The federal government has moved to end temporary subsidies for Medicare Part D drug plans, a change that could raise premiums for many beneficiaries. The subsidies were created after the Inflation Reduction Act of 2022 capped out-of-pocket drug spending for Medicare patients at $2,000 beginning in 2025. That cap makes expensive prescriptions more affordable at the pharmacy counter, but it also shifts more costs onto insurers.
To ease that transition, the prior administration established a demonstration program that provided temporary payments to insurers and helped stabilize premiums while plans adjusted to the new cost-sharing rules. Those payments were originally expected to continue through 2027, but the Centers for Medicare and Medicaid Services announced they will end a year early.
CMS Administrator Dr. Mehmet Oz posted the decision on social media, saying the subsidies were an improper transfer of taxpayer money to insurers and were no longer necessary. A Government Accountability Office analysis cited by CMS estimated the subsidies would cost about $9.8 billion in 2025 and 2026. Roughly 23 million people were enrolled in standalone Part D plans in 2025.
CMS has said most Medicare enrollees would see modest premium changes—less than $10 more next year for many. But independent analysts warn the impact could be larger for some beneficiaries. Juliette Cubanski, vice president and director of Medicare policy at the Kaiser Family Foundation, notes the demonstration cut the average drug plan premium by about $16 this year. With the current average premium at roughly $36 for standalone plans, that subsidy represented a substantial share of monthly costs; without it, premiums could be much higher for some enrollees.
It’s still unclear exactly how premiums will change because CMS has not released full details; analysts expect more information in the fall. Health policy experts emphasize the effect will fall unevenly across plan types. The temporary payments helped standalone Part D plans most; Medicare Advantage plans, which have more flexibility to manage premiums, were less dependent on the demonstration funding.
Some policy observers say ending the subsidies could accelerate migration from traditional Medicare with standalone drug coverage into Medicare Advantage, which often advertises lower premiums. But Medicare Advantage plans can involve tradeoffs: narrower provider networks and different rules for hospital and specialist access. Stacie Dusetzina, a health policy professor at Vanderbilt, notes that while the subsidies were never intended to be permanent, removing them now may steer beneficiaries toward Advantage in ways that affect access and long-term care planning.
For beneficiaries, the immediate implications are uncertainty about next year’s premiums and a need to review plan options during enrollment. CMS and independent analysts are expected to provide more concrete estimates later this year, which will help seniors weigh whether to stay in traditional Medicare with a standalone drug plan or switch to Medicare Advantage despite potential network and access differences.