Background

Stakeholders that develop healthcare-related communications for Medicare Part D beneficiaries should develop clear messaging about the potential benefits of the Medicare Prescription Payment Plan (referred to throughout this paper as the “Payment Plan”) so beneficiaries can independently assess and understand the opportunity.

The Inflation Reduction Act of 2022 (IRA)¹ introduced the Medicare Prescription Payment Plan. In 2025, Medicare beneficiaries will have the option to pay for prescription drug treatments by making monthly payments that in sum are equal to their total Part D cost-sharing responsibility, up to the newly established Part D maximum out-of-pocket (MOOP) of $2,000. The details of how the Payment Plan’s monthly payments are determined are reviewed in this Milliman article² and as part of the beneficiary resources recently published by the Centers for Medicare and Medicaid Services (CMS).³

With Medicare open enrollment for the 2025 plan year well underway, this paper reviews three timely topics:

1. Health literacy and insurance literacy in the United States
2. Financial circumstances of Medicare-eligible seniors
3. Beneficiary opportunities and challenges associated with the Payment Plan

Of the approximately 53 million beneficiaries enrolled in a Medicare Part D plan, approximately 14 million (26%) have some or all of their cost sharing subsidized by the federal government through the Part D Extra Help program (i.e., beneficiaries eligible for a low-income subsidy, or LIS).⁴ For LIS-eligible beneficiaries who already have their total cost sharing reduced through Extra Help subsidies, the Payment Plan may not be necessary. For those who do not qualify for LIS and expect to have high out-of-pocket prescription drug costs, particularly early in the year, the Payment Plan may be a helpful expense management tool, provided it is fully understood and properly utilized.

Health and insurance literacy

The Institute of Medicine defines health literacy as the ability to “obtain, process, and understand the basic health information and services needed to make appropriate health decisions.”⁵ Our survey of existing literature provides context for the level of health literacy in the United States and among the Medicare-eligible population:

• In 2023, a MedicareAdvantage.com survey of more than 2,000 people identified that almost two-thirds of participants said Medicare was confusing and difficult to understand.⁶
• A 2016 systematic review performed by Chesser and colleagues⁷ identified multiple studies with key findings highlighting the prevalence of low health literacy among older adults, including a 2007 integrative review from the journal Orthopedic Nursing that reported age has one of the highest correlations with low health literacy.⁸
• A 2009 expert panel report from the Centers for Disease Control and Prevention (CDC) identified the following regarding adults older than 60:⁹
• 71% had difficulty using print materials
• 80% had difficulty using documents such as forms or charts
• 68% had difficulty with interpreting numbers and doing calculations

To make decisions about Medicare coverage, individuals need to understand their coverage and cost-sharing options and how their choices will influence their experience. The Payment Plan creates an additional opportunity for managing costs, but with it comes nuance and complexity, added to a system that beneficiaries already identify as confusing.

Financial position of Medicare-eligible seniors

As mentioned above, approximately 14 million LIS-eligible beneficiaries already have their Part D cost-sharing burden reduced through government subsidies. These beneficiaries can participate in the Payment Plan, but are less likely to benefit from it, because their monthly cost sharing is already comparatively low. For the other 39 million beneficiaries, the Payment Plan may result in more manageable Part D expenses without changing overall out-of-pocket cost for the year. For beneficiaries on a fixed income, month-to-month budgeting may help ease financial pressures. In evaluating the importance and vulnerability of this population, we share the following statistics:

• Social Security dependence: According to a 2021 report from the Office of Retirement and Disability Policy, in the population that is 65 and older, Social Security constitutes 50% or more of income for 37% of men and 42% of women. It represents 90% or more of income for 12% of men and 15% of women.¹⁰
• Debt: The Federal Reserve Survey of Consumer Finances for 2022 indicates over one-half to two-thirds of seniors aged 65 and older carry some form of debt.^i,11
• Retirement account and total asset values: The median retirement account and total asset values for this population were also reported by the same survey from 2022:
• Retirement accounts: Median retirement account values for seniors range from $130,000 (age 75 and older) to $200,000 (age 65 to 74).¹² Despite this fact, approximately 50% to 60% of seniors aged 65 and older have no funds in a retirement account at all.
• Total assets: Median total asset values range from $382,000 (age 75 and older) to $474,900 (age 65 to 74).¹³

