Recently the Centers for Medicare and Medicaid Services (CMS) published the 2017 cost threshold and cost limit amounts for the Retiree Drug Subsidy (RDS) program, expanding the cost threshold to $400 and the cost limit to $8,250. This increases the amount of subsidy dollars available by as much as $227 per eligible retiree.
Cost threshold and cost limit amounts are set each year by CMS so that Plan Sponsors can determine how much of each retiree’s drug expenses are eligible for subsidy. The cost threshold is the amount of eligible expenditures a retiree must incur before future eligible expenses qualify for subsidy. Conversely, the cost limit is the maximum amount of eligible retiree expenses that qualify for subsidy payments. It is the range between these two figures that is eligible for RDS reimbursement.
For example, when a member’s expenses exceed the cost threshold of $400, all further allowable retiree drug expenses are eligible for up to a 28% reimbursement until those expense exceed the cost limit of $8,250. This represents a nearly 12% increase in subsidy dollars for every retiree with eligible expenses that meet the cost limit. This could mean tens or in some cases, hundreds of thousands more in subsidy dollars to Plan Sponsors.
This increase should be considered welcome news to the thousands of Retiree Group Health Plan Sponsors who participate in the RDS every year. Given the significant increase in subsidy available to it is clear that the RDS program remains a viable and competitive option for Plan Sponsors looking to offer the best prescription coverage possible to their retirees, while remaining in control of prescription spending.