From Application To Final Payment.
The subsidy is paid through the CMS Retiree Drug Subsidy Center, with an application before the plan year and a reconciliation after it. This page lays out the sequence and the records.
The Sponsor’s Path.
General information, not legal or tax advice. Check the cited sources before you act.
Retiree Drug Subsidy Overview
Every topic in this series, plus the laws and sources.
Who Qualifies
The sponsor, the qualifying retiree and the payment formula.
RDS Compared With An EGWP
What changes if retirees move to a Medicare plan.
What Goes In The Application.
Under 42 CFR 423.884, the sponsor or a designee submits a signed application in the form CMS specifies. It includes the sponsor’s name, address and contact details, an employer tax ID where applicable, the actuarial attestation, a list of qualifying covered retirees and a signed sponsor agreement. The retiree list carries each person’s name, identifier, date of birth, sex and relationship to the retiree.
Applications are due before the plan year begins, by the date CMS sets, unless an extension is approved. After that the sponsor sends updates monthly or at the frequency CMS specifies, and CMS matches the list against its records to find eligible people who are not enrolled in a Part D plan.
How Payments Flow During The Year.
Under 42 CFR 423.888, the sponsor elects monthly, quarterly or annual payments under CMS guidance, and CMS may restrict the options for operational reasons. Monthly and quarterly sponsors submit gross cost data on the same schedule, along with an actuarial estimate of how expected allowable costs differ from gross costs. That estimate reduces the periodic payments.
A sponsor whose retiree coverage is insured may base interim figures on a portion of the premiums paid, after subtracting administrative costs and risk charges. The insurer may send final data directly to CMS.
Whichever cadence is chosen, interim figures are estimates. The final allocation of price concessions happens in reconciliation, so a sponsor with large rebates or discounts may see its final payment differ from what it received along the way.
Closing Out The Plan Year.
Reconciliation can begin only after the application is approved and the plan year has ended. The regulation requires total gross costs and actual rebate and price concession data within 15 months after the plan year ends, or a longer period if CMS sets one. The CMS user guide lists the steps in order: initiate reconciliation, finalize the covered retiree list, report final costs, review them, review the final payment amount, confirm banking information, then submit.
CMS says reconciliation can typically take about 90 days and must be finished by the deadline shown in the RDS Secure Website. A missed deadline has real consequences. A sponsor that received interim payments faces overpayment recovery, and one that received none loses eligibility for the subsidy on that application.
Keeping Records And Staying Ready.
Sponsors keep required records for six years after the plan year in which costs were incurred, and longer when CMS or the OIG says so. Required records include the actuarial reports behind the attestation and the claims data used to calculate payments. Noncompliance may lead to nonpayment or recoupment of all or part of the subsidy.
Keep user accounts and multi-factor authentication current well ahead of any deadline, as the CMS RDS home page advises. Current application and reconciliation dates, and whether a new application is open for a given plan year, should be confirmed with CMS rather than taken from this page.
Related Rules And Tools.
Employer Group Waiver Plans (EGWPs) For Retiree Medicare Coverage
How employers use EGWPs to deliver retiree Medicare drug coverage.
Creditable Prescription Coverage for Employers
What makes drug coverage creditable and why employers are asked to say so.
A Compliance Calendar for Your Plan Year
A plan-year view of the dates employers need to track.
Laws And Sources
42 CFR 423.884 — What coverage must meet to qualify, plus the application contents, attestation timing and audit access.
42 CFR 423.888 — Payment methods, cost data submission, the 15-month reconciliation window and record retention.
CMS, Retiree Drug Subsidy Center — The program site for sponsors, with application and reconciliation deadline pages and announcements.
CMS, RDS Reconciliation Overview — The step-by-step reconciliation sequence, timing notes and consequences of a missed deadline.
42 U.S.C. 1395w-132 — The Social Security Act provision that creates the special subsidy, defines a qualified retiree prescription drug plan and sets the 28 percent rate.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
When is the application due?
Before the plan year begins, by the date CMS sets, unless CMS approves an extension. Check the CMS RDS site for the current deadline.
How long do we have to reconcile?
Final data is due within 15 months after the plan year ends, or a longer period if CMS sets one, under 42 CFR 423.888.
How long do we keep records?
Six years after the plan year in which the costs were incurred, or longer if CMS or the OIG requires.
The Rest Of This Series.
What The Subsidy Is
The sponsor, the qualifying retiree and the 28 percent payment, explained from the statute.
The Section 139A Exclusion
What section 139A says, where it came from and what it leaves open.
The Lost Deduction After 2012
The 2010 amendment, its 2013 start and the IRS examples for older and newer costs.
RDS, EGWP And Creditable Coverage
Where the subsidy, an employer group waiver plan and creditable coverage notices part ways.
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