Medicare Prescription Payment Plan: How It Works

The Medicare Prescription Payment Plan is a free, voluntary payment option that spreads your out-of-pocket costs for drugs covered by your plan into monthly bills across the calendar year. It doesn't lower what you owe. It only changes when you pay. This guide explains how the monthly bill is figured, who is likely to benefit, how to opt in, and why Extra Help comes first if you qualify.

Key takeaways

• Every Medicare drug plan and Medicare health plan with drug coverage offers this option. It's voluntary and costs nothing to join.
• You don't pay the pharmacy for Part D-covered drugs. Your plan sends you a monthly bill instead.
• It doesn't save money. You never pay more in a year than you would have paid at the pharmacy, or more than the yearly Part D out-of-pocket maximum.
• It tends to help most when you have high drug costs early in the year. It may not fit if your costs are low or steady, or if you join after September.
• If you qualify for Extra Help, CMS says Extra Help is more advantageous. Check that first.
• Your participation renews each year, but it ends if you switch plans. You'd need to opt in again with the new plan.

What is the Medicare Prescription Payment Plan?

It's a payment option that works with your current drug coverage. It spreads your out-of-pocket costs for drugs your plan covers across the calendar year, January to December.

Anyone with a Medicare drug plan, or a Medicare health plan with drug coverage like a Medicare Advantage Plan with drug coverage, can use it. All plans offer it. Joining is your choice, and there's no cost to participate.

Does it lower your drug costs?

No. Medicare says it might help you manage monthly expenses, but it doesn't save you money or lower your drug costs. You owe the same yearly total either way.

The yearly Part D out-of-pocket cap applies to everyone with Medicare drug coverage, even people who never join the payment plan. The cap changes each year, so check Medicare.gov for the current amount.

How does the Medicare Prescription Payment Plan work?

When you fill a prescription for a Part D-covered drug while participating, you don't pay the pharmacy. That includes mail order and specialty pharmacies. Your health or drug plan sends you a monthly bill instead.

You still owe the cost of your drugs. To learn what a drug will cost before you take it home, call your plan or ask the pharmacist.

Paying at the pharmacy vs. joining the payment plan

How is your monthly bill calculated?

All plans use the same formula. There's one rule for the first month and another for every month after.

Your first month

The plan figures a "maximum possible payment." That's the yearly out-of-pocket maximum, minus what you've already paid that year, divided by the months left. Your first bill is the lower of that amount or your actual costs that month.

Every month after that

Your bill equals what you would have paid for any prescriptions you get that month, plus your previous month's balance, divided by the number of months left in the year.

An example without dollar figures

Say you join in January and fill a costly drug that reaches the yearly cap in one fill. Your maximum possible payment is the cap divided by 12. That's lower than your actual cost, so your first bill is one-twelfth of the cap. In February, the remaining eleven-twelfths is divided by 11 months, so the bill is again one-twelfth.

Now say the same fill happens in October. Only 3 months are left, so each bill is about one-third of the cap. Same total, much larger bills.

Why your payment keeps going up

Payments can change every month. They may rise when you fill a new prescription or refill, because new costs are spread over fewer remaining months.

Medicare's own example shows a person with low, steady monthly costs. Their payments start very low and climb sharply in the last months of the year. The yearly total is the same either way. Medicare notes this person might not benefit, because of the higher payments that start in September.

Who benefits from the Medicare Prescription Payment Plan?

Medicare says you're most likely to benefit if you have high drug costs earlier in the calendar year. Starting earlier, like before September, gives you more months to spread costs.

If you haven't opted in and you face a high cost for a single covered drug at the pharmacy, above a threshold CMS sets, your plan must notify the pharmacy. The pharmacy then gives you a standardized "Medicare Prescription Payment Plan Likely to Benefit Notice." Treat it as information, not a requirement.

When it may not be a good fit

Medicare says the option may not be a good choice if:

• Your yearly drug costs are low.
• Your costs are the same each month.
• You're signing up late in the year, after September.
• You don't want to change how you pay.
• You get or are eligible for Extra Help or a Medicare Savings Program.
• You get help from a State Pharmaceutical Assistance Program, a coupon program, or other coverage.

How do you sign up for the Medicare Prescription Payment Plan?

You opt in through your plan, not through Medicare.

1. Contact your plan. Use its website or call. You can do this any time during the calendar year.
2. Choose your timing. CMS guidance lets you or your legal representative opt in before the plan year begins or in any month during it.
3. Wait for processing. Plans must process requests made before the plan year within 10 calendar days. Requests made during the plan year must be processed within 24 hours.
4. Read the confirmation letter. After review, your plan sends a letter with payment instructions.
5. Fill prescriptions as usual. The plan automatically tells the pharmacy you're participating. Your monthly premium, if you have one, is billed separately.

