The administration has announced it will end temporary subsidies that helped stabilize premiums for standalone Medicare Part D drug plans, a change that could raise costs for millions of beneficiaries in 2027. The subsidies were put in place after the Inflation Reduction Act of 2022 capped Medicare patients’ out-of-pocket drug spending at $2,000 starting in 2025 and shifted more drug costs onto insurers.
To ease that transition, the previous administration established a demonstration project that paid insurers to offset their higher drug spending so plans could keep premiums steady while adjusting to the new exposure. Those payments were expected to continue through 2027, but the Centers for Medicare & Medicaid Services has announced they will end a year earlier.
CMS estimated the subsidies would cost about $9.8 billion across 2025 and 2026. Roughly 23 million people were enrolled in standalone Part D plans in 2025. CMS leadership said the subsidy payments were unnecessary and predicted most Medicare beneficiaries would face less than a $10 increase in premiums next year.
Independent analysts caution the impact could be larger. Researchers at KFF note the subsidies reduced the average standalone drug-plan premium by about $16 this year; with the current average premium around $36, the demonstration had effectively kept premiums much lower than they otherwise would have been. Until CMS provides detailed modeling this fall, the exact premium increase is uncertain and could vary across plans and regions.
Experts also point out the policy change will hit people in traditional Medicare who rely on standalone Part D plans harder than those in Medicare Advantage, since Advantage plans have more flexibility to manage premiums. That may prompt some beneficiaries to shift into Medicare Advantage plans to avoid higher drug-premium costs—but those plans can involve tradeoffs, such as narrower provider networks and different rules for accessing care.
Policy researchers note the subsidies were never intended to be permanent, but ending them early raises questions about how quickly insurers will adjust and about near-term affordability for seniors who rely on expensive prescription medications. CMS plans to release more information later in the year about projected premium effects and other implications for beneficiaries.