§1395w–115 — Title 42 The Public Health and Welfare | U.S. Code

§1395w–115 Subsidies for part D eligible individuals for qualified prescription drug coverage

Title 42 › Chapter CHAPTER 7— - SOCIAL SECURITY › Subchapter SUBCHAPTER XVIII— - HEALTH INSURANCE FOR AGED AND DISABLED › Part Part D— - Voluntary Prescription Drug Benefit Program › Subpart subpart 2— - prescription drug plans; pdp sponsors; financing › § 1395w–115

Last updated Apr 6, 2026|Official source

Summary

The Secretary must pay two kinds of subsidies to sponsors of prescription drug plans (PDPs) and Medicare Advantage plans with drug coverage (MA–PDs) so monthly premiums for basic drug coverage stay lower, help more plans join, and cut bad selection. First, each month the plan gets a direct subsidy equal to the plan’s standardized bid (after a risk adjustment) minus the base beneficiary premium. Second, the plan gets a reinsurance payment for high drug costs. Before 2025, reinsurance covers 80 percent of allowable costs once an enrollee’s costs pass the annual out‑of‑pocket threshold. For 2025 and later, reinsurance covers 20 percent for “applicable drugs” and 40 percent for other covered drugs above that threshold. The program aims to work with an overall subsidy level of 74.5 percent (or the specific percentages set for 2024–2029 and for 2030 and later as described elsewhere). Key terms and rules in one line each: allowable reinsurance costs = the part of drug costs actually paid by the plan or enrollee (net of discounts/rebates) up to what basic coverage would pay, and it includes manufacturer discounts for applicable drugs; gross covered prescription drug costs = plan drug costs (not admin), including dispensing and deductible costs, and for applicable drugs may include manufacturer payments starting 2025; coverage year = calendar year for dispensed drugs (subject to a short filing period); adjusted allowable risk corridor costs = the plan’s allowable risk corridor costs minus total reinsurance and other subsidy payments. The Secretary must create a risk‑adjustment method so plans are paid fairly for different enrollees and must publish the risk factors each year. Plans must send linked drug‑claim data when asked. The Secretary may make interim payments, and payments come from the Medicare Prescription Drug Account. Plans face “risk corridors” that limit gains or losses. If a plan’s adjusted costs fall inside the corridor, no change is made. If costs exceed upper thresholds, the Secretary increases payments by a share of the excess (generally 50 percent; special higher shares applied in 2006–2007 under narrow conditions). If costs fall below lower thresholds, payments are reduced or recovered by similar shares. The corridor thresholds are set from each plan’s target amount (payments based on the standardized bid less assumed admin costs) using first and second risk percentages that vary by year (first: 2006–2007 = 2.5%, 2008–2011 = 5%, 2012+ = at least 5%; second: 2006–2007 = 5%, 2008–2011 = 10%, 2012+ = at least 10% and higher than the first). Plans that offer supplemental drug benefits must fully pay for those extras. No risk‑corridor changes can affect the monthly beneficiary premium. Contracts must let the Secretary audit cost data. Certain government agencies may use submitted information for oversight and analysis, but specific confidential items (like exact rebate amounts or bid details) must not be disclosed. Fallback plans are paid differently under their contract. For plan year 2023, the Secretary must also pay an extra subsidy equal to the total reduction in enrollee cost‑sharing and deductible caused by specific rules, and that subsidy must be paid within 18 months after the plan year ends.

Title 42, §1395w–115

The Public Health and Welfare — Source: USLM XML via OLRC

(a)In order to reduce premium levels applicable to qualified prescription drug coverage for part D eligible individuals consistent with an overall subsidy level of 74.5 percent (or, for each of 2024 through 2029, the percent applicable as a result of the application of section 1395w–113(a)(8) of this title, or, for 2030 and each subsequent year, 100 percent minus the percent specified under section 1395w–113(a)(9) of this title) for basic prescription drug coverage, to reduce adverse selection among prescription drug plans and MA–PD plans, and to promote the participation of PDP sponsors under this part and MA organizations under part C, the Secretary shall provide for payment to a PDP sponsor that offers a prescription drug plan and an MA organization that offers an MA–PD plan of the following subsidies in accordance with this section:

(1)A direct subsidy for each part D eligible individual enrolled in a prescription drug plan or MA–PD plan for a month equal to—

(A)the amount of the plan’s standardized bid amount (as defined in section 1395w–113(a)(5) of this title), adjusted under subsection (c)(1), reduced by

(B)the base beneficiary premium (as computed under paragraph (2) or (8) of section 1395w–113(a) of this title (as applicable) and as adjusted under paragraph (1)(B) of such section).

