Research · 7 min read

The Medicare Prescription Payment Plan, and What It Does Not Change

It spreads a year's drug cost sharing across monthly bills instead of collecting it at the counter. The total owed is the same, and the regulation is unusually specific about saying so.

By Erin Vasquez, Reviews Editor · Updated September 2026

Key takeaways

The program lets an enrollee pay $0 at the point of sale and pay that cost sharing in capped monthly amounts instead; the total owed does not change.
Participation must have no impact on true out-of-pocket cost accumulation, and costs are counted from the date each claim is adjudicated.
The first month's cap is the annual out-of-pocket threshold minus incurred costs, divided by the months remaining; later months use unbilled prior costs plus new costs over the months remaining.
Sponsors must not charge late fees, interest or payment-method fees, must bill separately from premiums, and must not bill a participant who has incurred no out-of-pocket costs yet.
A missed payment triggers a grace period of at least two months before termination, and reinstatement is mandatory where good cause is shown and all overdue amounts are paid.
Sponsors must undertake targeted outreach to enrollees likely to benefit, defined as $600 or more in out-of-pocket costs for a single covered drug or $2,000 in the first nine months of the prior year.

Answer first: it moves when you pay, not how much

The regulation states what the program is in a single sentence. For plan years beginning on or after January 1, 2026, every prescription drug plan sponsor and every Medicare Advantage organization offering a plan with drug coverage must provide each enrollee "the option to elect with respect to a plan year to pay $0 cost sharing at the point of sale and pay cost sharing under the plan in monthly amounts that are capped in accordance with this section."

Nothing in that sentence reduces cost sharing. It relocates it. What would have been paid at a pharmacy counter becomes a monthly bill from the plan, subject to a cap the regulation computes.

The regulation says the same thing again where it matters most, in the paragraph on how the program interacts with the annual out-of-pocket threshold: "Participation in the Medicare Prescription Payment Plan must have no impact on true out-of-pocket cost accumulation." Costs incurred under the program "must still be treated as incurred based on the date each Part D claim is adjudicated" — not the date the enrollee is billed, and not the date they pay.

So a participant reaches the annual out-of-pocket threshold at exactly the same point they would have otherwise. The program changes the payment schedule and leaves the benefit design untouched.

How the monthly cap is computed

There are two formulas, one for the first month of participation and one for every month after.

For the first month, the maximum monthly cap is "the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B) of the Act minus the incurred costs of the enrollee ... divided by the number of months remaining in the plan year." The threshold is the same figure the Part D benefit regulation sets — $2,000 for 2025 and indexed for later years — so the first month's ceiling depends both on when someone joins and on what they have already spent.

For every later month, the cap is "the sum of any remaining out-of-pocket costs owed by the enrollee from a previous month that have not yet been billed to the enrollee and any additional out-of-pocket costs incurred by the enrollee, divided by the number of months remaining in the plan year." The count of remaining months includes the month being calculated.

If out-of-pocket costs in the first month come in below the cap, the sponsor bills the lesser of the actual costs or the first month's cap. The calculations apply only to covered Part D drugs as the definitions section defines them.

Two mechanics are easy to miss. Prescriptions for an extended day supply are attributed to the month the prescription was filled and are not pro-rated across the months the supply covers. And someone who joins after switching plans mid-year has their first month under the new plan calculated with the first-month formula, not the subsequent-month one.

The regulation includes its own worked illustration of the arithmetic in the definitions: an enrollee who incurs $2,000 in January and is billed $166.67 has remaining out-of-pocket costs of $1,833.33.

Joining, and what the sponsor has to send

Eligibility is broad. An individual is eligible if they are enrolled in a Part D plan and have not been precluded from participation for failure to pay, and the regulation states explicitly that "LIS-eligible Part D enrollees are eligible to participate in the program."

A sponsor must let any enrollee opt in before the plan year begins or at any point during it, and must also allow an election in advance of a new enrollment effective date — during the annual coordinated election period, the Part D initial enrollment period, or a Part D special election period.

