The Inflation Reduction Act (IRA), signed into law by President Biden in 2022, makes a number of changes to the Medicare Part D prescription drug benefit, including instituting a cap on beneficiary out-of-pocket expenses, which is $2,000 in 2025. In part, because of this redesign of the Part D benefit and a change in how Medicare pays Part D plans, last year the Centers for Medicare & Medicaid Services (CMS) reported observing “more variation in the stand-alone PDP [prescription drug plan] bids submitted by plan sponsors as compared to MA-PD plans for 2025 … [which, along with] resulting premium changes could create disruptive enrollment shifts in the PDP market during the initial implementation of the IRA benefit improvements.” (See CMS Fact Sheet and corresponding Press Release, July 29, 2024).
In an effort to increase premium stability among Part D plans, in July 2024, CMS announced the Part D Premium Stabilization Demonstration, meant to last for three years. This voluntary, nationwide demo, open to all stand-alone Part D plan sponsors, required plans to limit year-over-year premium increases to no more than $35 for 2025, in exchange for a monthly premium subsidy to plans of up to $15, and a narrowing of certain costs to plan sponsors by narrowing risk corridors.
Demonstration Scaled Back for 2026
On July 28, 2025, CMS issued a memorandum announcing that the Part D Premium Stabilization Demonstration will continue for another year for CY 2026, but will be scaled back. The monthly premium subsidy to plan sponsors will be reduced from $15 to $10, and the limit on the monthly PDP premium increase will increase from $35 in 2025 up to $50 in 2026. The component of the demonstration that further mitigated costs to plan sponsors relating to risk corridors is being eliminated.
As noted in a KFF Quick Take post titled “The Trump Administration is Reducing Enhanced Support for the Part D Stand-Alone Drug Plan Market” by Juliette Cubanski (July 28, 2025):
While plan-specific premiums are not yet available, the reduced level of support suggests that Medicare beneficiaries in traditional Medicare who have drug coverage through PDPs could face substantially higher premiums for coverage in 2026.
Similarly, a recent article in the Wall Street Journal titled “Medicare Part D Drug Plan Premiums Set to Rise” by Anna Wilde Mathews and Liz Essley Whyte (July 28, 2025) states that “[p]remiums for Medicare drug plans are set to increase sharply next year, due to rising costs, regulatory changes and cutbacks to a subsidy program” [emphasis added]. The article notes that the subsidy, in the form of the Part D Premium Stabilization Demonstration, will be cut “by about 40% in 2026.” The article further notes that the anticipated premium increases for 2026 “may […] push more Medicare enrollees into Medicare Advantage plans, the private-insurer version of Medicare, which wrap in drug coverage.”
Eroding Part D Plan Market Favors Medicare Advantage Enrollment
KFF provides an analysis of the current Part D market in a recent issue brief titled “The Uncertain Future of Medicare’s Stand-Alone Prescription Drug Plan Market and Why It Matters” by Juliette Cubanski and Tricia Neuman (July 16, 2025), which was released prior to CMS’s announcement about the Part D Stabilization Demonstration for 2026. Among other things, the issue brief outlines the decreasing number of stand-alone Part D plans and the decreasing number of “benchmark plans” for which individuals with the Part D Low-Income Subsidy (LIS) are able to enroll without a premium, which have been coupled with an increase in the number of Medicare Advantage plans with Part D coverage (MA-PDs). These dynamics particularly impact Medicare beneficiaries who live in rural areas who are “more likely to be enrolled in traditional Medicare and rely more on drug coverage from stand-alone PDPs than Medicare Advantage plans.” The brief states:
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.
The KFF Quick Take cited above, which was released after CMS’s announcement, notes:
In announcing these changes, CMS states that it is “facilitating the [Part D] program’s return to operating under regular market conditions.” Increasingly, however, these regular conditions appear unfavorable to the ongoing stability of the stand-alone prescription drug plan market, further tilting the playing field for coverage towards Medicare Advantage.
Conclusion
Given the well-documented and significant overpayments to Medicare Advantage plans, MA plan sponsors are better able to absorb increased drug costs due to IRA changes in a manner that sponsors of stand-alone plans cannot, meaning it is likely that MA plans will continue to offer Part D coverage through their plans at low or no costs, compared with the rising premiums for stand-alone PDPs. As noted above, this dynamic further exacerbates the inequities between Medicare Advantage and the traditional Medicare program. For further analysis of the current state of Medicare, including the growing privatization of the program, see the Center for Medicare Advocacy’s Statement on the 60th Anniversary of Medicare.
July 31, 2025 – D. Lipschutz