As illustrated by these numbers, there is a wide range of financial circumstances for the Medicare-eligible population, even among those who do not receive government subsidies. In addition to financial position, health status and the prevalence of chronic conditions can also impact financial position and expected use of healthcare resources:

• Healthcare costs: According to the 2024 Milliman Retiree Health Cost Index,¹⁴ a healthy 65-year-old couple retiring in 2024 may need the following in after-tax savings to cover healthcare expenses during retirement:ⁱⁱ
  • $395,000 if they have original Medicare plus Medigap (Plan G) and Part D coverage.
  • $182,000 if they have Medicare Advantage plus Part D coverage.
• Chronic conditions: According to a 2022 analysis from the National Council on Aging, nearly 95% of U.S. adults aged 60 and older in the sample analyzed had at least one chronic condition. Over 52% had three or more chronic conditions.¹⁵

We have shared the information above to explore the cross-section between health vulnerability and financial vulnerability through both income and debt. Though impossible to succinctly summarize the position of all seniors, the combination of reliance on fixed income, presence of debt and retirement savings, and growing healthcare needs puts many seniors in a uniquely at-risk financial position.

Beneficiary opportunities and potential limitations associated with the Payment Plan

The introduction of the Payment Plan brings both opportunities and challenges to those beneficiaries who participate in the plan. This balanced perspective may help in evaluating the plan’s potential impact on beneficiary outcomes.

Opportunities associated with the Payment Plan

Improved financial experience: Beneficiaries may be better equipped to manage their monthly expenses by spreading their payments for prescription drugs across the year. For beneficiaries who currently face the highest levels of out-of-pocket cost at the beginning of the year, the Payment Plan could be the difference between absorbing a one-time $2,000 cost in January versus 12 monthly payments of approximately $170 each. This may be particularly impactful for beneficiaries who rely on high-cost brand drug treatments.

Improved adherence and access to therapies: The Payment Plan can help beneficiaries manage the cost of drug treatments by spreading payments over the year, making it potentially easier for them to consistently adhere to their prescriptions. The Payment Plan may also improve access to newer therapies that were previously too expensive to pay for up-front. The following studies suggest that unexpected, high out-of-pocket costs may reduce beneficiary fill rates:

• A 2020 retrospective study published by the Journal of Clinical Oncology stated 41% of sampled patients taking an anticancer agent with an out-of-pocket cost between $500 and $2,000 did not fill their prescription.¹⁶
• A study published in Health Affairs in 2024 analyzed claims from nearly 60,000 patients with a new insurer-approved prescription for oral HIV pre-exposure prophylaxis (PrEP). The study estimates:¹⁷
• When pharmacy out-of-pocket costs were raised from $0 to more than $500, abandonment rates jumped from 5% to 42%.
• When pharmacy out-of-pocket costs greater than $500 were cut to $0, abandonment rates dropped from 48% to 7%.

Advancement in health equity: The Payment Plan’s cost-spreading mechanism may improve health outcomes for underserved populations by expanding prescription drug treatment access for disease states where incidence and mortality disproportionately impact these populations and where cost for drug treatments is a factor:

• Incidence and mortality rates in disease areas such as multiple myeloma,¹⁸ prostate cancer, and some other forms of cancer are higher among Black patients than white.¹⁹
• Many oncology studies have identified material racial disparities in survival rates between Black and white patients after newer and more expensive therapies have been introduced.^20,21,22
• Additional studies have attributed poor access to these therapies as a driver for lower utilization of these therapies and overall survival in Black patients^23,24 There is evidence these disparities are reduced when patients have equitable access to therapy.²⁵

A 2019 study published by the American Society of Hematology Blood reviewed over 15,000 multiple myeloma patients in the Veterans Affairs (VA) healthcare system between 2000 and 2017. When these patients received the same drug treatment, Black patients observed equal or higher rates of survival compared to white patients.²⁶

We recognize that the beneficiary makeup and cost-sharing structure of the VA differ from Medicare’s but still consider it instructive, given the opportunity to improve access to drug treatments via the Payment Plan’s cost-spreading mechanism.

