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Medicare Could Save Nearly $200 Billion in Drug Costs, AARP Study Finds
Expanding negotiation rules could lower prices, hold down stand-alone Part D premiums
Kiersten Essenpreis
Key takeaways
- Most-favored-nation pricing could cut Medicare costs.
- Rising medication prices strain household budgets.
- Consumers worry about Part D premium increases.
- Negotiation rules limit potential savings.
Medicare could save nearly $200 billion over five years on 10 of its highest-cost brand-name prescriptions if it required drug manufacturers to charge the lowest prices paid in similar countries for the same medications, a new AARP study found.
Adopting this strategy, sometimes called “most-favored-nation pricing,” in Medicare’s drug negotiation program would require congressional approval. But the potential savings could help lower Part D premiums that may rise sharply for some next year following the cancellation of a temporary program that paid insurers to keep premiums in stand-alone Part D plans down. This year’s premiums aren’t affected.
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The findings come as AARP urges federal officials to continue to lower prescription prices, expand Medicare’s ability to negotiate and slow drug plan premium increases so all Part D options remain affordable.
Rising drug costs hurt Medicare enrollees
While prices for 25 brand-name medicines that nearly 15 million Medicare enrollees use rose by an average of 81 percent after entering the U.S. market, AARP found earlier this year that lifetime prices for the same drugs fell by an average of 13 percent in 19 comparable high-income countries.
“Those costs flow directly to what older Americans pay at the pharmacy counter and in their monthly premiums, which is why addressing the root cause — high drug prices — is essential to keeping Part D coverage affordable,” wrote Megan O’Reilly, AARP’s vice president of government affairs.
Experts say keeping premiums affordable could be more challenging next year after CMS announced plans July 28 to cancel its three-year Part D rate stabilization pilot program after only two years. Dr. Mehmet Oz, administrator of the Centers for Medicare & Medicaid Services (CMS), called the program an insurance industry “bailout.”
The Biden-era program was designed to limit premium increases and enrollment shifts in stand-alone Part D plans because of provisions in the 2022 prescription drug law, backed by AARP. The subsidies were meant to help the private plans transition to a redesigned Part D benefit that limited enrollees’ out-of-pocket costs starting in 2025 before savings from drug price negotiations began.
The law also holds insulin costs to $35 a month, makes vaccines free to Medicare enrollees and allows the government to negotiate price reductions with pharmaceutical manufacturers.
Part D insurers saw their costs go up in the short run.
Stand-alone Part D plans, which pair with original Medicare, were hit the hardest. Medicare Advantage plans receive government rebates that help them absorb the changes more easily without raising premiums.
Since the announcement, AARP is “increasingly hearing from older Americans who worry they may face much higher Part D premiums next year,” O’Reilly wrote. “These concerns come at a time when affordability is already a major challenge with rising premiums, deductibles and drug costs straining household budgets.”
“AARP believes that older adults deserve affordable prescription drug coverage and a genuine choice of plans. We urge CMS to use every available option to protect that choice and keep stand-alone Part D premiums in check,” she added.
Because U.S. consumers pay more for brand-name medicines than any other country, the Trump administration has shown strong support for shrinking the cost disparities, expanding the availability of some most-favored-nation drug prices in the commercial market and testing related policies in federal health programs.
Seventeen companies signed most-favored-nation agreements in July 2025 after the White House asked them to match the lowest prices they charge in other industrialized nations. The TrumpRx website, which debuted in February, links cash-paying consumers to some prescriptions priced at levels found in other developed countries, but it doesn’t work with Medicare or any insurance companies.
The drug industry strongly opposes most-favored-nation pricing.
“Importing foreign prices from socialist countries would be a bad deal for American patients and workers,” Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, said in response to President Trump’s 2025 executive order to expand the pricing policy. “It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America — threatening jobs, hurting our economy and making us more reliant on China for innovative medicines.”
VIDEO: Who Actually Saves Money From Medicare's Negotiated Drug Prices?
Expanding scope of negotiations would save money
The new analysis from the AARP Public Policy Institute and California-based Verdant Research looked at 10 brand–name drugs with the highest total Medicare spending in 2025 that haven’t been part of Medicare drug price negotiations. Last year, Medicare spent nearly $50 billion on these medications for more than 3 million enrollees.
Total Medicare spending for the 10 drugs would decrease by $197 billion for the five years from 2029 through 2033 — from $273 billion to $76 billion — if most-favored-nation drug prices were applied, according to the analysis.
“These findings highlight a promising way to strengthen Medicare drug price negotiation and expand the administration’s efforts to give Americans access to most-favored-nation drug prices,” the report says. “The lower prices would further reduce beneficiaries’ premiums and out-of-pocket costs, consistent with current practice for Medicare drug price negotiation.”
This Medicare program requires the government to negotiate prices directly with pharmaceutical manufacturers on selected medications available through Part D and Part B. The program is lowering out of-pocket costs for Medicare’s 70 million-plus enrollees and is expected to save the federal government nearly $100 billion by 2031.
The spending reductions vary considerably depending on the medication, ranging from $2 billion to $55 billion, says Leigh Purvis, prescription drug policy principal at AARP’s Public Policy Institute and an author of the report.
While Medicare and its enrollees spent more than $2 billion in 2025 for each of the 10 drugs in the study, only one will be eligible for Medicare drug price negotiations in 2027, Purvis said. This is because of a range of exemptions in the 2022 law that created the negotiation program and more added in a 2025 law.
Drugs aren’t eligible for negotiations until they’ve been on the market for at least seven or 11 years, the report says. Shortening that time to three years could save Medicare $21 billion between 2026 and 2030.
Another money saver: repealing a recent exemption for drugs that treat diseases affecting fewer than 200,000 people. The exemption is projected to increase Medicare drug spending by nearly $9 billion over 10 years.
Join our fight to protect Medicare
AARP is working to keep Medicare strong. Here’s how you can help.
- Tell Congress to strengthen Medicare’s ability to lower prescription drug prices.
- Find out more about how we’re fighting for you in Congress and across the country.
- See the latest AARP research on Medicare.
- AARP is your fierce defender on the issues that matter to people 50-plus. Become a member or renew your membership today.
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