The sequestration under the Centers for Medicare & Medicaid Services (CMS)’s Retiree Drug Subsidy (RDS) Program, as well as Medicare Advantage (MA) and Part D Employer Group Waiver Plans (EGWPs), began a three-month phase-in on April 1, 2022, after being suspended from May 1, 2020, through March 31, 2022.

During the suspension period, the calculated subsidy amounts for RDS, MA, and Part D EGWP direct subsidies payments from CMS to plan sponsors were exempted from the 2% sequestration reduction. From April 1, 2022, through June 30, 2022, a 1% sequestration applies, with the full 2% sequestration returning July 1, 2022.

Background

Per the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), the RDS, MA, and Part D EGWP Programs are subject to the mandatory reductions in federal spending, or sequestration, beginning with plan sponsors' incurred costs reported on or after April 1, 2013.  Accordingly, CMS applied a mandatory 2% payment reduction to all plan months when calculating an RDS Application's Final Reconciliation subsidy payment and reduced MA payments and Part D EGWP direct subsidies by 2%. See Mandatory Payment Reduction in CMS' Retiree Drug Subsidy Reconciliation Payments for additional information.

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, further extended this suspension through March 31, 2021, and H.R. 1868, enacted on April 14, 2021, extended the suspension through December 31, 2021. Finally, the Protecting Medicare and American Farmers from Sequester Cuts Act, enacted December 10, 2021, extended the sequestration suspension period from December 31, 2021 through March 31, 2022, and further defined changes to the mandatory payment reduction percentage through Fiscal Year 2030.

For RDS, the temporary suspension of sequestration applies to the costs incurred between May 1, 2020, and March 31, 2022, regardless of when an application reconciles, and is not based on an application’s Reconciliation Deadline Date or on the date that the plan sponsor completes reconciliation for an application.

Applicable Mandatory Payment Reduction Percentages

The following chart shows the applicable payment reductions (sequestration) for the various periods.

CMS has previously stated that the claims payment adjustment is applied to all claims after determining coinsurance and any applicable deductible. Beneficiary payments for deductibles and coinsurance are not subject to the mandatory payment reduction.

CHEIRON OBSERVATION

The impact on

• RDS is to reduce reimbursements by the amounts in the table above (predominantly 2%).
• Part D EGWP plans is expected to be nominal as sequestration only applies to the Part D direct subsidy and not to reinsurance payments or the discounts in the coverage gap.
• MA plans will vary depending on the degree to which the current premium reflects sequestration. If self-insured or if the insurer assumed the sequestration did not apply and has a clause allowing for premium increases for government changes, the premiums could increase 2%.

Cheiron consultants can assist you in better understanding the impact on your plan or in negotiating with your insurer.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.