(2)The reinsurance payment amount (as defined in subsection (b)).

(b)(1)The reinsurance payment amount under this subsection for a part D eligible individual enrolled in a prescription drug plan or MA–PD plan for a coverage year is an amount equal to—

(A)for a year preceding 2025, 80 percent of the allowable reinsurance costs (as specified in paragraph (2)) attributable to that portion of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual has incurred costs that exceed the annual out-of-pocket threshold specified in section 1395w–102(b)(4)(B) of this title; and

(B)for 2025 and each subsequent year, the sum of—

(i)with respect to applicable drugs (as defined in section 1395w–114c(g)(2) of this title), an amount equal to 20 percent of such allowable reinsurance costs attributable to that portion of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual has incurred costs that exceed the annual out-of-pocket threshold specified in section 1395w–102(b)(4)(B) of this title; and

(ii)with respect to covered part D drugs that are not applicable drugs (as so defined), an amount equal to 40 percent of such allowable reinsurance costs attributable to that portion of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual has incurred costs that exceed the annual out-of-pocket threshold specified in section 1395w–102(b)(4)(B) of this title.

(2)(A)Subject to subparagraph (B), for purposes of this section, the term “allowable reinsurance costs” means, with respect to gross covered prescription drug costs under a prescription drug plan offered by a PDP sponsor or an MA–PD plan offered by an MA organization, the part of such costs that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization or by (or on behalf of) an enrollee under the plan, but in no case more than the part of such costs that would have been paid under the plan if the prescription drug coverage under the plan were basic prescription drug coverage, or, in the case of a plan providing supplemental prescription drug coverage, if such coverage were standard prescription drug coverage.

(B)For purposes of applying subparagraph (A), the term “allowable reinsurance costs” shall include the portion of the negotiated price (as defined in section 1395w–114c(g)(6) of this title) of an applicable drug (as defined in section 1395w–114c(g)(2) of this title) that was paid by a manufacturer under the manufacturer discount program under section 1395w–114c of this title.

(3)Subject to paragraph (2)(B), for purposes of this section, the term “gross covered prescription drug costs” means, with respect to a part D eligible individual enrolled in a prescription drug plan or MA–PD plan during a coverage year, the costs incurred under the plan, not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year and costs relating to the deductible. Such costs shall be determined whether they are paid by the individual or under the plan (or, with respect to 2025 and subsequent years, in the case of an applicable drug, as defined in section 1395w–114c(g)(2) of this title, by a manufacturer), regardless of whether the coverage under the plan exceeds basic prescription drug coverage.

(4)For purposes of this section, the term “coverage year” means a calendar year in which covered part D drugs are dispensed if the claim for such drugs (and payment on such claim) is made not later than such period after the end of such year as the Secretary specifies.

(c)(1)(A)The Secretary shall establish an appropriate methodology for adjusting the standardized bid amount under subsection (a)(1)(A) to take into account variation in costs for basic prescription drug coverage among prescription drug plans and MA–PD plans based on the differences in actuarial risk of different enrollees being served. Any such risk adjustment shall be designed in a manner so as not to result in a change in the aggregate amounts payable to such plans under subsection (a)(1) and through that portion of the monthly beneficiary prescription drug premiums described in subsection (a)(1)(B) and MA monthly prescription drug beneficiary premiums.

(B)In establishing the methodology under subparagraph (A), the Secretary may take into account the similar methodologies used under section 1395w–23(a)(3) of this title to adjust payments to MA organizations for benefits under the original medicare fee-for-service program option.

(C)In order to carry out this paragraph, the Secretary shall require—

(i)PDP sponsors to submit data regarding drug claims that can be linked at the individual level to part A and part B data and such other information as the Secretary determines necessary; and

(ii)MA organizations that offer MA–PD plans to submit data regarding drug claims that can be linked at the individual level to other data that such organizations are required to submit to the Secretary and such other information as the Secretary determines necessary.

(D)At the time of publication of risk adjustment factors under section 1395w–23(b)(1)(B)(i)(II) of this title, the Secretary shall publish the risk adjusters established under this paragraph for the succeeding year.

(2)(A)Subject to subparagraph (B), for purposes of section 1395w–113(a)(1)(B)(iii) of this title, the Secretary shall establish an appropriate methodology for adjusting the national average monthly bid amount (computed under section 1395w–113(a)(4) of this title) to take into account differences in prices for covered part D drugs among PDP regions.

(B)If the Secretary determines that the price variations described in subparagraph (A) among PDP regions are de minimis, the Secretary shall not provide for adjustment under this paragraph.

