Suspension of Sequestration for the Retiree Drug Subsidy Program Extended Through December 2021

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.

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 for three more months, through March 31, 2021. H.R. 1868, enacted on April 14, 2021, further extends the suspension through December 31, 2021.

H.R.1868 – “To prevent across-the-board direct spending cuts, and for other purposes,” enacted on April 14, 2021, again extends the ending date of the sequestration suspension period from March 31, 2021 to December 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 December 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 H.R.1868 applies only to the costs incurred between May 1, 2020 and December 31, 2021, regardless of when an application reconciles. The temporary suspension does not apply to costs incurred outside of this timeframe.