General Program Information

The Retiree Drug Subsidy (RDS) Program was enacted in December 2003 to reimburse Plan Sponsors for a portion of their Qualifying Covered Retirees' costs for prescription drugs otherwise covered by Medicare Part D that are attributable to such drug costs between the applicable Cost Threshold and Cost Limit. For more information about the Cost Thresholds and Cost Limits, refer to Cost Threshold and Cost Limit by Plan Year. Such incurred costs (including dispensing fees) that the Plan Sponsor pays, and that the retiree pays, are eligible for subsidy. Rebates received are subtracted from the amount eligible for subsidy.

To qualify for the subsidy, a Plan Sponsor must show that its coverage is "actuarially equivalent" to, or at least as generous as, the defined standard Medicare Part D coverage.

The RDS statutory provisions are published at 42 U.S.C. 1395§-132 (Section 1860D-22 of the Social Security Act). The regulations are published at 42 C.F.R. Part 423, Subpart R.

A Plan Sponsor is an organization participating in the RDS Program. To participate, the Plan Sponsor Organization must set up an account in the RDS Program Secure Website.

A Plan Sponsor ID is a unique number assigned to a Plan Sponsor for the duration of their participation in the RDS Program.

Refer to the IRS Website and the Frequently Asked Questions: Retiree Drug Subsidy at https://www.irs.gov/newsroom/frequently-asked-questions-retiree-drug-subsidy.

Regulations at 42 C.F.R.§423.886(a)(1) specify how the subsidy is calculated. Those regulations read in relevant part:

For each Qualifying Covered Retiree enrolled with the Plan Sponsor of a qualified retiree prescription drug plan in a plan year, the Plan Sponsor receives a subsidy of 28 percent of the allowable retiree costs (as defined in §423.882) in the plan year for such retiree attributable to gross retiree costs between the cost threshold and cost limit as defined in paragraph (b) of this section. The subsidy payment is calculated by first determining gross retiree costs between the cost threshold and cost limit, and then determining allowable retiree costs attributable to the gross retiree costs.

Thus, for purposes of determining the subsidy for an application, consider the following example, where a Plan Sponsor has determined that the following data, in the aggregate, is correct for a given application.

Gross Costs: $1,000,000

Cost Threshold Reduction: $50,000

Cost Limit Reduction: $100,000

Price Concessions Attributed to Gross Costs Between the Cost Threshold and the Cost Limit: $30,000

In this example, gross retiree costs between the threshold and the limit are $850,000 ($1,000,000 minus $50,000 minus $100,000). From that $850,000, the Plan Sponsor would subtract price concessions of $30,000, yielding $820,000 in allowable retiree costs. Thus, the subsidy amount, based on the corrected cost data, would be 28% of $820,000, which equals $229,600.

For information on the RDS Mandatory Payment Reduction (i.e., sequestration) policy, refer to Mandatory Payment Reduction. 

The RDS Program has flexible rules that permit Plan Sponsors to continue providing drug coverage to their Medicare-eligible retirees at a lower cost.

RDS Program benefits include:

• Reimbursement for a portion of Plan Sponsors' eligible expenses for retiree prescription drug benefits
• Program flexibility that supports the Plan Sponsor's current prescription drug plan structure
• Extensive educational materials and support

The requirements to participate in the RDS Program are as follows:

• Actuaries act on behalf of Plan Sponsors and complete a two-part Actuarial Equivalence Test indicating that the Prescription Drug Plan offered by the Plan Sponsor is as generous as, or more generous than the defined standard coverage under the Medicare Part D Prescription Drug Benefit.
• Retirees must not be currently enrolled in Medicare Part D.
• Plan Sponsors must use the RDS Secure Website to participate in the RDS Program and submit a timely application prior to the expiration of the Application Deadline, which includes a list of retirees for whom the Plan Sponsor is seeking subsidy.

To participate in the RDS Program, an organization must:

• Have a valid Employer Identification Number (EIN)
• Fall under one of the following categories:
  • Commercial
  • Government
  • Nonprofit
  • Religious
  • Union
• Demonstrate that the coverage is as generous as, or more generous than the defined standard coverage under the Medicare Part D Prescription Drug Benefit.

Participating in the RDS Program begins with creating a Plan Sponsor Account, and submitting a timely RDS application prior to the expiration of the Application Deadline. For more information about the Application Deadline, including what is required to be submitted by the Application Deadline, refer to Important Application Deadline Information.

Ongoing maintenance of an approved RDS application is recommended throughout the application plan year. These tasks include managing RDS Secure Website user roles, managing retiree information, completing Payment Setup, performing Cost Reporting, submitting interim payments if the Plan Sponsor has elected an Interim Payment Frequency, and completing Reconciliation. NOTE: Beginning May 8, 2020, all current and future RDS applications’ Payment Frequency will be set to a maximum frequency of monthly interim payments, consistent with the general payment rules regarding timing set forth in 42 C.F.R. 423.888(b)(1). Although 12 interim payment requests are permitted, a Plan Sponsor may choose to submit fewer than 12 interim payment requests, or forego interim payments and instead choose to submit one final payment request during Reconciliation as described in 42 C.F.R. 423.888(b)(2)(ii). Please refer to Important Enhancement to RDS Payment Frequency for important details.