Requests may be made on paper, electronically, or by telephone, and "Part D sponsors must process any election request regardless of format." The regulation defines when each format counts as received, down to a voicemail left after business hours. A complete request requires the enrollee's name, Medicare ID number, and the enrollee's or representative's agreement to the sponsor's terms and conditions by signature or verbal attestation.

Processing deadlines differ by timing. For requests received before the plan year, a complete request must be processed within 10 calendar days, an incomplete one must trigger contact within 10 calendar days, and the sponsor may deny the request if the missing information is not supplied within 21 calendar days.

The approval notice is where the consumer protections concentrate. For a request received before the plan year it must be sent within 10 calendar days; for one received during the plan year, within 24 hours, delivered first by telephone with written notice following within 3 calendar days. Its required contents include the effective date, how payments work, how the monthly bill is calculated, the procedures for involuntary termination due to failure to pay, "a statement that leaving the program will not affect the individual's Part D plan enrollment," a description of how a balance may still be owed after leaving with the option to pay all at once or be billed monthly, and an overview of other programs that can lower costs — Extra Help, the Medicare Savings Program, State Pharmaceutical Assistance Programs and manufacturer assistance programs.

Sponsors also have an outreach duty. They must undertake targeted outreach to enrollees "likely to benefit," a term the regulation defines by two criteria: incurring $600 or more in out-of-pocket costs for a single covered Part D drug, or having incurred $2,000 in out-of-pocket costs for covered Part D drugs in the first nine months of the year before the upcoming plan year. A sponsor may add supplemental identification criteria, but must then apply them to every enrollee of each plan equally.

Leaving, missing a payment, and what remains owed

Opting out is a right, and it is fast. A sponsor must have a process allowing participants to opt out during the plan year, must process the termination with an effective date within 3 calendar days of receiving the request, and must send a notice of termination within 10 calendar days. That notice must state, among other things, that the individual "will continue to be billed monthly or can choose to pay the amount owed all at once, and that the individual will not pay interest or fees on the amount owed," and that they may join again.

Missing a payment does not end participation immediately. A participant is considered to have failed to pay "only after the conclusion of the required grace period," and the sponsor must provide a grace period of at least two months beginning on the first day of the month following the date the initial missed-payment notice is sent. Paying the overdue balance in full during the grace period keeps the person in the program.

The grace period can cross a year boundary. Where a participant misses a payment with fewer than two full calendar months left in the calendar year, the grace period carries into the next year, and a participant still inside a prior year's grace period must be allowed to opt into the program for the new year.

Reinstatement is available on two tracks. If someone terminated for nonpayment demonstrates good cause and pays all overdue amounts, the sponsor "must reinstate that individual" within a reasonable timeframe. Good cause means establishing by a credible statement that the failure to pay within the grace period was due to circumstances the individual could not control or could not reasonably have been expected to foresee. Separately, a sponsor may reinstate someone who pays all overdue amounts even without good cause, at the sponsor's discretion.

What does not go away is the balance. "Nothing in this section prohibits a Part D sponsor from billing an individual for an outstanding Medicare Prescription Payment Plan amount owed." The statute states the consequences of nonpayment in its own terms: the election is terminated and the enrollee pays the cost sharing otherwise applicable for drugs subsequently dispensed up to the annual out-of-pocket threshold, and the sponsor may preclude the enrollee from electing the program in a subsequent plan year. It also provides that nothing prohibits billing for amounts owed and that unsettled balances are treated as plan losses.

Disenrollment from the Part D plan itself ends participation in the program for that plan, and someone who enrolls in a different plan may opt in under the new one. Disputes about the cost sharing amount of a covered drug go through the ordinary Part D coverage determination and appeals procedures rather than through the program.

