Potential Rise in Medicare Part D Premiums as Subsidies End

Medicare Part D premiums might increase next year due to the ending of subsidies for insurers. These subsidies, initially helping to keep costs low, are being phased out, leading to possible higher premiums for many beneficiaries in 2027.

Background on Subsidies and the Inflation Reduction Act

The Inflation Reduction Act of 2022 set a cap on Medicare patients’ out-of-pocket drug expenses at $2,000 starting in 2025. It also altered how insurers pay for drugs, reducing costs at the pharmacy counter and improving access to costly medications for seniors. However, this shift meant insurers faced a bigger portion of the bill, leading to uncertainty over future premium costs.

To aid insurers, the Biden administration introduced temporary subsidies through a demonstration project to stabilize premiums. These were meant to last until 2027 but are now ending a year earlier.

Announcement and Concerns

Dr. Mehmet Oz, from the Centers for Medicare and Medicaid, announced this subsidy change on social media. He highlighted the significant taxpayer money given to insurance companies, implying the subsidies are no longer necessary.

“The Biden admin gave BILLIONS of taxpayer money DIRECTLY to Big Insurance Companies,” Oz stated. “This is unacceptable.”

A Government Accountability Office report estimated the subsidies at $9.8 billion for 2025 and 2026, with around 23 million participants in standalone Medicare Part D plans.

While Oz suggests that premiums will rise by less than $10 for most people next year, Juliette Cubanski from KFF warns it could be more. She noted that current subsidies reduced average premiums by $16, nearly half of the current average premium of $36. Without this, premiums could have essentially been 50% higher.

Stacie Dusetzina, a health policy professor, expressed concern over the timing of subsidy termination. She pointed out that standalone Medicare drug plans benefited the most, while Medicare Advantage plans already have mechanisms to keep premiums low.

Possible Shifts Toward Medicare Advantage Plans

The removal of subsidies may drive beneficiaries away from traditional Medicare plans toward Medicare Advantage plans. Although these plans might offer lower premiums, they may come with limitations, including restricted provider networks and hospital choices.

“That also requires you to think pretty far in advance about your long-term health needs,” Dusetzina stated.

The end of subsidies seems poised to accelerate the transition of beneficiaries toward Medicare Advantage plans, affecting those on traditional Medicare plans the most.