A Medicare Drug Subsidy Is Ending—Here’s What Patients Should Know

What The Medicare Drug Subsidy Was Doing

The Inflation Reduction Act of 2022 rewrote how Medicare Part D works. The IRA placed a hard cap on out-of-pocket drug spending: $2,000 in 2025 and $2,100 in 2026, indexed to rise each year. Before that cap, a patient on a specialty drug for cancer or rheumatoid arthritis, for example, could face open-ended costs running into five figures.

Yet IRA’s protection didn’t actually make drugs any cheaper. It merely shifted who pays, moving a much larger share of catastrophic drug costs onto the insurance companies that run Part D plans. Insurers, facing a redesigned benefit they had never priced before, responded the way insurers often do when they are uncertain: They proposed sharp premium increases, particularly in the stand-alone drug plans used by people in traditional Medicare.

To cushion that transition, the Biden administration created a voluntary demonstration project in 2024, effective for the 2025 plan year. It worked in two ways. First, it lowered the national base beneficiary premium, which is the figure used to calculate what each individual plan charges. Second, it capped how much any single plan could raise its monthly premium year over year.

In 2025, the base premium was reduced by $15 and premium increases were limited to $35 a month. For 2026, the Trump administration scaled the program back to a $10 reduction and a $50 cap and dropped the risk-sharing provisions that had protected participating insurers from losses.

By the government’s own accounting, it worked. The Medicare Payment Advisory Commission estimated the subsidies cut the average stand-alone drug plan premium by $26 in 2025 and by $16 in 2026. Enrollment in those plans, which many analysts had expected to collapse, instead grew from 22.8 million in 2024 to 24.9 million in 2026.

Yet it also cost the government money. The Government Accountability Office put the two-year price tag at $9.8 billion.

Why The Medicare Subsidy Is Ending In 2027

The CMS administrator, Mehmet Oz, framed the decision bluntly on social media, writing that the previous administration “gave BILLIONS of taxpayer money DIRECTLY to Big Insurance Companies.” Oz called the program a bailout that is no longer needed. A CMS official told The Wall Street Journal that the subsidies gave insurers an incentive to raise their rates, knowing the federal government would absorb the difference.

The agency’s formal rationale was narrower. In reviewing the bid plans submitted for 2027, CMS concluded that insurers now have “sufficient experience under the redesigned Part D benefit” to price their products without federal help.

The demonstration was also meant to be temporary. CMS said at the outset it could last at least three years. So ending it after two is early but not a reversal of the intended policy. Oz has said most beneficiaries will pay less than $10 more in premiums next year, and that some will pay less than they do now.

Independent analysts are less certain. Juliette Cubanski, Ph.D., who directs the Medicare policy program at the Kaiser Family Foundation, a nonpartisan health policy research organization, notes that the average stand-alone drug plan premium in 2026 is about $36 a month. So losing a $16 subsidy against a $36 premium is a large proportional change. She also cautions that nobody, including CMS, knows the plan-by-plan numbers yet.

One guardrail does remain. The IRA caps growth in the national base beneficiary premium at 6% per year through 2029. CMS has set that figure at $41.33 for 2027, up from $38.99 this year. That limits how far one component of the premium can move, but it does not constrain what individual plans charge on top of it.

Who Is Most Exposed To Medicare Policy Change

The subsidy applied to stand-alone Part D plans, which is the drug coverage that people in traditional Medicare buy separately. It did not meaningfully affect Medicare Advantage plans, which fold drug coverage into a bundled product and can use federal rebate dollars to buy premiums down.

The gap between traditional Medicare and Medicare Advantage is already large: The average drug premium inside a Medicare Advantage plan is about $8 a month, compared with $36 for a stand-alone traditional Medicare plan.

Ending the subsidy widens that gap. Stacie Dusetzina, Ph.D., a health policy professor at Vanderbilt, argues that making traditional Medicare more expensive is one way to push beneficiaries toward Medicare Advantage, an explicit goal of the Project 2025 policy blueprint.

For patients, the trade-offs between traditional Medicare and Medicare Advantage require careful consideration. Medicare Advantage plans generally cost less up front. But they use narrower networks, require prior authorization more often and can be difficult to leave.

In most states, someone who switches and later wants to return to traditional Medicare may not be able to buy a Medigap supplemental policy at a standard rate. That commits a patient to a network for years, at an age when health needs may be hard to forecast.

Patients who receive Extra Help, the low-income subsidy, are largely insulated from the cut. That program pays all or most of the Part D premium for people below certain income and asset thresholds. About one in four Part D enrollees receives it, and many more are eligible but have never applied.

Anyone whose premium jumps sharply should check eligibility through the Social Security Administration. They should also look into state pharmaceutical assistance programs, which many states operate.

Here’s What Patients Should Do

Concrete numbers are not available yet. CMS will publish the full 2027 landscape, which includes plan offerings, premiums and formularies, in mid-to-late September. Existing plans must also mail every enrollee an Annual Notice of Change around the same time, spelling out exactly what that person’s premium, deductible and covered drugs will look like in January.

That document is the one that matters. And unfortunately, it is often thrown away unopened.

Open enrollment runs Oct. 15 through Dec. 7. During that window, any beneficiary can switch drug plans for any reason. Comparing plans on the Medicare Plan Finder at Medicare.gov, or with free help from a State Health Insurance Assistance Program counselor, takes about half an hour. It is the single most reliable way to avoid an unwelcome surprise.

Two cautions are worth considering.

1. First, the cheapest premium is rarely the cheapest plan. A drug plan’s formulary, tier placement and preferred pharmacy network usually matter more to total annual spending than the monthly premium does. Patients on brand-name or specialty medications should confirm each drug is covered before switching.
2. Second, patients facing large costs early in the year can spread them across the remaining months through the Medicare Prescription Payment Plan, which does not lower total costs but prevents a January pharmacy bill of several hundred dollars.

What is not changing also matters. The out-of-pocket cap remains in place, rising to $2,400 in 2027 alongside a $700 deductible. Insulin remains capped at $35 a month. Negotiated prices for selected drugs under Medicare’s negotiation program remain in effect. The protections patients care about most are still intact.

Ultimately, costs of Part D Medicare health plans will likely rise in 2027. By how much? Beneficiaries should know in September.