The end of certain subsidies by the Trump administration is set to impact Medicare drug coverage costs. This move could lead to an increase in Medicare Part D premiums for millions in 2027.
A key stipulation of the Inflation Control Act of 2022 is that, beginning in 2025, Medicare patients will have their out-of-pocket drug costs capped at $2,000, fundamentally shifting how insurers handle drug payments.
This change means that while seniors may pay less for their medications and gain better access to costly prescriptions, insurance companies are likely to face higher charges.
Initially, insurers were uncertain about the additional costs and the necessary premium adjustments. To help them adapt, the Biden administration introduced temporary subsidies meant to stabilize pricing. However, these subsidies, originally slated to last until 2027, will now conclude a year earlier.
“We’re very excited about this,” stated Dr. Mehmet Oz, who heads the Centers for Medicare and Medicaid. He highlighted that the Biden administration has given significant taxpayer funding to major insurance companies, describing this as unacceptable.
According to CMS estimates, the subsidies were projected to cost around $9.8 billion across 2025 and 2026, with about 23 million people expected to enroll in a single Medicare Part D drug plan by 2025.
Oz expressed that the subsidy is no longer necessary, suggesting most Medicare beneficiaries would see only minimal increases—less than $10—in their premiums next year. Yet, some experts, including Juliette Cubanski from KFF, caution that the reality may not reflect that optimism. She noted that, without the subsidy, some beneficiaries could face average premium increases of up to $16.
“While it might not seem like a lot to certain individuals,” she commented, “Keep in mind that the current average drug coverage premium stands at $36. Without this subsidy, many could have had to pay nearly 50% more this year.” Despite the data generally supporting lower costs, it’s challenging to predict exact spending changes for seniors until more information is available in the fall.
Stacey Dusetzina, a health policy professor at Vanderbilt, highlighted concerns regarding the premature end of this subsidy. She explained that this support is especially critical for standalone Medicare drug plans versus Medicare Advantage plans, which can adjust their strategies to maintain lower premiums. Thus, discontinuing the subsidy would likely hit those on traditional Medicare the hardest.
Dusetzina referenced Project 2025’s intentions to shift beneficiaries toward Medicare Advantage, suggesting that making standard Medicare more expensive could be a strategy to facilitate that movement.
To combat rising costs, some patients might consider switching from traditional Medicare to Medicare Advantage plans, which may offer lower premiums but come with their own limitations in terms of provider networks.
This transition requires careful consideration of future health needs, Dusetzina cautioned.
