Part D Subsidies End a Year Early, and Premiums Are the Open Question

The federal government is ending temporary subsidies for Medicare Part D drug plans a year earlier than planned, a change that could push premiums up for millions of beneficiaries.

The subsidies grew out of the Inflation Reduction Act of 2022, which capped out-of-pocket drug spending for Medicare patients at $2,000 starting in 2025. The cap made expensive prescriptions affordable at the counter and shifted more of the cost onto insurers. To ease that transition, a demonstration program paid insurers to keep premiums stable while plans adjusted. Those payments were expected to run through 2027; the Centers for Medicare and Medicaid Services says they will now end in 2026.

CMS Administrator Dr. Mehmet Oz announced the decision on social media, describing the subsidies as an improper transfer of taxpayer money to insurers that is no longer necessary. A Government Accountability Office analysis cited by the agency put their cost at about $9.8 billion across 2025 and 2026. Roughly 23 million people were enrolled in standalone Part D plans last year.

How much premiums move

CMS says most enrollees will see modest changes, under $10 a month for many. Independent analysts are less certain. Juliette Cubanski, who directs Medicare policy at the Kaiser Family Foundation, notes the demonstration cut the average drug plan premium by about $16 this year. With standalone premiums averaging roughly $36 a month, that is a substantial share of the bill.

The full picture will not be clear until the agency releases details, which analysts expect in the fall. The effect will also be uneven: the payments propped up standalone Part D plans most, while Medicare Advantage plans, which have more room to manage premiums, leaned on them less.

A push toward Advantage

Some policy analysts expect the change to accelerate movement out of traditional Medicare with a standalone drug plan and into Medicare Advantage, which often advertises lower premiums. That trade has terms attached: narrower provider networks and different rules for hospital and specialist access.

Stacie Dusetzina, a health policy professor at Vanderbilt University, said the subsidies were never meant to be permanent, but removing them now may steer beneficiaries toward Advantage in ways that affect access and long-term care planning. For enrollees, the immediate consequence is that this year's open enrollment will require more attention than usual.