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 two percent payment reduction to all plan months when calculating an RDS Application's Final Reconciliation subsidy payment. For additional information regarding the implementation of sequestration in RDS, see the April 19, 2014 guidance titled Mandatory Payment Reduction in CMS' Retiree Drug Subsidy Reconciliation Payments.
Section 3709 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") enacted on March 27, 2020 temporarily suspended sequestration of Medicare programs between May 1, 2020 and December 31, 2020. We have referred to this timeframe as the "sequestration suspension period." See the May 15, 2020 Announcement titled Suspension of Sequestration for Retiree Drug Subsidy Program.
The Consolidated Appropriations Act, 2021 enacted on December 27, 2020 extends the ending date of the sequestration suspension period from December 31, 2020 to March 31, 2021. As a result, the calculated Subsidy Amount, as defined at 42 C.F.R. §423.886, for final costs incurred within the sequestration suspension period will be exempt from the two percent sequestration reduction when those months' costs are reconciled and final payment is requested. The two percent mandatory payment reduction will continue to be applied to the calculated Subsidy Amounts for final costs incurred in all plan months prior to May 1, 2020 and in all plan months after March 31, 2021.
Please note that the temporary suspension of sequestration is not based on an application’s Reconciliation Deadline Date, nor on the date that the Plan Sponsor completes Reconciliation for an application. The temporary sequestration suspension indicated by the Consolidated Appropriations Act, 2021 applies only to the costs incurred between May 1, 2020 and March 31, 2021, regardless of when an application reconciles. The temporary suspension does not apply to costs incurred outside of this timeframe.