The Centers for Medicare & Medicaid Services (CMS) announced Tuesday it will end the Medicare Part D Premium Stabilization Demonstration after the 2026 plan year, ending a federal subsidy program that has helped keep prescription drug premiums lower and could result in higher costs for some seniors beginning in 2027.
In a fact sheet released Tuesday, CMS said the voluntary demonstration was introduced in 2025 to help limit premium volatility following changes under the Inflation Reduction Act. The agency said it will discontinue the program because Part D plan sponsors now have sufficient experience under the redesigned Medicare drug benefit to develop their bids without additional federal support, returning the market to traditional conditions in 2027.
The Wall Street Journal, citing administration officials, reported the program is providing an estimated $3.6 billion in subsidies this year.
The average premium for a Medicare Part D plan was about $36 a month this year, according to KFF, a health policy nonprofit. The officials also told the Journal that had the demonstration continued into 2027, more than half of the funding would have gone to UnitedHealth Group Inc. (NYSE:UNH), A company spokesperson told the Journal it remains “committed to working with CMS, ensuring seniors have access to affordable prescription medicines.”
Centers for Medicare & Medicaid Services Administrator Dr. Mehmet Oz defended the decision in a post on X, saying the previous administration had directed “billions of taxpayer money” to insurance companies.
“We are stabilizing the market so this bailout is no longer needed,” Oz wrote.
He added that premiums will rise by less than $10 for most Medicare beneficiaries, with many expected to see lower premiums, and said every beneficiary will continue to have access to low-cost plans while the administration pursues policies to reduce prescription drug prices, including expanding access to GLP-1 medications for $50 a month.
Premium outlook
Administration officials told the Journal that roughly 25% of Medicare Part D enrollees are expected to see premiums remain flat or decline in 2027, while about 30% could face monthly increases of less than $10. The remaining 45% are projected to see premium increases largely between $11 and $20 per month. Officials argued that insurers no longer require federal support and said affordable plan options will remain available for beneficiaries willing to compare plans.
Administration officials said Medicare drug plan premiums have been rising because of growing costs for GLP-1 medicines and other specialty drugs. They also pointed to changes under the Inflation Reduction Act of 2022, which lowered out-of-pocket costs for many Medicare beneficiaries while shifting a greater share of prescription drug costs to insurers. Those cost pressures are expected to continue into 2027, Juliette Cubanski, vice president at KFF, told the Journal.
Broader Medicare shifts
The policy change comes as many retirees are already facing mounting healthcare costs. A recent Schroders survey found retirees spend 16% of their monthly income on healthcare expenses, while 58% said they underestimated how much Medicare would cover.
At the same time, Medicare Advantage coverage has become less stable. Roughly 2.6 million beneficiaries lost their Medicare Advantage prescription drug plans after insurers discontinued offerings or exited certain markets ahead of the 2026 plan year, leaving many seniors searching for replacement coverage before the next enrollment period.
According to the Journal, the subsidy program reduced average Medicare Part D premiums by about 40% in 2025 and 27% in 2026. The program has provided an estimated $9.8 billion in federal support over the past two years, even as insurers continued reducing the number of available drug plans.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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