For more information on the RDS Program Lifecycle, refer to How the Program Works: RDS Program Lifecycle.

The RDS Program is made up of the following 6 components:

1. User Management - includes maintaining roles and user information as well as remaining in compliance with Federal Security Regulations by logging into the RDS Secure Website at least once every 180 days. Maintaining an active user account is essential to RDS Program participation including submitting applications and completing Reconciliation. CMS' RDS Center will not make payments to a Plan Sponsor if the Account Manager or Authorized Representative has an inactive user account.
2. Annual Plan Application - includes submitting a timely application prior to the expiration of the Application Deadline, which is 90 days before the selected Plan Year Start Date. For example, if a Plan Sponsor’s Plan Year Start Date is January 1, 2015, the Application Deadline is October 2, 2014. If the Application Deadline is not met, the application will be denied. Keep This in Mind: If the Plan Sponsor finds it will be unable to meet the original Application Deadline, the Account Manager, Authorized Representative, or a Designee assigned the Request Extension privilege may request one 30-day extension using the RDS Secure Website.
3. Retiree Management - Plan Sponsors submit monthly retiree updates to CMS' RDS Center to establish Qualifying Covered Retirees (QCRs). A QCR must be: a retiree of the Plan Sponsor or a retiree's spouse/dependents, a person covered under the Plan Sponsor's Qualified Retiree Prescription Drug Plan and a person eligible for but not enrolled in a Medicare Part D plan. Plan Sponsors may only submit costs for the QCRs, Benefit Options, and Subsidy Periods listed in the Covered Retiree List. Therefore, it is necessary to manage retiree information throughout the phases of an RDS application.
4. Payment Setup - process by which the Account Manager or the Authorized Representative identify the individuals who will report costs and request payment(s) by completing Payment Setup. If there are changes to the individuals who will report costs and request payment(s), changes can be made to Payment Setup. Payment Setup must be complete in order to report costs or request payment(s). Additionally, a single individual may not have both the Report Costs privilege and the Request Payment privilege on a given application.
5. Interim Payment - process by which a Monthly, Quarterly, or Interim Annual Payment may be requested by the Plan Sponsor based on the selection made during application setup. NOTE: Beginning May 8, 2020, all current and future RDS applications’ Payment Frequency will be set to a maximum frequency of monthly interim payments, consistent with the general payment rules regarding timing set forth in 42 C.F.R. 423.888(b)(1). Although 12 interim payment requests are permitted, a Plan Sponsor may choose to submit fewer than 12 interim payment requests, or forego interim payments and instead choose to submit one final payment request during Reconciliation as described in 42 C.F.R. 423.888(b)(2)(ii). Please refer to Important Enhancement to RDS Payment Frequency for important details.
6. Reconciliation - occurs within 15 months after the application Plan Year End Date to finalize an application’s Covered Retiree List and submit final cost data to CMS' RDS Center. If the Plan Sponsor did not select an Interim Payment Frequency, it must use the Reconciliation process to request its annual payment. Reconciliation steps typically average 90 days to complete. Remember: If interim payments were received and the Plan Sponsor does not complete Reconciliation by the Reconciliation Deadline, the sum of all payments received will become an overpayment, and CMS will initiate immediate action to recover those funds. Plan Sponsors that fail to meet the Reconciliation Deadline for a given application and have not received interim payments for that application will not be eligible for any subsidy payments for that application.

The RDS Public Website is a comprehensive resource center for the RDS Program. Educational tools and announcements are available, as well as specific instructions to complete processes in the RDS Program.

The RDS Secure Website allows participants to register and complete the tasks required to participate in the RDS Program and request subsidy.

For security purposes, RDS Secure Website users are required to complete a registration process and maintain an active Login ID and Password. Users are also required to activate and maintain Multi-Factor Authentication services for their account

RDS Secure Website users may only act in one user role in the RDS Secure Website, so an individual must be assigned the same user role for each Plan Sponsor they are associated with. CMS' RDS Center validates an individual's Date of Birth and Social Security Number to ensure that each individual has only one user account at a time.

Review Instructions to Access the RDS Secure Website for step-by-step instructions.

An Account Manager is a user that initiates and manages the Plan Sponsor's applications throughout their lifecycle, by beginning the application and completing its tasks. For more information about the Account Manager role, refer to RDS Secure Website User Roles and Other Program Stakeholders in the RDS User Guide. Note: An individual may only be assigned one role at a time within the RDS system.

An Authorized Representative is a user chosen by the Plan Sponsor that is deemed to have sufficient authority to be legally responsible for the terms of the Plan Sponsor Agreement and the Reconciliation Agreement. For more information about the Authorized Representative role, refer to RDS Secure Website User Roles and Other Program Stakeholders in the RDS User Guide. Note: An individual may only be assigned one role at a time within the RDS system.

