CMS’s Decision to End Temporary Subsidies to Medicare’s Stand-Alone Drug Plans Could Mean Larger Premium Increases for Some Beneficiaries Next Year
The Centers for Medicare & Medicaid Services (CMS) has just announced plans to end the temporary Part D Premium Stabilization Demonstration after 2026. The goal of the demonstration, which CMS originally stated could last for at least three years when it was established in 2024, was designed to stabilize stand-alone prescription drug plan (PDP) premiums and enrollment amid the rollout of changes to the Part D benefit under the Inflation Reduction Act. The IRA capped out-of-pocket drug spending for Part D enrollees and shifted more costs onto Part D plan sponsors, leading to higher expected costs and premiums, particularly for PDPs. Based on its evaluation of bids for 2027, CMS now states that PDP sponsors have gained “sufficient experience” to support bid development, suggesting that the extra financial support provided to PDP sponsors under the demonstration is no longer needed.
The demonstration provided extra subsidies to PDP plan sponsors, and by extension PDP enrollees, in two ways – reducing the base beneficiary premium, which is used in the calculation of individual plan premiums, and capping the year-over-year increase in the monthly premium. In 2025, the demonstration’s first year, the base beneficiary premium was reduced by $15, and the monthly premium increase was limited to $35. For 2026, these parameters were scaled back, with a base premium reduction of $10 and a maximum allowable premium increase of $50.
Without these extra subsidies in place for 2027, some Part D stand-alone drug plan enrollees could face a larger premium increase for drug coverage next year than in recent years, though plan-specific premium amounts are not yet known. While some policymakers questioned the rationale for and cost of the premium stabilization demonstration, which totaled $9.8 billion in 2025 and 2026, the extra subsidies worked as intended to stabilize year-over-year PDP premium increases and prevent substantial PDP enrollment changes. Premium subsidies provided under the demonstration reduced the average monthly PDP premium by $26 in 2025 and $16 in 2026, according to MedPAC, while PDP enrollment increased from 22.8 million in 2024 to 24.9 million in 2026.
Even with these subsidies in place, however, the average monthly PDP premium in 2026 is more than 4 times higher than the average premium for drug coverage in Medicare Advantage plans ($36 vs. $8), with MA-PD sponsors able to use rebates to buy down drug coverage premiums. And while the subsidies provided to PDP sponsors under the temporary demonstration may have helped cushion the impact of IRA-related cost increases, they didn’t address broader cost pressures facing Part D plan sponsors associated with rising drug prices and increasing use of GLP-1s and expensive specialty drugs. These cost pressures are likely to continue in 2027 and beyond.