(C)Any adjustment under this paragraph shall be applied in a manner so as to not result in a change in the aggregate payments made under this part that would have been made if the Secretary had not applied such adjustment.

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

(2)(A)Payments under this section to a PDP sponsor or MA organization are conditioned upon the furnishing to the Secretary, in a form and manner specified by the Secretary, of such information as may be required to carry out this section.

(B)Information disclosed or obtained pursuant to subparagraph (A) may be used by officers, employees, and contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out this section.

(3)Payments under this section shall be made from the Medicare Prescription Drug Account.

(4)The provisions of section 1395w–23(a)(2) of this title shall apply to payments to PDP sponsors under this section in the same manner as they apply to payments to MA organizations under section 1395w–23(a) of this title.

(e)(1)(A)For purposes of this subsection, the term “adjusted allowable risk corridor costs” means, for a plan for a coverage year (as defined in subsection (b)(4))—

(i)the allowable risk corridor costs (as defined in subparagraph (B)) for the plan for the year, reduced by

(ii)the sum of (I) the total reinsurance payments made under subsection (b) to the sponsor of the plan for the year, and (II) the total subsidy payments made under section 1395w–114 of this title to the sponsor of the plan for the year.

(B)For purposes of this subsection, the term “allowable risk corridor costs” means, with respect to a prescription drug plan offered by a PDP sponsor or an MA–PD plan offered by an MA organization, the part of costs (not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year) incurred by the sponsor or organization under the plan that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization under the plan, but in no case more than the part of such costs that would have been paid under the plan if the prescription drug coverage under the plan were basic prescription drug coverage, or, in the case of a plan providing supplemental prescription drug coverage, if such coverage were basic prescription drug coverage taking into account the adjustment under section 1395w–111(c)(2) of this title. In computing allowable costs under this paragraph, the Secretary shall compute such costs based upon imposition under paragraphs (1)(D) and (2)(E) of section 1395w–114(a) of this title of the maximum amount of copayments permitted under such paragraphs.

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

(B)(i)If the adjusted allowable risk corridor costs for the plan for the year are greater than the first threshold upper limit, but not greater than the second threshold upper limit, of the risk corridor for the plan for the year, the Secretary shall increase the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount equal to 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in clause (iii) are met for the year) of the difference between such adjusted allowable risk corridor costs and the first threshold upper limit of the risk corridor.

(ii)If the adjusted allowable risk corridor costs for the plan for the year are greater than the second threshold upper limit of the risk corridor for the plan for the year, the Secretary shall increase the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount equal to the sum of—

(I)50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in clause (iii) are met for the year) of the difference between the second threshold upper limit and the first threshold upper limit; and

(II)80 percent of the difference between such adjusted allowable risk corridor costs and the second threshold upper limit of the risk corridor.

(iii)The conditions described in this clause are met for 2006 or 2007 if the Secretary determines with respect to such year that—

(I)at least 60 percent of prescription drug plans and MA–PD plans to which this subsection applies have adjusted allowable risk corridor costs for the plan for the year that are more than the first threshold upper limit of the risk corridor for the plan for the year; and

(II)such plans represent at least 60 percent of part D eligible individuals enrolled in any prescription drug plan or MA–PD plan.

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

(ii)If the adjusted allowable risk corridor costs for the plan for the year are less the second threshold lower limit of the risk corridor for the plan for the year, the Secretary shall reduce the total of the payments made to the sponsor or organization offering the plan for the year under this section by an amount (or otherwise recover from the sponsor or organization an amount) equal to the sum of—

(I)50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold lower limit and the second threshold lower limit; and

(II)80 percent of the difference between the second threshold upper limit of the risk corridor and such adjusted allowable risk corridor costs.

(3)(A)For each plan year the Secretary shall establish a risk corridor for each prescription drug plan and each MA–PD plan. The risk corridor for a plan for a year shall be equal to a range as follows:

(i)The first threshold lower limit of such corridor shall be equal to—

(I)the target amount described in subparagraph (B) for the plan; minus

(II)an amount equal to the first threshold risk percentage for the plan (as determined under subparagraph (C)(i)) of such target amount.

(ii)The second threshold lower limit of such corridor shall be equal to—

(I)the target amount described in subparagraph (B) for the plan; minus

(II)an amount equal to the second threshold risk percentage for the plan (as determined under subparagraph (C)(ii)) of such target amount.

(iii)The first threshold upper limit of such corridor shall be equal to the sum of—

(I)such target amount; and

(II)the amount described in clause (i)(II).

