The Medicare Prescription Drug, Improvement and Modernization Act of 2003 gave employers that provide prescription drug coverage to retirees the ability, starting in 2006, to apply for a Medicare Part D subsidy payment (“Subsidy”). Employers that applied for the Subsidy are now able to start the final reconciliation process. During this final step, employers will reconcile all previously reported and unreported retiree prescription drug costs. Over the past few months, the Centers for Medicare and Medicaid Services (“CMS”) has made the reconciliation process available as part of its online Subsidy application and has issued guidance regarding the reconciliation process. This guidance can be found on the Retiree Drug Subsidy (“RDS”) website.

The guidance demonstrates that the reconciliation process is complex and comprises many steps. Employers will be required to collect information about retirees and incurred prescription drug costs, and will be required as well to complete sections of the RDS online application, and submit a report of the total gross covered retiree plan related prescription drug costs. The reconciliation process must be completed by the last day of the 15th month following the last day of the plan year specified in the Subsidy application. Certain applications filed in 2006 by employers with non-calendar year plans may be entitled to an extension of this deadline. Because of the complexity of the reconciliation process and the fact that employers that fail to complete the reconciliation process on time could lose a portion of their Subsidy, we recommend that employers that applied for the Subsidy get started on the reconciliation process as soon as possible.