The Uncertain Future of Medicare’s Stand-Alone Prescription Drug Plan Market and Why It Matters

Ahead of Medicare’s annual mid-year announcement about the national average premium for Part D prescription drug coverage in 2026 and other plan details, two questions loom large for the insurers that sponsor Part D stand-alone prescription drug plans (PDPs) and the 23 million people in traditional Medicare who are currently enrolled in these plans: Will the Trump administration continue Medicare’s Part D premium stabilization demonstration for a second year, and what will the PDP market look like in 2026 and in subsequent years? The answer to the first question could determine whether monthly PDP premiums remain at a relatively affordable level and whether PDP availability remains stable in 2026. The answer to the second question has larger implications for the viability of traditional Medicare as an option for beneficiaries nationwide but especially for beneficiaries who live in rural areas. This is because rural Medicare beneficiaries are more likely to be enrolled in traditional Medicare and rely more on drug coverage from stand-alone PDPs than Medicare Advantage plans.

Why does the stability of the PDP market matter?

For Medicare beneficiaries who are enrolled in traditional Medicare, which is just under half of all people with Medicare, getting Medicare Part D prescription drug coverage means enrolling in a stand-alone PDP. For Medicare beneficiaries who qualify for the Part D Low-Income Subsidy (LIS), enrolling in certain PDPs provides the only guaranteed option for premium-free drug coverage and lower cost sharing. In recent years, the overall number of PDPs has declined, with the number of PDPs available to the average beneficiary decreasing from 30 in 2021 to 14 in 2025 (Figure 1). The number of premium-free (“benchmark”) plans for LIS enrollees is even lower and decreased from 8 benchmark PDPs in 2021 to 2 in 2025. Over this period, the average number of Medicare Advantage drug plans (MA-PDs) increased from 27 to 34.

Ultimately, the erosion of the PDP market – fewer plans coupled with rising premiums – could diminish the ability of Medicare beneficiaries in traditional Medicare to obtain affordable Medicare Part D drug coverage, leaving them with little choice but to enroll in Medicare Advantage, a choice that comes with tradeoffs. While Medicare Advantage plans typically charge zero premium beyond the standard Part B premium and offer extra benefits than what is covered under traditional Medicare, they also have more limited provider networks and greater use of prior authorization than in traditional Medicare. The erosion of the PDP market could also further reduce premium-free stand-alone drug plan choices for low-income Medicare beneficiaries.

Why is PDP market stability an issue for rural Medicare beneficiaries in particular?

While most people with Medicare live in urban areas, a majority of Medicare beneficiaries who live in the nation’s most rural areas are enrolled in traditional Medicare, not Medicare Advantage, and six in 10 of these beneficiaries are enrolled in stand-alone PDPs in 2025 (Figure 2).

If rural Medicare beneficiaries in traditional Medicare are unable to obtain affordable Medicare drug coverage through PDPs, they could be left with no option but to enroll in Medicare Advantage if they want Part D coverage. However, beneficiaries living in rural areas have far fewer Medicare Advantage plan options than those in urban areas, often with more limited provider networks.

What was the impetus for the Part D premium stabilization demonstration?

The Part D premium demonstration was established in 2024 ahead of a major redesign of the Part D benefit that took effect in 2025, including a new $2,000 out-of-pocket drug spending cap and changes that significantly shifted benefit costs from the federal government to Part D plan sponsors. Sponsors of Part D stand-alone drug plans projected greater variability in the impact on their benefit costs than sponsors of Medicare Advantage drug plans, and the voluntary demonstration, established under the federal government’s Section 402 demonstration authority, provided additional premium subsidies to stand-alone PDPs to prevent substantial premium increases along with other measures designed to help stabilize the PDP market.

What was the effect of the PDP stabilization demonstration in 2025?

The demonstration worked as intended to stabilize premiums, with the average monthly PDP premium holding steady at under $40 in 2025, despite monthly premium increases in some PDPs of up to $35, the maximum increase allowed for plans participating in the premium stabilization demonstration. Even as the number of PDPs dropped from 709 to 464, enrollment in stand-alone PDPs remained stable for 2025, suggesting that the demonstration helped to minimize disruption in the PDP market that might otherwise have occurred.

How much did the PDP stabilization demonstration cost the federal government?

The Congressional Budget Office (CBO) estimated that the demonstration would cost $5 billion in 2025. Some GOP members of Congress criticized these additional subsidies to PDPs as shifting costs from plan sponsors and enrollees to taxpayers. However, these subsidies are being offered to PDPs on a temporary demonstration basis. By comparison, through the existing statutory Medicare Advantage payment system, the government is providing additional Part D subsidies to Medicare Advantage plans in the form of rebates that total more than $500 per year for each MA-PD enrollee in 2025. This amounts to close to $11 billion in additional federal subsidies that MA-PD sponsors are using to lower or eliminate their Part D premiums and offer Part D supplemental benefits in 2025. As a result, most MA-PD enrollees pay no premium for their Medicare Advantage Part D drug coverage.

Is the PDP stabilization demonstration legal?

In response to a 2024 request from members of the House and Senate GOP, the U.S. Government Accountability Office (GAO) recently issued a legal decision that the Part D premium stabilization demonstration is consistent with the authority granted to the HHS Secretary under Section 402 of the Social Security Act to conduct Medicare payment demonstrations. GAO’s official assessment of the legality of the demonstration may take some of the wind out of the sails of its critics, but it doesn’t bind the Trump administration to continuing the demonstration beyond 2025.

What comes next?

The Trump administration has not provided a clear signal as to whether it will continue the PDP premium stabilization demonstration for 2026 and if so what the specific parameters will be. That announcement is expected at the end of July. For Medicare beneficiaries in traditional Medicare, and rural Medicare beneficiaries in particular, continuation of the Part D premium stabilization demonstration could be key to ensuring access to relatively affordable Part D coverage through PDPs in 2026.

Plan-level Part D premiums for 2026 are not yet known and will be announced in the fall. Premiums are expected to vary across plans, with lower monthly premiums for MA-PDs than PDPs, on average. If so, this would be consistent with 2025, when average monthly premiums are $7 for MA-PDs and $39 for PDPs. The lower average MA-PD premium is heavily weighted by zero-premium plans, with MA-PD sponsors using rebates to reduce their Part D premiums.

The premium differential in 2026 could be even greater, however, if the Trump administration decides to scale back or terminate the PDP premium stabilization demonstration. Doing so could also result in further reductions in PDP availability, which would have implications for access to Part D drug coverage among Medicare beneficiaries enrolled in PDPs. If PDP options become less numerous and more expensive, that could hasten the shift of enrollees from traditional Medicare to Medicare Advantage. With the federal government spending more per beneficiary in Medicare Advantage than traditional Medicare, that would mean even higher federal spending over time.