(iv)The second threshold upper limit of such corridor shall be equal to the sum of—

(I)such target amount; and

(II)the amount described in clause (ii)(II).

(B)The target amount described in this paragraph is, with respect to a prescription drug plan or an MA–PD plan in a year, the total amount of payments paid to the PDP sponsor or MA–PD organization for the plan for the year, taking into account amounts paid by the Secretary and enrollees, based upon the standardized bid amount (as defined in section 1395w–113(a)(5) of this title and as risk adjusted under subsection (c)(1)), reduced by the total amount of administrative expenses for the year assumed in such standardized bid.

(C)(i)Subject to clause (iii), for purposes of this section, the first threshold risk percentage is—

(I)for 2006 and 2007, and 11 So in original. The word “and” probably should not appear. 2.5 percent;

(II)for 2008 through 2011, 5 percent; and

(III)for 2012 and subsequent years, a percentage established by the Secretary, but in no case less than 5 percent.

(ii)Subject to clause (iii), for purposes of this section, the second threshold risk percentage is—

(I)for 2006 and 2007, 5 percent;

(II)for 2008 through 2011, 10 percent; and

(III)for 2012 and subsequent years, a percentage established by the Secretary that is greater than the percent established for the year under clause (i)(III), but in no case less than 10 percent.

(iii)Pursuant to section 1395w–111(b)(2)(E)(ii) of this title, a PDP sponsor may submit a bid that requests a decrease in the applicable first or second threshold risk percentages or an increase in the percents applied under paragraph (2).

(4)A PDP sponsor and MA organization that offers a plan that provides supplemental prescription drug benefits shall be at full financial risk for the provision of such supplemental benefits.

(5)No adjustment in payments made by reason of this subsection shall affect the monthly beneficiary premium or the MA monthly prescription drug beneficiary premium.

(f)(1)Each contract under this part and under part C shall provide that—

(A)the PDP sponsor offering a prescription drug plan or an MA organization offering an MA–PD plan shall provide the Secretary with such information as the Secretary determines is necessary to carry out this section; and

(B)the Secretary shall have the right in accordance with section 1395w–27(d)(2)(B) of this title (as applied under section 1395w–112(b)(3)(C) of this title) to inspect and audit any books and records of a PDP sponsor or MA organization that pertain to the information regarding costs provided to the Secretary under subparagraph (A).

(2)Information disclosed or obtained pursuant to the provisions of this section may be used—

(A)by officers, employees, and contractors of the Department of Health and Human Services for the purposes of, and to the extent necessary in—

(i)carrying out this section or part E of subchapter XI; and

(ii)conducting oversight, evaluation, and enforcement under this subchapter;

(B)by the Attorney General and the Comptroller General of the United States for the purposes of, and to the extent necessary in, carrying out health oversight activities;

(C)by the Executive Director of the Medicare Payment Advisory Commission for purposes of monitoring, making recommendations for, and analysis of the program under this subchapter and by the Executive Director of the Medicaid and CHIP Payment and Access Commission for purposes of monitoring, making recommendations for, and analysis of the Medicaid program established under subchapter XIX and the Children’s Health Insurance Program under subchapter XXI; and

(D)by the Director of the Congressional Budget Office for the purposes of analysis of programs authorized under this chapter, as applicable, and the fulfilment of such Director’s duties under the Congressional Budget and Impoundment Control Act of 1974.

(3)(A)The Executive Directors described in paragraph (2)(C) shall not disclose any of the following information disclosed to such Executive Directors or obtained by such Executive Directors pursuant to such paragraph, with respect to a prescription drug plan offered by a PDP sponsor or an MA–PD plan offered by an MA organization:

(i)The specific amounts or the identity of the source of any rebates, discounts, price concessions, or other forms of direct or indirect remuneration under such prescription drug plan or such MA–PD plan.

(ii)Information submitted with the bid submitted under section 1395w–111(b) of this title by such PDP sponsor or under section 1395w–24(a) of this title by such MA organization.

(iii)In the case of such information from prescription drug event records, information in a form that would not be permitted under section 423.505(m) of title 42, Code of Federal Regulations, or any successor regulation, if released by the Centers for Medicare & Medicaid Services.

(B)The restrictions on disclosures described in subparagraph (A) shall also apply to disclosures to individual Commissioners of the Medicare Payment Advisory Commission or of the Medicaid and CHIP Payment and Access Commission.

(g)In lieu of the amounts otherwise payable under this section to a PDP sponsor offering a fallback prescription drug plan (as defined in section 1395w–111(g)(4) of this title 22 See References in Text note below.), the amount payable shall be the amounts determined under the contract for such plan pursuant to section 1395w–111(g)(5) of this title.

