RESOLVING THE LEDGER
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Premiums for Medicare Part D drug coverage could rise next year because subsidies to insurers are set to end. Eric Thayer/Getty Images hide caption
The Trump administration is ending subsidies that helped keep costs down for Medicare drug coverage. The change could mean higher Medicare Part D premiums for millions of beneficiaries in 2027.
Under the Inflation Reduction Act of 2022, Medicare patients' out-of-pocket drug spending was capped at $2,000 starting in 2025, and it changed the way insurers pay for drugs.
Living Better How to navigate the maze of drug discounts to get the best price That meant that while seniors would have to pay less at the pharmacy counter and therefore have easier access to expensive prescription drugs, insurers would be on the hook for more of the bill.
At first, insurers didn't know how much more they'd be spending — or how high to set premiums. To ease the transition for insurers, the Biden administration created temporary subsidies to stabilize premiums through what's called a demonstration project.
The subsidies were expected to last through 2027, but they're ending a year early.
Dr. Mehmet Oz, who oversees the Centers for Medicare and Medicaid, made the announcement on the social media platform X. "The Biden admin gave BILLIONS of taxpayer money DIRECTLY to Big Insurance Companies," he wrote. "This is unacceptable."
CMS estimated that the subsidies would cost $9.8 billion in 2025 and 2026, according to a report by the Government Accountability Office published in February. About 23 million people were enrolled in standalone Medicare Part D drug plans in 2025, according to the report.
Oz went on to say that the subsidies are no longer needed, adding that most people with Medicare will pay less than $10 more in premiums next year.
But it could be more than that, says Juliette Cubanski, vice president and director of the Program on Medicare Policy at KFF , the nonpartisan research organization. This year, the subsidies reduced the average drug plan premium by $16.
Health TrumpRx promised a supermarket for cheaper drugs but delivered a boutique "That might not sound like a lot of money to some people," she says. "To put it in context, the average premium now for drug coverage through standalone plans is $36. So people might have had to pay nearly 50% more for drug coverage this year without this demonstration."
She says until CMS releases more information in the fall, it's hard to know exactly how much more money seniors will have to spend.
Stacie Dusetzina, a professor of health policy at the Vanderbilt University School of Medicine , says while the subsidies were never meant to be permanent, ending them now is concerning.
The subsidies have been most helpful for standalone Medicare drug plans rather than Medicare Advantage plans, which have more flexibility to keep premiums low. As a result, removing the subsidies will affect people with traditional Medicare plans the most, she says.
"Project 2025 was pretty blunt about wanting to push more people into Medicare Advantage," she says, referring to the Heritage Foundation's blueprint for a second Trump presidency . "One way to really accelerate that is to make it very expensive to stay in traditional Medicare."
To avoid the higher premiums for drug coverage, patients may move away from traditional Medicare plans and toward Medicare Advantage plans. While Medicare Advantage may have lower premiums, she says there are tradeoffs, including a more limited network of providers and hospitals that accept Medicare Advantage.
"That also requires you to think pretty far in advance about your long-term health needs," Dusetzina says.
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