A Designee is an optional user role. A Designee or multiple Designees are created by the Account Manager or Authorized Representative to assist with RDS Secure Website tasks. For more information about the Designee role, refer to RDS Secure Website User Roles and Other Program Stakeholders in the RDS User Guide. Note: An individual may only be assigned one role at a time within the RDS system.

An Actuary is a professional contracted by the Plan Sponsor applying to the RDS Program to attest to the Actuarial Equivalence of the Benefit Options specified in an RDS application. For more information about the Actuary role, refer to RDS Secure Website User Roles and Other Program Stakeholders in the RDS User Guide. Note: An individual may only be assigned one role at a time within the RDS system.

A Coordination of Benefits (COB) Contractor is a third-party company contracted with CMS to consolidate the activities that support the collection, management, and reporting of other insurance coverage of Medicare beneficiaries. A Voluntary Data Sharing Agreement (VDSA) can be set up to exchange retiree data with CMS' RDS Center.

A Voluntary Data Sharing Agreement (VDSA) authorizes CMS and an employer, or insurer or agent on behalf of an employer, to electronically exchange health insurance benefit entitlement information.

Mandatory Insurer Reporting (MIR) enables Medicare to correctly pay for the health insurance benefits of Medicare beneficiaries by determining primary versus secondary payer responsibility. It is governed by Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA).

A Vendor is a third-party company contracted by a Plan Sponsor to report cost data or manage retiree files.

A Third Party Administrator (TPA) is an organization that processes claims or certain aspects of employee benefit plans for a separate entity or, in the case of RDS, a Plan Sponsor.

A Pharmacy Benefit Manager (PBM) is a third-party company (primarily responsible for processing and paying claims) contracted by a Plan Sponsor to administer prescription drug programs.

An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately. You must check with your state to make sure you need a state number or charter.

A Mainframe is a centralized, high performance computer that has the ability to handle multiple tasks concurrently. Cost data and retiree data may be sent to CMS' RDS Center by Connect:Direct transmission.

PHI is Protected Health Information as defined in the Health Insurance Portability and Accountability Act (HIPAA).

The Freedom of Information Act (FOIA) is a Federal statute that allows individuals to request access to Federal agency records, except to the extent records are protected from disclosure by the Freedom of Information Act. Any FOIA requests concerning the RDS Program should be submitted in accordance with the U.S. Department of Health & Human Services' FOIA guidelines, located online at http://www.hhs.gov/foia.

CMS' RDS Center's official means of communication to the Plan Sponsor is through email. For a list of email addresses from which RDS correspondence might be sent, refer to the Contact Us page.

The Centers for Medicare and Medicaid Services (CMS’) Retiree Drug Subsidy (RDS) Program is subject to the mandatory reductions in Federal spending in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended.

CMS' RDS Center will apply a mandatory payment reduction to all plan months of April 2013 and beyond when calculating payment requests for affected applications.

Beginning with costs incurred in January 2024, CMS’ RDS Center will apply the mandatory payment reduction to each interim payment request and the Reconciliation final payment request. 

For additional information on the RDS Mandatory Payment Reduction (i.e., sequestration) policy, refer to Mandatory Payment Reduction.

You can submit a support request to CMS' RDS Center from anywhere in the RDS Secure Website. For step-by-step instructions to submit a request, refer to Submit or Reopen a Support Request in the RDS User Guide.

You can reopen a support request from the Submit a Support Request to CMS' RDS Center page in the RDS Secure Website. For step-by-step instructions to reopen a request, refer to Submit or Reopen a Support Request in the RDS User Guide.

If you need further assistance with a previously submitted request for which you have received a response, you may reopen it in the RDS Secure Website. If you need assistance with an unrelated topic or issue, submit a new request. For step-by-step instructions to submit or reopen a request, refer to Submit or Reopen a Support Request in the RDS User Guide.

(Known before as the Social Security Number Removal Initiative (SSNRI))

Personal identity theft affects a large and growing number of seniors. People age 65 or older are increasingly the victims of this type of crime. The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 requires that the Centers for Medicare & Medicaid Services (CMS) remove Social Security Numbers (SSNs) from all Medicare cards by April 2019. As part of a fraud prevention initiative to help combat identity theft and safeguard taxpayer dollars, a new Medicare Beneficiary Identifier (MBI) will replace the SSN-based Health Insurance Claim Number (HICN) on new Medicare cards which will be mailed to beneficiaries between April 2018 and April 2019. For more information about the New Medicare Card Project, please refer to the following resources:

• New Medicare Cards
• RDS Program Website New Medicare Card Project Webpage

Please review the memo titled Future Updates to the Retiree Drug Subsidy (RDS) System to Accommodate the New Medicare Card Project (updated 09/25/2017) for a summary of the impact that the New Medicare Card Project will have on RDS Plan Sponsors and Vendors. CMS will communicate with the RDS community through the RDS Program Website and email correspondence as new information about the implementation becomes available.