AARP Hearing Center
Early End of Pilot Program That Holds Down Stand-Alone Part D Premiums Stirs Concerns
Demise of subsidy will not affect enrollees’ out-of-pocket cap on prescription drugs
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Key takeaways
- CMS chief called subsidy an insurance company bailout.
- Pilot program, originally 3 years, lowered Part D premiums.
- Only stand-alone Medicare Part D plans received the money.
- Specific effect of program’s early end isn’t known yet.
- 2022 law expanded Medicare’s drug coverage.
Original Medicare enrollees could face higher monthly premiums for their stand-alone Part D drug plan coverage next year now that a pilot program designed to keep premiums in check will be discontinued.
Medicare’s decision to end its three-year pilot program a year early has been described as both a necessary termination of an insurance industry bailout and prelude to a spike in enrollees’ 2027 premiums.
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“Older Americans are already stretched thin by rising health care costs. AARP fought hard to create Medicare Part D, to win Medicare the power to negotiate drug prices and to cap out-of-pocket costs for people in Part D,” says Bill Sweeney, AARP's senior vice president of government affairs. “One way we can keep premiums down is by strengthening Medicare negotiation, which AARP is fighting for.”
The expectation is that Part D premiums will go up, says Juliette Cubanski, vice president and director of the Program on Medicare Policy at KFF health policy nonprofit. Medicare Advantage plans with prescription drug coverage weren’t part of the stabilization program because they receive government rebates that allow them to absorb higher costs more easily without raising premiums.
Canceling the Part D premium stabilization program at the end of 2026 will sunset a Biden-era program that wastes taxpayer money, Dr. Mehmet Oz, administrator of the Centers for Medicare & Medicaid Services (CMS), said in a recent social media video post. He called the program, designed to run from 2025 through 2027, a flawed response to the 2022 prescription drug law that AARP championed. He contends it “destabilized the prescription drug plan market for seniors.”
“So what do they do to re-stabilize the market?” Oz asked in his post, referring to the previous administration. “Throw billions of extra taxpayer dollars directly at big insurance companies.”
The program paid $9.8 billion in 2025 and 2026 to stand-alone Part D prescription plans available to those on original Medicare. The subsidies were meant to help the plans transition to a slew of new consumer-friendly provisions in the 2022 law that were expected to cause premiums to increase.
These include, among other things, capping enrollees’ total Part D out-of-pocket spending at $2,000 in 2025, $2,100 in 2026 and $2,400 in 2027 compared to no limit in 2024. The end of the program won’t affect the law’s 2026 or 2027 out-of-pocket limits or any other provisions in the 2022 law.
But in response to these and other Part D coverage changes that the law introduced — such as holding insulin costs to $35 a month, making vaccines free for people in Medicare and allowing the government to negotiate with pharmaceutical manufacturers on drug prices — all Part D plans back in 2024 sharply increased their premium bids to the government for 2025 coverage. That prompted the creation of the temporary premium stabilization program.
Without it, “if beneficiaries in standalone drug plans in 2024 remained in their plan in 2025, their monthly premium would have nearly doubled, on average,” the Government Accountability Office found earlier this year. Monthly premiums for 37 percent of these beneficiaries would have increased by more than $40, adding that “if these premium increases had taken effect, CMS officials expected widespread changes in enrollment for beneficiaries in stand-alone drug plans, which could disrupt beneficiaries’ access to their medications.”
Only stand-alone plans received these subsidies
The program provided subsidies to the private stand-alone Part D plans that accompany original Medicare coverage, which lowered base beneficiary premiums by $15 a month in 2025. The Centers for Medicare & Medicaid Services reduced that premium relief to $10 a month this year.
The program also limited annual premium increases for stand-alone Part D coverage to $35 for 2025. CMS raised the program’s cap on allowable premium increases to $50 for 2026.
“The extra subsidies worked as intended to stabilize year-over-year” premium increases and prevent substantial enrollment changes, Cubanski says.
The stabilization program was designed to operate for three years. But last week CMS said it will end the program a year early, concluding that stand-alone Part D plans have enough experience with the redesigned drug benefit to develop their 2027 premiums and coverage without the federal subsidy.
“Without these extra subsidies in place for 2027, some Part D stand-alone drug plan enrollees could see a larger premium increase for drug coverage next year than they’ve faced in recent years,” Cubanski says.
Part D premiums for both stand-alone and Medicare Advantage plans were already trending higher for 2027, she says. That’s because of higher drug prices, a more generous Part D benefit and a growing number of costly GLP-1 prescriptions for diabetes, sleep apnea and cardiovascular disease.
“Those factors are all combining to put pressure on Part D plans spending, both for stand-alone drug plans and for Medicare Advantage drug plans,” Cubanski says. “So obviously when plan costs increase, that can translate to higher premiums for Part D enrollees.”
Oz says more than 90 percent of Medicare enrollees still will be able to access drug coverage for less than $10 a month. He didn’t indicate how many medications would be on those plans’ drug lists, known as a formulary.
How the program’s termination will affect access to stand-alone plans or their 2027 premiums, which won’t be finalized until September, is unclear. Higher premiums for stand-alone coverage could make Medicare Advantage plans more attractive to consumers.
The program’s end creates additional upward pressure on stand-alone plan premiums for 2027 and could “accelerate market shifts” toward Medicare Advantage, says an analysis from Avalere Health, a Washington, D.C.-based consulting firm. “Without additional policy changes, these [stand-alone] plans may continue to modify their offerings and formulary strategies to manage growing financial pressures.”
This year, 24.9 million beneficiaries are enrolled in Part D stand-alone plans, compared to 31.4 million who get drug coverage through Medicare Advantage, according to KFF.
AARP-backed 2022 law improved Part D benefit
By dramatically lowering beneficiary spending for prescription drugs and shifting more costs to Medicare and drug plans, the 2022 law helps millions of enrollees avoid potential life-altering prescription drug bills if they’re coping with chronic health problems or stricken with a serious illness.
After enrollees in either a stand-alone plan or within Medicare Advantage reach the new out-of-pocket spending cap, they don’t have to pay anything more for the rest of the year. The Part D plans now take up much of those costs.
The law also requires drug companies to pay rebates to Medicare when their prescription drug prices rise faster than inflation. And it created the Medicare drug price negotiation program that requires manufacturers of selected high-cost drugs to negotiate with the federal government over prices charged under Medicare Part D and Part B.
“We know that older Americans use a lot of prescription drugs and that high drug prices are a longstanding problem, especially when the costs of so many other necessities are also rising. That’s why AARP worked so hard to pass the 2022 drug law that includes many important changes,” says Leigh Purvis, prescription drug policy principal in AARP’s Public Policy Institute.
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