(h)(1)In addition to amounts otherwise payable under this section to a PDP sponsor of a prescription drug plan or an MA organization offering an MA–PD plan, for plan year 2023, the Secretary shall provide the PDP sponsor or MA organization offering the plan subsidies in an amount equal to the aggregate reduction in cost-sharing and deductible by reason of the application of paragraph (8) or (9) of section 1395w–102(b) of this title for individuals under the plan during the year.

(2)The Secretary shall provide a subsidy under paragraph (1), as applicable, not later than 18 months following the end of the applicable plan year.

Notes & Related Subsidiaries

Editorial Notes

References in Text

This chapter, referred to in subsec. (f)(2)(D), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, was in the original “the Social Security Act”, which is classified generally to this chapter. For complete classification of the Social Security Act to the Code, see section 1305 of this title and Tables. The Congressional Budget and Impoundment Control Act of 1974, referred to in subsec. (f)(2)(D), is Pub. L. 93–344, July 12, 1974, 88 Stat. 297. For complete classification of this Act to the Code, see

Short Title

note set out under section 621 of Title 2, The Congress, and Tables. section 1395w–111(g)(4) of this title, referred to in subsec. (g), was in the original “section 1860D–3(c)(4)”, and was translated as reading “section 1860D–11(g)(4)”, meaning section 1860D–11(g)(4) of the Social Security Act, to reflect the probable intent of Congress, because section 1860D–3, which is classified to section 1395w–103 of this title, does not contain a subsec. (c), and section 1395w–111(g)(4) of this title defines “fallback prescription drug plan” for purposes of this part.

Amendments

2022—Subsec. (a). Pub. L. 117–169, § 11201(d)(3)(D)(i), inserted “(or, for each of 2024 through 2029, the percent applicable as a result of the application of section 1395w–113(a)(8) of this title, or, for 2030 and each subsequent year, 100 percent minus the percent specified under section 1395w–113(a)(9) of this title)” after “74.5 percent” in introductory provisions. Subsec. (a)(1)(B). Pub. L. 117–169, § 11201(d)(3)(D)(ii), substituted “paragraph (2) or (8) of section 1395w–113(a) of this title (as applicable)” for “paragraph (2) of section 1395w–113(a) of this title”. Subsec. (b)(1). Pub. L. 117–169, § 11201(b)(1), inserted dash after “equal to”, designated remainder of existing provisions as subpar. (A), substituted “for a year preceding 2025, 80 percent” for “80 percent”, and added subpar. (B). Subsec. (b)(2). Pub. L. 117–169, § 11201(b)(2), designated existing provisions as subpar. (A) and inserted heading, substituted “Subject to subparagraph (B), for purposes” for “For purposes”, and added subpar. (B). Subsec. (b)(3). Pub. L. 117–169, § 11201(b)(3), substituted “Subject to paragraph (2)(B), for purposes” for “For purposes” and inserted “(or, with respect to 2025 and subsequent years, in the case of an applicable drug, as defined in section 1395w–114c(g)(2) of this title, by a manufacturer)” after “by the individual or under the plan”. Subsec. (f)(2)(A)(i). Pub. L. 117–169, § 11001(b)(1)(H)(ii), inserted “or part E of subchapter XI” after “this section”. Subsec. (f)(2)(D). Pub. L. 117–328 added subpar. (D). Subsec. (h). Pub. L. 117–169, § 11406(c)(1), inserted “and Insulin” after “Practices” in heading. Pub. L. 117–169, § 11401(c)(1), added subsec. (h). Subsec. (h)(1). Pub. L. 117–169, § 11406(c)(2), substituted “paragraph (8) or (9) of section 1395w–102(b) of this title” for “section 1395w–102(b)(8) of this title”. 2020—Subsec. (f)(2)(C). Pub. L. 116–260, § 112(a)(1), added subpar. (C). Subsec. (f)(3). Pub. L. 116–260, § 112(a)(2), added par. (3). 2010—Subsec. (f)(2). Pub. L. 111–148 substituted “may be used—” for “may be used by officers, employees, and contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out this section.” in introductory provisions and added subpars. (A) and (B).

Statutory Notes and Related Subsidiaries

Construction

of 2022 AmendmentNothing in amendment by section 11401(c)(1) of Pub. L. 117–169 to be construed as limiting coverage under this part for vaccines that are not recommended by the Advisory Committee on Immunization Practices, see section 11401(d) of Pub. L. 117–169, set out as a note under section 1395w–102 of this title.