The Medicare Prescription Payment Plan: Yay Or Nay?

The Inflation Reduction Act is having quite an impact on 2025 Part D prescription drug coverage. One initiative, the Medicare Prescription Payment Plan, is similar to an installment payment plan. This allows a drug plan enrollee to spread costs out over the year.

You can find examples relevant to you in the Medicare Plan Finder. Right before the section called “Estimated Total Drug and Premium Cost” on the Plan Details page, there is a paragraph about the Medicare Prescription Payment Plan. Click on “Find out what your drug costs might look like with this payment option” and then a box appears, “How will my monthly bill be calculated?” You’ll see a two-column chart of your monthly costs by pharmacy with and without this payment option. I have reviewed over 100 of these charts and here are a few observations.

Your costs can vary widely.

This program has been referred to as out-of-pocket smoothing. That generally implies evening out, like the smoothing bed linens. However, that is rarely what I have seen. Medicare acknowledges that your payments might vary because “you’re adding drug costs during the year.” However, your costs will vary even if your drug regimen is frozen. One example of cost variation I saw was 18.58-$218.10.

For those enrolled in the plan who don’t reach the $2,000 cap, their costs increase significantly in the last few months of the year.

In one example, the cost in December without the payment plan was $34.15 and in the plan, it was $138.13.

Smoothing of the costs generally occurs once the $2,000 cap is reached.

However, adding or subtracting medications can “unsmooth” the costs.

Medicare says that this “payment option might help you manage your monthly expenses” but that is debatable.

Management of costs involved planning and budgeting and that might be difficult to do once enrolled in the plan. You will pay the drug plan, not the pharmacy, for your medications. You won’t get a receipt, which identifies the medication and cost, so how can you plan or budget? The payments can be all over the map and, if you start a new medication during the year, all bets are off.

Some Situations

Here are five situations with drug costs starting out very low and working toward the $2,000 cap. These shed light on how the math works and can help clarify decision making. As you review the situations, remember these points.

• Any changes in medications can change the costs.
• These examples are for current drug regimens that will be in effect January 1.
• Everyone’s situation is unique but there are some commonalities.
• Check out your costs through the Medicare Plan Finder. Medicare.gov has examples to show how the math works. (This reminds me of trying to help my grandsons with the New Math but they may help you.)

Very Low Drug Costs

The Centers for Medicare and Medicaid Services was right when it said that the plan would probably not be beneficial for someone with very low drug costs. For instance, a person takes one Tier 2 drug with a $5 copayment.

• Without the payment option: He pays $5 every month.
• With the option: The first month is $5, the next month $0.45 and the costs creep up steadily to $10.10 in November and $15.10 December.

Costs up to $1,000

Those who take several Tier 1 and/or Tier 2 drugs that have copayments or possibly one lower-cost Tier 3 will have costs between a few hundred dollars and $1,000.

• Without the payment option: Once the deductible is met in the first few months of the year, payments are the same through the end of the year.
• With the option: The first month’s payment is usually the same as without enrolling in the program. Then there is a significant drop, followed by steadily increasing payments with November and December costs beings three and four times more.

Costs Between $1,000 and the Cap

Generally, a blend of Tiers 1, 2, and 3 with lower cost Tier 4 and no Tier 5 medications creates this scenario.

• Without the payment option: The deductible is split between the first two or three months so the costs can be considerably more than if enrolled in the payment plan. However, once that’s met, costs settle down and remain steady for the last eight or nine months.
• With the payment option: It is the same pattern as in the previous situations: a high cost in first month, followed by a dramatic dip and steady increases with the biggest cost in the last few months of the year.

Reaching the $2,000 Threshold in the January

One Tier 5, specialty drug, will blow the deductible and cap out of the water in one month.

• Without the payment option: Happy New Year. Prepare to pay the full amount in January but then there are no bills due for the remainder of the year.
• With the payment option: The costs are generally the same throughout the year, such as $166.67 for 11 months and $166.66 for December.

Reaching the $2,000 Threshold Later in the Year

Drug costs add up over several months, eventually reaching $2,000.

• Without the payment option: In the example, one drug is refilled every two months which accounts for the alternative payments until the cap is reached in August. Then there are no additional payments.
• With the payment option: The recurring pattern of a higher cost followed by a dip with steady increases in costs is condensed until reaching the cap; then there are identical payments for the remainder of the year.

Note: This example shows that it is possible to pay less than $2,000 and still reach the $2,000 threshold. That’s because the cap also includes payments made on the drug plan member’s behalf, like through the Extra Help program or manufacturer’s discounts.

What Should You Do?

The Medicare Prescription Payment Plan page on Medicare.gov asks the question, “Will this help me? The answer, “It depends on your situation…. You’re most likely to benefit from participating in the Medicare Prescription Payment Plan if you have high drug costs earlier in the calendar year.”

In my opinion, this program works for those who will hit the cap in the first month or two and do not want to or cannot pay $2,000 in one or two lumps. In just about every other situation, there is great variation in costs with higher payments in the plan in the last months of the year. Not only could this be difficult to plan for but it could put a wrench in the holiday budget.

Everyone’s situation is different.

• Use the Medicare Plan Finder cost calculator and review the results for each of your pharmacies.
• Then, take a look at your financial situation and how you want to manage payments.
• And, remember, you can enroll in the Medicare Prescription Payment Plan at any time and you can also drop out whenever it’s not working for you.