The Medicare Part D Premium Subsidy Is Ending in 2027. Here Is What That Means for You.

What Is the Part D Premium Subsidy?

The Part D Premium Stabilization Demonstration is a federal program that pays money directly to insurance companies to keep your monthly Part D drug plan premiums lower. Think of it as the government covering part of your premium bill so you do not have to.

In 2026, this subsidy reduced the average standalone Part D premium by about $16 per month, according to the Medicare Payment Advisory Commission (MedPAC). Without it, the average premium would have been roughly $52 instead of the $36 most enrollees are paying today.

On July 29, 2026, the Centers for Medicare and Medicaid Services (CMS) announced that this program will not continue into 2027. The subsidies expire at the end of this year, and insurance companies will need to set 2027 premiums without federal assistance.

Why It Was Created

The Inflation Reduction Act of 2022 made major changes to how Medicare Part D works. The most significant change was a hard cap on out-of-pocket drug spending: $2,000 in 2025, $2,100 in 2026, and projected at $2,400 in 2027. Before this cap, a patient on expensive specialty medications could face costs running into five figures per year.

However, the out-of-pocket cap did not actually make drugs cheaper. It shifted a much larger share of catastrophic drug costs onto the insurance companies that run Part D plans. Facing this redesigned benefit structure they had never priced before, insurers responded by proposing sharp premium increases, particularly for standalone drug plans used by people on Original Medicare.

To prevent sticker shock during this transition, the Biden administration created the Premium Stabilization Demonstration in 2024, effective for the 2025 plan year. It worked in two ways:

• It lowered the national base beneficiary premium, which is the figure used to calculate what each plan charges.

• It capped how much any single plan could raise its monthly premium from year to year.

In 2025, the base premium was reduced by $15 and premium increases were limited to $35 per month. For 2026, the Trump administration scaled the program back to a $10 reduction and a $50 cap.

By the government's own accounting, it worked. Enrollment in standalone Part D plans grew from 22.8 million in 2024 to 24.9 million in 2026, rather than collapsing as many analysts had feared.

Why It Is Ending

CMS Administrator Dr. Mehmet Oz framed the decision as ending a bailout for insurance companies. In a statement, he said the agency is 'stabilizing the market so this bailout is no longer needed' and that premiums will go up by less than $10 for most Medicare recipients, with many even seeing lower premiums.

The agency's formal rationale is that insurers now have sufficient experience under the redesigned Part D benefit to price their products without federal help. After two years of operating under the new out-of-pocket cap structure, CMS believes the market has stabilized enough to stand on its own.

The program was also designed to be temporary from the start. CMS originally said it could last at least three years, so ending it after two is earlier than expected but not a reversal of the intended policy.

The two-year cost to taxpayers was approximately $9.8 billion, according to the Government Accountability Office. The 2026 portion alone cost an estimated $3.6 billion.

How Premiums May Change in 2027

Nobody knows the exact plan-by-plan numbers yet. CMS will publish the full 2027 landscape, including plan offerings, premiums, and formularies, in mid-to-late September. Here is what we know so far:

CMS says about half of enrollees will see a premium increase of less than $10 per month or even a premium decrease. The agency also says most beneficiaries will have plans available at $10 or less per month.

Independent analysts are less certain. Juliette Cubanski, vice president and director of the Medicare policy program at the Kaiser Family Foundation (KFF), notes that losing a $16 subsidy against a $36 average premium is a large proportional change. She cautions that nobody, including CMS, knows the plan-by-plan numbers yet.

Who Is Most Affected

The subsidy applied specifically to standalone Part D plans. These are the drug coverage plans that people on Original Medicare (Parts A and B) purchase separately. If you are on Original Medicare with a Medigap supplement and a separate Part D plan, this change directly affects you.

Medicare Advantage enrollees are largely insulated. Medicare Advantage plans fold drug coverage into a bundled product and can use federal rebate dollars to keep drug premiums low. The average drug premium inside a Medicare Advantage plan is about $8 per month, compared with $36 for a standalone plan.

Here is who should pay the closest attention:

• Original Medicare + standalone Part D enrollees are most exposed to premium increases.

• Low-income beneficiaries receiving Extra Help are protected. The Extra Help program pays all or most of the Part D premium for people below certain income and asset thresholds. About one in four Part D enrollees receives it.

• Medicare Advantage enrollees will likely see minimal impact, since their drug coverage is bundled differently.

Some health policy experts have noted that making standalone Part D plans more expensive relative to Medicare Advantage could push more beneficiaries toward Medicare Advantage. For patients, this trade-off requires careful consideration. Medicare Advantage plans generally cost less up front, but they use narrower networks, require prior authorization more often, and can be difficult to leave. In most states, someone who switches to Medicare Advantage and later wants to return to Original Medicare may not be able to buy a Medigap supplemental policy at a standard rate.

What Is NOT Changing

Several major protections from the Inflation Reduction Act remain fully in place for 2027, regardless of the subsidy ending:

• The out-of-pocket cap stays in effect. Once you hit $2,400 in total drug spending in 2027, your plan pays 100% for the rest of the year.

• The $35 insulin cap remains. All insulin products covered by your Part D plan are capped at $35 per month.

• Medicare drug price negotiations continue. The 10 drugs with negotiated prices in 2026 keep those prices, and 15 additional drugs will have negotiated prices in 2027.

• The Medicare Prescription Payment Plan remains available. You can spread your drug costs evenly across the months of the year instead of paying large amounts upfront.

• Part D coverage itself is not going away. The subsidy ending does not eliminate Part D or reduce what it covers. It only affects the monthly premium you pay.

What to Do Before Open Enrollment

Open enrollment for 2027 plans runs from October 15 through December 7, 2026. During this window, you can switch Part D plans for any reason. Here is how to prepare:

1. Watch for Your Annual Notice of Change

Your current plan must mail you an Annual Notice of Change (ANOC) in September. This document spells out exactly what your premium, deductible, and covered drugs will look like in January 2027. Do not throw it away. This is the single most important document for understanding how the subsidy ending affects you personally.

2. Compare Plans During Open Enrollment

Use the Medicare Plan Finder at Medicare.gov to compare your options. Enter your medications and pharmacy to see which plans offer the lowest total annual cost (not just the lowest premium). A plan with a slightly higher premium but better formulary coverage for your drugs may cost you less overall.

3. Check Your Extra Help Eligibility

If your income is limited, you may qualify for Extra Help (also called the Low-Income Subsidy). This program pays most or all of your Part D premium and reduces your copays. Many eligible beneficiaries have never applied. You can check eligibility through the Social Security Administration or your state's Medicaid office.

4. Consider the Full Picture, Not Just Premiums

The cheapest premium is rarely the cheapest plan. A drug plan's formulary, tier placement, and preferred pharmacy network usually matter more to your total annual spending than the monthly premium alone. If you take brand-name or specialty medications, confirm each drug is covered and check which tier it falls on before switching plans.

5. Use the Medicare Prescription Payment Plan

If you face large costs early in the year, the Medicare Prescription Payment Plan lets you spread them across the remaining months. This does not lower your total costs, but it prevents a January pharmacy bill of several hundred dollars.

💡 Eddie's Pro Tip

I cannot stress this enough: do not ignore your Annual Notice of Change when it arrives in September. Every year, people leave money on the table because they assume their current plan is still the best option. With the subsidy going away, this is the year to compare. Fifteen minutes on Medicare Plan Finder could save you hundreds of dollars in 2027.

Frequently Asked Questions