Potential limitations associated with the Payment Plan

Abandonment from Payment Plan election hurdles: While beneficiaries will be able to enroll in the Payment Plan in 2025 by calling their Part D plan sponsor,²⁷ they will not have the option to opt into it immediately upon filling their prescription at the pharmacy counter until at least 2026. This means that, in many cases, beneficiaries may arrive at the pharmacy to pick up their prescription(s), see their total cost and be told they would benefit from the Payment Plan, but find they must sign up by contacting their plan sponsor. This delay could discourage beneficiaries from participating in the Payment Plan and may lead to continued drug treatment abandonment.

Variation in beneficiary outreach: The Payment Plan’s guidance documents released by CMS indicate Medicare payers have flexibility in establishing “reasonable guidelines” for identifying beneficiaries likely to benefit from the Payment Plan during the plan year, provided those guidelines are applied uniformly to all beneficiaries within the plan.²⁸ However, this still allows for variation across Medicare payers, and such variation in identifying and informing beneficiaries about the Payment Plan may create inconsistencies in beneficiary outreach and education.

Difficulty anticipating variable payments: Medicare beneficiary cost-sharing amounts can still vary by month throughout the year, even with the Payment Plan.²⁹ This is supported by illustrative examples recently published by CMS for purposes of informing beneficiaries.³⁰ While not as extreme as exists today without the Payment Plan, continued variability in month-to-month cost sharing may still lead to challenges in budgeting or, in extreme cases, beneficiaries not making payments. Failure to make payment under the Payment Plan can lead to termination from the Payment Plan, forcing future prescription costs to be paid at the pharmacy.³¹ While termination from the Payment Plan does not mean termination from the Part D plan itself, it will likely be disruptive to the beneficiary’s experience and will require full payment at the pharmacy counter for all prescriptions until all outstanding cost sharing has been paid.

Closing thoughts

The Payment Plan presents an opportunity to improve Medicare beneficiary experience of paying for their prescription drug treatments, but it comes with sophistication and complexity. While all Medicare beneficiaries can participate in the Payment Plan under any Part D plan, as we discussed, only certain beneficiaries will find it most useful—namely, those who do not already have their cost sharing reduced through government subsidies and who anticipate having higher Part D drug treatment out-of-pocket costs, particularly early in the year.

Health literacy and insurance literacy remain a gap in the U.S. population, including among Medicare-eligible seniors, many of whom have increasing healthcare needs and financial obligations. Without effective education and outreach, beneficiaries may struggle to make an informed and optimal decision about their participation in the Payment Plan.

For more information, contact your Milliman consultant or the authors.

Data reliance statement

This paper relies on publicly available information from various sources, including government publications, academic studies, and industry reports that are cited throughout the paper. We assume that the information from these sources is accurate and current as of the date of this paper’s publication. If any of the cited information is restated, it may impact the claims and conclusions provided throughout this paper.

---

ⁱ Includes mortgage debt.

ⁱⁱ Estimates come from evaluation of historical experience and do not suggest that original Medicare is higher-cost than Medicare Advantage for the same beneficiary.

¹ The full text of H.R.5376 – Inflation Reduction Act of 2022 is available at https://www.congress.gov/bill/117th-congress/house-bill/5376.

² Corrao, B. & (Klein) Robb, M. (October 2, 2023). Medicare Prescription Payment Plan: What Do Plan Sponsors Need to Know? Milliman White Paper. Retrieved November 13, 2024, from https://www.milliman.com/en/insight/medicare-prescription-payment-plan-for-plan-sponsors.

³ Medicare.gov. Examples of this payment option. What’s the Medicare Prescription Payment Plan? Retrieved November 14, 2024, from https://www.medicare.gov/prescription-payment-plan/examples.

⁴ Cubanski, J. & Damico, A. (July 2, 2024). Key Facts About Medicare Part D Enrollment, Premiums, and Cost Sharing in 2024. KFF. Retrieved November 14, 2024, from https://www.kff.org/medicare/issue-brief/key-facts-about-medicare-part-d-enrollment-premiums-and-cost-sharing-in-2024/.

⁵ Fan, Z. Y., Yang, Y., & Zhang, F. (July 1, 2021). Association Between Health Literacy and Mortality: A Systematic Review and Meta-Analysis. Archives of public health (Archives belges de sante publique), 79(1), 119. Retrieved November 14, 2024, from https://doi.org/10.1186/s13690-021-00648-7.

⁶ MedicareAdvantage.com. (October 30, 2023). Study Highlights Seniors’ Lack of Knowledge About Medicare. Retrieved November 14, 2024, from https://www.medicareadvantage.com/original-medicare/medicare-literacy-survey.

