The Centers for Medicare & Medicaid Services (CMS) Retiree Drug Subsidy (RDS) Program is subject to the mandatory reductions in federal spending, or sequestration, in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended. Beginning with plan sponsors' incurred costs reported on or after April 1, 2013, and for the duration of the sequestration period, CMS applies a mandatory payment reduction to all plan months when calculating each interim payment request and the Reconciliation final payment request.
Affected RDS Applications:
CMS’ RDS Center will apply a mandatory 2% payment reduction on all plan months when calculating the interim subsidy payment and the Reconciliation final subsidy payment for affected applications. The 2% payment reduction is applied at the month level. Sequestration was suspended from the costs incurred between May 1, 2020, through March 31, 2022.
Payment Reduction Calculation:
The subsidy calculation remains at 28% of the Allowable Retiree Costs (ARC). The mandatory 2% payment reduction is applied to the calculated subsidy amount for the incurred costs. The reduced payment amount, for both interim and final payments, is the difference between these values.
| Subsidy Calculation | Payment Reduction | Reduced Payment Amount |
|---|---|---|
| (ARC x 28%) | (ARC x 28%) x 2% | (Subsidy Calculation) - (Payment Reduction) |
Cost reporting is unaffected by sequestration. Cost data will continue to be aggregated and reported by plan month. CMS’ RDS Center will continue to calculate Allowable Retiree Costs (ARC) as follows:
Allowable Retiree Costs = Gross Retiree Costs – (Threshold Reduction + Limit Reduction + Actual Cost Adjustments)
For questions, please contact CMS’ RDS Center.