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 suspends sequestration of Medicare programs between May 1, 2020 and December 31, 2020, which we will refer to as the "sequestration suspension period." 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 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 December 31, 2020.