Sources

42 CFR § 423.137 — Medicare Prescription Payment PlanElectronic Code of Federal Regulations, U.S. Government Publishing Office / National Archives · Text as in effect September 1, 2026 · Retrieved September 2026The general obligation from plan years beginning on or after January 1, 2026 and the $0 point-of-sale option; the definitions of out-of-pocket costs and remaining out-of-pocket costs with the worked illustration; the first-month and subsequent-month cap formulas, the lesser-of billing rule, the covered-drug limitation, the months-remaining rule, the extended day supply attribution and the mid-year plan switching rule; the statement that participation must have no impact on true out-of-pocket cost accumulation and that costs are treated as incurred on claim adjudication; the eligibility rule including LIS-eligible enrollees; the election timing, formats, receipt rules, completeness requirements and processing deadlines; the notice of election approval timing and required contents; the targeted outreach duty and the two likely-to-benefit criteria with the equal-application rule for supplemental criteria; the billing period definition, the no-billing-without-costs rule, the past-due balance rule and the cap limitation; the prohibition on late fees, interest and other fees, the third-party compliance and overbilling provisions and the separate-bill requirement; the prohibitions on terminating, encouraging disenrollment and declining future enrollment for nonpayment; the voluntary termination process, its 3-day effective date, 10-day notice and required notice contents; the involuntary termination process, the required grace period of at least two months and its year-crossing rule; the mandatory and discretionary reinstatement provisions and the definition of good cause; the rule that nothing prohibits billing for an outstanding amount owed; the disenrollment consequence and the ability to opt in under a new plan; and the application of Part D coverage determination and appeals procedures to disputes about the cost sharing amount of a covered drug.
42 CFR § 423.104 — Requirements related to qualified prescription drug coverageElectronic Code of Federal Regulations, U.S. Government Publishing Office / National Archives · Text as in effect September 1, 2026 · Retrieved September 2026The annual out-of-pocket threshold that the first-month cap calculation subtracts from — $2,000 for 2025, and for later years the prior year's amount increased by the annual percentage increase and rounded to the nearest multiple of $50.
42 U.S.C. § 1395w-102 — Prescription drug benefitsOffice of the Law Revision Counsel, U.S. House of Representatives · Text of the section as displayed, current through September 2026 · Retrieved September 2026The statutory consequences of failing to pay a monthly billed amount — termination of the election, payment of otherwise applicable cost sharing for drugs subsequently dispensed up to the annual out-of-pocket threshold, and the sponsor's ability to preclude election in a subsequent plan year — together with the clarification that billing for past due amounts is not prohibited and the treatment of unsettled balances as plan losses.

Frequently asked questions

Does the program lower total drug costs?

No. It gives an enrollee the option to pay $0 cost sharing at the point of sale and to pay that cost sharing in capped monthly amounts instead. The regulation states that participation must have no impact on true out-of-pocket cost accumulation, and that costs are still treated as incurred based on the date each Part D claim is adjudicated.

How is the monthly cap calculated?

For the first month of participation, the annual out-of-pocket threshold minus the enrollee's incurred costs, divided by the number of months remaining in the plan year. For later months, the sum of unbilled remaining out-of-pocket costs from previous months and any additional costs incurred, divided by the months remaining. The month being calculated counts as a remaining month.

Who can join?

Anyone enrolled in a Part D plan who has not been precluded from participation for failure to pay, and the regulation states that LIS-eligible enrollees are eligible. A sponsor must allow opting in before the plan year or at any point during it, and in advance of a new enrollment effective date during the annual coordinated election period, the Part D initial enrollment period, or a special election period.

Can a plan charge interest or a late fee?

No. The regulation states that a sponsor must not charge late fees, interest payments or other fees such as for different payment mechanisms, must ensure contracted third parties comply, and must ensure participants incur no charges resulting from the sponsor's own overbilling or overpayment errors. The program bill must also be separate from any premium bill.

What happens if a monthly bill is missed?

A participant is considered to have failed to pay only after a required grace period of at least two months, beginning the first day of the month after the initial missed-payment notice is sent. Paying the overdue balance in full during the grace period keeps the person in the program, and the grace period carries into the next calendar year where fewer than two full months remain.

Does leaving the program cancel the balance?

No. The regulation requires the termination notice to state that the individual will continue to be billed monthly or may pay the amount owed all at once, without interest or fees, and separately provides that nothing prohibits a sponsor from billing for an outstanding amount owed. The statute states that on failure to pay, the election is terminated and the enrollee pays the otherwise applicable cost sharing for drugs subsequently dispensed.