CMS ends Medicare Part D subsidy, seniors brace for 2027 hikes
CMS ends the Medicare Part D Premium Stabilization Demonstration after 2026, concluding $9.8 billion in federal subsidies. While 25% of enrollees may see flat or lower premiums, 45% face hikes of $11-$20 monthly in 2027. The move follows claims that insurers no longer need support, despite rising costs from GLP-1 drugs and IRA-related shifts.
*this image is generated using AI for illustrative purposes only.
The Centers for Medicare & Medicaid Services (CMS) announced on Tuesday that it will terminate the Medicare Part D Premium Stabilization Demonstration after the 2026 plan year, removing a federal subsidy that has suppressed prescription drug premiums and potentially raising costs for seniors beginning in 2027. The decision ends a voluntary demonstration introduced in 2025 to mitigate premium volatility following structural changes under the Inflation Reduction Act. CMS stated that Part D plan sponsors now possess sufficient experience under the redesigned benefit structure to develop bids without additional federal support, effectively returning the market to traditional conditions in 2027.
The program has delivered an estimated $9.8 billion in federal support over the past two years, with approximately $3.6 billion allocated this year alone. According to administration officials cited by The Wall Street Journal, had the demonstration continued into 2027, more than half of the funding would have been directed to UnitedHealth Group Inc. A UnitedHealth Group spokesperson affirmed the company’s commitment to working with CMS to ensure seniors retain access to affordable prescription medicines.
Premium Outlook for 2027
Administration officials outlined a fragmented outlook for Medicare Part D premiums in 2027. Roughly 25% of enrollees are expected to see premiums remain flat or decline, while about 30% could face monthly increases of less than $10. The remaining 45% are projected to see premium increases largely between $11 and $20 per month. Officials argued that insurers no longer require federal support and emphasized that affordable plan options will remain available for beneficiaries who compare plans carefully.
| Enrollee Segment | Expected Premium Change | Percentage of Enrollees |
|---|---|---|
| Flat or Declining | No increase or decrease | 25% |
| Minor Increase | Less than $10 per month | 30% |
| Significant Increase | $11 to $20 per month | 45% |
CMS Administrator Dr. Mehmet Oz defended the discontinuation on X, characterizing the previous administration’s approach as directing “billions of taxpayer money” directly to insurance companies. “We are stabilizing the market so this bailout is no longer needed,” Oz wrote. He added that premiums will rise by less than $10 for most beneficiaries, with many seeing lower costs, and noted that every beneficiary will continue to have access to low-cost plans. The administration also highlighted ongoing efforts to reduce drug prices, including expanding access to GLP-1 medications for $50 a month.
Market Drivers and Broader Context
Medicare drug plan premiums have risen due to growing costs for GLP-1 medicines and other specialty drugs. Juliette Cubanski, vice president at KFF, told The Journal that changes under the Inflation Reduction Act of 2022 lowered out-of-pocket costs for many beneficiaries but shifted a greater share of prescription drug costs to insurers. These cost pressures are expected to persist into 2027.
The policy change arrives amid broader financial stress for retirees. A recent Schroders survey found that retirees spend 16% of their monthly income on healthcare expenses, while 58% said they underestimated how much Medicare would cover. Additionally, Medicare Advantage coverage has become less stable, with roughly 2.6 million beneficiaries losing their prescription drug plans after insurers discontinued offerings or exited certain markets ahead of the 2026 plan year.
What the Numbers Show
The subsidy program significantly reduced average Medicare Part D premiums by about 40% in 2025 and 27% in 2026. Despite this federal support, insurers continued to reduce the number of available drug plans. The average premium for a Medicare Part D plan was about $36 a month this year, according to KFF. The removal of the subsidy exposes the underlying cost pressures driven by specialty drug utilization and regulatory shifts, suggesting that future premium stability will depend heavily on plan design choices rather than federal backstops.
How might the projected 45% of enrollees facing $11-$20 monthly premium increases influence their decision to switch to Medicare Advantage plans in 2027?
What strategic adjustments are major insurers like UnitedHealth Group likely to make to their Part D bids and formulary designs to offset the loss of the $9.8 billion federal subsidy?
Will the removal of the Premium Stabilization Demonstration accelerate the consolidation of the Medicare Part D market as smaller insurers exit due to reduced margins?
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