The U.S. government is planning to discontinue a subsidy program designed to stabilize premium increases for the Medicare Part D prescription drug plan. According to official estimates, the program provided approximately $3.6 billion in subsidies to insurers this year and is slated to conclude after the end of 2026. This action could lead to higher prescription drug premiums for millions of elderly enrollees in 2027.
The head of the Centers for Medicare & Medicaid Services (CMS) stated that the subsidy program is no longer necessary, as it appeared to incentivize insurers to raise prices and pass costs to the government. Other policies aimed at controlling Part D costs remain in effect. Government officials reported that about 25% of current Part D enrollees will see their premiums remain flat or decrease next year, roughly 30% will face monthly increases of less than $10, and the remaining 45% will experience monthly hikes between $11 and $20. They also noted that enrollees can find more affordable options by switching plans.
However, health policy analysts point to two primary drivers of upward premium pressure. First, there has been a sustained increase in spending on GLP-1 drugs and other expensive specialty medications in recent years. Second, the 2022 Inflation Reduction Act, while reducing out-of-pocket costs for some enrollees, has shifted more financial risk to insurers. According to the Medicare Payment Advisory Commission, the subsidy program reduced the average Part D plan premium by about 40% in 2025 and 27% this year.
As of July, approximately 25 million people were enrolled in Part D plans. They will receive notifications about 2027 rates in the fall. The Part D program is a standalone insurance product for prescription drugs within the Medicare framework. Analysts suggest that significant Part D premium increases could drive more enrollees toward Medicare Advantage plans, which typically bundle drug coverage and often have no additional premium. Over the past two years, the number of drug plans available in the market has decreased by about half, partly due to insurers scaling back their operations.
A Government Accountability Office report indicates that the subsidy program injected roughly $9.8 billion into the market over 2025 and 2026 combined. A CMS official stated that the market has stabilized and that the subsidy is no longer required.
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