The Protecting Medicare and American Farmers from Sequester Cuts Act extends the Suspension of Sequestration for the Retiree Drug Subsidy Program

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 applied 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.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, suspended sequestration of Medicare programs between May 1, 2020, and December 31, 2020. The Consolidated Appropriations Act, 2021, enacted December 27, 2020, extended this suspension through March 31, 2021. H.R. 1868, enacted on April 14, 2021, extended the suspension through December 31, 2021. We have referred to this timeframe as the “sequestration suspension period.” 

S.610 - Protecting Medicare and American Farmers from Sequester Cuts Act, enacted on December 10, 2021, further extends the ending date of the sequestration suspension period from December 31, 2021 to March 31, 2022, and further defines changes to the mandatory payment reduction percentage through Fiscal Year 2030. Pursuant to S.610, 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.  A one percent (1%) mandatory payment reduction will be applied to the calculated Subsidy Amounts for final costs incurred in all plan months between April 1, 2022, and June 30, 2022. The two percent (2%) mandatory payment reduction will continue to be applied in all plan months prior to May 1, 2020, and in all plan months after June 30, 2022, through the first day of Fiscal Year 2030. A two and one-quarter percent (2.25%) mandatory payment reduction will be applied in all plan months occurring in the first six months of Fiscal Year 2030. A three percent (3%) mandatory payment reduction will be applied in all plan months occurring in the final six months of Fiscal Year 2030.

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 S.610 applies only to the costs incurred between May 1, 2020 and March 31, 2022, regardless of when an application reconciles. The temporary suspension does not apply to costs incurred outside of this timeframe.