⁷ Chesser, A. K., Keene Woods, N., Smothers, K., & Rogers, N. (March 15, 2016). Health Literacy and Older Adults: A Systematic Review. Gerontology and Geriatric Medicine, 2, 2333721416630492. Retrieved November 14, 2024, from https://doi.org/10.1177/2333721416630492.

⁸ Cutilli C. C. (2007). Health literacy in geriatric patients: An integrative review of the literature. Orthopedic nursing, 26(1), 43–48. https://doi.org/10.1097/00006416-200701000-00014.

⁹ Centers for Disease Control and Prevention (U.S.). Expert Panel on Improving Health Literacy for Older Adults. (2009). Improving health literacy for older adults; expert panel report 2009. https://www.cdc.gov/health-literacy/pdf/olderadults-508.pdf.

¹⁰ Dushi, I. & Trenkamp, B. (January 2021). Improving the Measurement of Retirement Income of the Aged Population. Social Security Administration, Office of Retirement and Disability Policy. Retrieved November 14, 2024, from https://www.ssa.gov/policy/docs/workingpapers/wp116.html#mn18.

¹¹ Board of Governors of the Federal Reserve System, Survey of Consumer Finances, 1989 - 2022 (2023). Retrieved August 23, 2024, from https://www.federalreserve.gov/econres/scf/dataviz/scf/table.

¹² Board of Governors of the Federal Reserve System. Survey of Consumer Finances, 1989 - 2022. Retrieved November 14, 2024, from https://www.federalreserve.gov/econres/scf/dataviz/scf/table.

¹³ Ibid.

¹⁴ Schmidt, R. L. & Walters, E. (May 14, 2024). 2024 Milliman Retiree Health Cost Index. Milliman Annual Report. Retrieved November 14, 2024, from https://www.milliman.com/en/insight/retiree-health-cost-index-2024.

¹⁵ NCOA (April 21, 2022). The Inequities in the Cost of Chronic Disease: Why It Matters to Older Adults, p. 5, Figure 2. Retrieved November 14, 2024, from https://ncoa.org/article/the-inequities-in-the-cost-of-chronic-disease-why-it-matters-for-older-adults.

¹⁶ Doshi, J. A., Li, P., Huo, H., Pettit, A. R., & Armstrong, K. A. (December 20, 2017). Association of Patient Out-of-Pocket Costs With Prescription Abandonment and Delay in Fills of Novel Oral Anticancer Agents. Journal of Clinical Oncology, 36(5), 476–482. Retrieved November 14, 2024, from https://doi.org/10.1200/jco.2017.74.5091.

¹⁷ Dean, L. T., Nunn, A. S., Chang, H.-Y., Bakre, S., Goedel, W. C., Dawit, R., Saberi, P., Chan, P. A., & Doshi, J. A. (January 2024). Estimating the Impact of Out-of-Pocket Cost Changes on Abandonment of HIV Pre-Exposure Prophylaxis. Health Affairs, 43(1), 36–45. Retrieved November 14, 2024, from https://doi.org/10.1377/hlthaff.2023.00808.

¹⁸ Kanapuru, B., Fernandes, L. L., Fashoyin-Aje, L. A., Baines, A. C., Bhatnagar, V., Ershler, R., Gwise, T., Kluetz, P., Pazdur, R., Pulte, E., Shen, Y. L., & Gormley, N. (March 14, 2022). Analysis of Racial and Ethnic Disparities in Multiple Myeloma U.S. FDA Drug Approval Trials. Blood Advances, 6(6), 1684–1691. Retrieved November 14, 2024, from https://doi.org/10.1182/bloodadvances.2021005482.

¹⁹ Siegel, R. L., Miller, K. D., & Jemal, A. (2018). Cancer Statistics, 2018. CA: A Cancer Journal for Clinicians, 68(1), 7–30. Retrieved November 14, 2024, from https://doi.org/10.3322/caac.21442.

²⁰ Kaya, H., Peressini, B., Jawed, I., Martincic, D., Elaimy, A. L., Lamoreaux, W. T., Fairbanks, R. K., Weeks, K. A., & Lee, C. M. (December 9, 2011). Impact of Age, Race and Decade of Treatment on Overall Survival in a Critical Population Analysis of 40,000 Multiple Myeloma Patients. International Journal of Hematology, 95(1), 64–70. Retrieved November 14, 2024, from https://doi.org/10.1007/s12185-011-0971-z.

