Medicare Sequestration: 2% Payment Reduction

What This Means

You may have noticed a line on your Medicare Summary Notice (MSN) or your provider’s bill showing a small reduction labeled “sequestration.” This is a 2% cut to what Medicare pays your provider or supplier. It is not a denial of your claim. Your service was still covered.

This reduction affects the provider’s payment, not your share of the costs. Your deductible, coinsurance, and copayment amounts stay the same.

Why This Happens

• The Budget Control Act of 2011 required automatic spending cuts across many federal programs, including Medicare. Starting in April 2013, Medicare payments to providers and suppliers were reduced by 2%.
• How the reduction is calculated. Medicare processes your claim normally — it determines the approved amount, subtracts your deductible and coinsurance, and then reduces the remaining payment to the provider by 2%. The cut comes off the provider’s payment, not your portion.
• It applies to all Medicare fee-for-service claims. This is not targeted at specific services or providers. Every Medicare Part A and Part B claim is subject to the reduction.

Should You Appeal?

What To Do Next

1. Check that you are not being billed for the 2%. If your provider accepts Medicare assignment (and most do), they cannot pass the sequestration reduction on to you. Your cost-sharing amounts (deductible, coinsurance, copayments) should not change because of sequestration.
2. If a provider bills you for the sequestration amount, contact their billing office and explain that the sequestration reduction is the provider’s contractual adjustment, not a patient responsibility. Providers who accept assignment agree to accept Medicare’s payment (after sequestration) as payment in full.
3. Look at your MSN or Explanation of Benefits. The sequestration reduction typically appears as adjustment code CO-253 with the description “Sequestration — reduction in federal payment.” The “CO” prefix means “Contractual Obligation,” which means the provider must absorb this amount.
4. If you believe you’re being incorrectly billed, contact 1-800-MEDICARE (1-800-633-4227) to report the issue, or contact your State Health Insurance Assistance Program (SHIP) for free help.

Sources

• CMS: Sequestration Information
• Budget Control Act of 2011 — Medicare Sequestration
• Medicare.gov: Your Medicare Rights

Frequently Asked Questions