What happens if you miss a payment?

Missing a payment doesn't cost you your drug coverage. Here is what Medicare and CMS say happens:

1. You get a reminder. It lists a date to pay by.
2. Grace period. CMS guidance says participation can be ended only after a required two-month grace period.
3. Removal from the payment plan only. If you don't pay by the date in the reminder, you're removed from the payment plan. You stay enrolled in your health or drug plan. CMS says plans may not end your Part D plan enrollment for unpaid payment plan bills.
4. No interest or fees. You can pay the balance all at once or monthly.
5. Reinstatement. Plans must have a process to let you resume participation in the same plan year. Ask your plan how it works.

Pay your premium first

Medicare advises always paying your monthly plan premium first, if you have one. Missing premiums is what can put your drug coverage at risk.

Do you have to sign up again every year?

Not if you stay in the same plan. Your plan automatically renews your participation every year unless you change plans or contact your plan to opt out.

What if you switch plans during Open Enrollment?

Medicare Open Enrollment runs October 15 to December 7. Changes take effect January 1, and the new plan must get your request by December 7.

If you leave your current plan or switch to a new Medicare drug plan or Medicare Advantage Plan with drug coverage, your payment plan participation ends. Contact your new plan if you want to participate again. Since CMS lets you opt in before the plan year begins, you can ask the new plan once you've enrolled.

If you're reviewing coverage now, see our Medicare open enrollment checklist, our guide on how to compare Medicare Part D plans, and the open enrollment dates.

Can you leave the payment plan?

Yes, any time, by contacting your plan. Leaving doesn't affect your drug coverage.

You still owe any balance. You can pay it all at once or monthly. For new prescriptions after you leave, you pay the pharmacy directly.

What if there's a problem at the pharmacy counter?

Your plan is supposed to tell the pharmacy you're participating. If something goes wrong, these steps can help.

• You're asked to pay at the counter. Call your plan from the pharmacy if you can. If you need to pick up a prescription urgently, Medicare advises calling your plan to discuss your options.
• You get a "Likely to Benefit" notice. It means you haven't opted in and face a high cost for one drug. You can contact your plan to opt in. Requests made during the plan year must be processed within 24 hours.
• Your bill looks wrong. Call your plan. You have the right to use the grievance process in your Member Handbook or Evidence of Coverage.

Extra Help vs. the payment plan: which comes first?

These are different things. The payment plan changes timing only. Extra Help lowers costs.

Extra Help is a Medicare program that helps people with limited income and resources pay Part D premiums, deductibles, coinsurance, and other costs. Some people get it automatically because they have full Medicaid, a Medicare Savings Program, or SSI. Others apply through Social Security. Income and resource limits change yearly, so check Medicare.gov for current limits.

CMS states that for people eligible for Extra Help, Extra Help is more advantageous than the payment plan. CMS strongly encourages checking eligibility for Extra Help and Medicare Savings Programs first. Plans must still offer the payment plan to Extra Help enrollees.

Common mistakes to avoid

• Expecting savings. The yearly total is the same. Only the timing changes.
• Joining late with steady costs. Bills can climb sharply in the last months.
• Skipping Extra Help. If you might qualify, check first.
• Using discount cards and expecting them to count. Discount cards aren't creditable coverage. Drugs bought with them instead of your Medicare plan don't count toward your Medicare deductible or out-of-pocket maximum.
• Paying the payment plan bill before your premium. Pay the premium first.
• Forgetting to opt in again after switching plans. Participation doesn't move with you.

Who can help you decide in Texas?

The Texas Health Information, Counseling and Advocacy Program (HICAP) is Texas's SHIP. It offers free counseling, including explaining Part D coverage, comparing plans, and searching for other prescription help. Call the Texas Medicare Help Line at 800-252-9240.

You can also call 1-800-MEDICARE (1-800-633-4227), 24 hours a day, 7 days a week. TTY users can call 1-877-486-2048. For the bigger picture, read Medicare in Texas.

What to do next

1. Check whether you qualify for Extra Help or a Medicare Savings Program.
2. Estimate your drug costs for the year, and note whether they come early or are steady.
3. Ask your plan or pharmacist what your drugs will cost.
4. If you're switching plans this fall, contact the new plan about opting in again.
5. To opt in, contact your plan by website or phone, then watch for the confirmation letter.

If you'd like a licensed agent to help you compare drug coverage, MeetBrokers is free to use. Every listed agent holds a state license that anyone can verify by National Producer Number. Profiles marked "unclaimed" come from public licensing records. Browse licensed Medicare agents in Texas or Medicare agents in other states, and read how to choose a Medicare agent.

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