²¹ Ailawadhi, S., Aldoss, I. T., Yang, D., Razavi, P., Cozen, W., Sher, T., & Chanan-Khan, A. (April 26, 2012). Outcome Disparities in Multiple Myeloma: A SEER-Based Comparative Analysis of Ethnic Subgroups. British Journal of Haematology, 158(1), 91–98. Retrieved November 14, 2024, from https://doi.org/10.1111/j.1365-2141.2012.09124.x.

²² Costa, L. J., Brill, I. K., Omel, J., Godby, K., Kumar, S. K., & Brown, E. E. (January 4, 2017). Recent Trends in Multiple Myeloma Incidence and Survival by Age, Race, and Ethnicity in the United States. Blood Advances, 1(4), 282–287. Retrieved November 14, 2024, from https://doi.org/10.1182/bloodadvances.2016002493.

²³ Ailawadhi, S., Frank, R. D., Advani, P., Swaika, A., Temkit, M., Menghani, R., Sharma, M., Meghji, Z., Paulus, S., Khera, N., Hashmi, S. K., Paulus, A., Kakar, T. S., Hodge, D. O., Colibaseanu, D. T., Vizzini, M. R., Roy, V., Colon-Otero, G., & Chanan-Khan, A. A. (November 3, 2017). Racial Disparity in Utilization of Therapeutic Modalities Among Multiple Myeloma Patients: A SEER-Medicare Analysis. Cancer Medicine, 6(12), 2876–2885. Retrieved November 14, 2024, from https://doi.org/10.1002/cam4.1246.

²⁴ Fiala, M. A. & Wildes, T. M. (January 13, 2017). Racial Disparities in Treatment Use for Multiple Myeloma. Cancer, 123(9), 1590–1596. Retrieved November 14, 2024, from https://doi.org/10.1002/cncr.30526.

²⁵ Ailawadhi, S., Jacobus, S., Sexton, R., Stewart, A. K., Dispenzieri, A., Hussein, M. A., Zonder, J. A., Crowley, J., Hoering, A., Barlogie, B., Orlowski, R. Z., & Rajkumar, S. V. (July 6, 2018). Disease and Outcome Disparities in Multiple Myeloma: Exploring the Role of Race/Ethnicity in the Cooperative Group Clinical Trials. Blood Cancer Journal, 8(7), 67. Retrieved November 14, 2024, from https://doi.org/10.1038/s41408-018-0102-7.

²⁶ Fillmore, N. R., Yellapragada, S. V., Ifeorah, C., Mehta, A., Cirstea, D., White, P. S., Rivero, G., Zimolzak, A., Pyarajan, S., Do, N., Brophy, M., & Munshi, N. C. (June 13, 2019). With Equal Access, African American Patients Have Superior Survival Compared to White Patients With Multiple Myeloma: A VA Study. Blood, 133(24), 2615–2618. Retrieved November 14, 2024, from https://doi.org/10.1182/blood.2019000406.

²⁷ Medicare. Fact Sheet: What’s the Medicare Prescription Payment Plan? Retrieved November 14, 2024, from https://www.medicare.gov/publications/12211-whats-the-medicare-prescription-payment-plan.pdf.

²⁸ CMS (July 16, 2024). Medicare Prescription Payment Plan: Final Part Two Guidance on Select Topics, Implementation of Section 1860D-2 of the Social Security Act for 2025, and Response to Relevant Comments (2024). Retrieved November 14, 2024, from https://www.cms.gov/files/document/medicare-prescription-payment-plan-final-part-two-guidance.pdf.

²⁹ CMS (July 17, 2023). Technical Memorandum on the Calculation of the Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans. Retrieved November 14, 2024, from https://www.cms.gov/files/document/monthly-cap-cost-sharing-technical-memo-july-2023.pdf.

³⁰ Medicare.gov, Examples of this payment option, op cit.

³¹ CMS (February 29, 2024). Medicare Prescription Payment Plan: Final Part One Guidance on Select Topics, Implementation of Section 1860D-2 of the Social Security Act for 2025, and Response to Relevant Comments (2024). Retrieved November 14, 2024, from https://www.cms.gov/files/document/medicare-prescription-payment-plan-final-part-one-guidance.pdf.