expenses. Copayment amounts (limited to $10 per
prescription) could vary to promote the purchase of generic drugs and could be based
on a sliding income scale.
Manufacturers would be required to pay the Secretary 7% of gross sales receipts
as a condition of approval for new drugs. This requirement would apply in cases
where the drug manufacturer submits with the application the results of research
carried out by the National Institutes of Health, or under an agreement under the
Stevenson-Wydler Technology Innovation Act of 1980. The Secretary could waive
this requirement if he or she determined that to do so was in the public interest.
Tax Provisions
Taxpayer Refund and Relief Act of 1999 [H.R. 2488 (Archer, et al.)]
This tax bill, vetoed by the President September 23, 1999, included provisions
related to the deduction of medical expenses; these provisions were described as a
placeholder for subsequent congressional action.
Current tax law limits deductions for medical expenses to those that exceed 7.5%
of adjusted gross income. H.R. 2488 would have specified that this income threshold
would not apply to prescription drug insurance coverage for Medicare beneficiaries

CRS-42
if certain reforms were enacted. Specifically, the threshold would not apply when all
the following conditions were met:
! Low-income federal assistance is available to enable persons with
incomes below 100% of poverty to purchase a drug-only Medigap
policy or coverage through integrated comprehensive plans. Federal
assistance would be phased-out for persons with incomes between
135% and 150% of poverty.
! At least one authorized Medigap policy is a drug-only policy.
! Coverage for outpatient prescription drugs for beneficiaries is
provided only through integrated comprehensive health plans which
offer current Medicare covered services and maximum limitations on
out-of-pocket spending. Plans offered by HCFA would have to
compete on the same basis as private plans.
! The tax code allows deductions for a drug, which is not currently a
prescribed drug, but which was a prescribed drug in the year
purchased or during the 2 preceding years.
Seniors Security Act of 2000 [S. 2237 (Craig)]
See discussion under Medigap proposals, above.