If you’ve seen news headlines this summer about a Medicare Part D subsidy program ending, you may be worried that your prescription drug coverage is disappearing or that your costs are about to explode. Take a breath — that is not what’s happening. Medicare Part D itself is not going anywhere in 2027. What is ending is one specific, temporary federal payment program that helped insurance companies transition through a major redesign of the drug benefit. Below, we’ll walk through exactly what changed under the Inflation Reduction Act, how the government subsidized Part D premiums during the transition, why that subsidy is ending, and — most importantly — what your premiums and drug costs might realistically look like in 2027.
A Quick Refresher: How Medicare Part D Works
Medicare didn’t always cover prescription drugs. That changed in 2006, when Medicare Part D launched under the Medicare Modernization Act of 2003. Rather than one government-run drug plan, private insurance companies offer Medicare-approved prescription drug plans that beneficiaries compare and choose from every year based on premiums, deductibles, copays, and which pharmacies and medications are covered.
For most of Part D’s history, the benefit included a notorious coverage gap known as the “donut hole,” where beneficiaries suddenly owed a much larger share of their drug costs after their initial coverage ran out — sometimes thousands of dollars a year for people on specialty medications. That gap is now closed.
What the Inflation Reduction Act Actually Did to Part D
In August 2022, Congress passed the Inflation Reduction Act (IRA), which delivered the most significant redesign of Medicare Part D since it began. Starting in 2025, the law made three major changes that beneficiaries feel directly:
- It capped the annual Maximum Out-of-Pocket (MOOP) for covered Part D drugs — set at $2,000 for 2025, the first year of the redesign — so beneficiaries can no longer face unlimited drug costs after reaching catastrophic coverage. Unlike the premium subsidy, this cap wasn’t temporary: it’s a permanent part of the law and simply adjusts upward slightly each year (it’s $2,100 in 2026, and CMS has set it at $2,400 for 2027).
- It eliminated the donut hole entirely, simplifying the benefit into a more predictable structure.
- It created the Medicare Prescription Payment Plan, letting eligible beneficiaries spread their out-of-pocket drug costs across monthly installments instead of paying large amounts up front.
Here’s the part that doesn’t always make the headlines: capping what beneficiaries pay didn’t make the underlying cost of medications disappear. It redistributed who pays. Before the redesign, Medicare’s reinsurance program covered a large share of catastrophic drug costs. Under the redesigned benefit, drug manufacturers now provide larger required discounts, Medicare’s own share of catastrophic costs was restructured, and private Part D insurance companies took on a substantially bigger share of high-cost claims than they did before. For beneficiaries, the protection was a clear win. For insurers — particularly the companies that sell stand-alone Part D plans, separate from Medicare Advantage — it meant significantly more financial risk almost overnight.
How the Government Subsidized Part D Premiums During the Transition
Because insurers had no real-world claims data to know exactly how much the redesigned benefit would cost them, the Centers for Medicare & Medicaid Services (CMS) stepped in with the Part D Premium Stabilization Demonstration, a temporary program first announced in 2024 and put into effect for the 2025 plan year. In practical terms, the government subsidized part of the cost of keeping premiums stable while insurers gained experience under the new rules. The demonstration combined three tools:
- A uniform reduction to the base beneficiary premium — $15 a month in 2025, reduced to $10 a month in 2026.
- A cap on how much any single plan’s total premium could increase year over year — $35 in 2025, raised to $50 in 2026.
- Narrowed risk corridors that limited how much of a loss participating insurers had to absorb on their own — a protection that was eliminated entirely for 2026.
The scale of this support was significant. According to a February 2026 Government Accountability Office (GAO) report, the demonstration cost approximately $9.8 billion across 2025 and 2026 combined, and nearly all stand-alone Part D plan sponsors chose to participate — CMS estimated roughly 99% of stand-alone plan enrollees were covered by a participating plan. GAO also found that without the subsidy, average premiums for beneficiaries who stayed in the same plan would have nearly doubled in 2025. Instead, thanks to the subsidy, CMS projected the average total Part D premium would actually decrease by several dollars that year, and the real-world average premium for beneficiaries not receiving low-income assistance rose only modestly, from about $42 in 2024 to about $43 in 2025.
| Mark’s Medicare Tip Think of the Premium Stabilization Demonstration like training wheels on a bicycle. It helped insurance companies get through one of the biggest structural changes in Part D’s history without passing the full cost onto beneficiaries right away — but training wheels were never meant to stay on forever. |
Why CMS Is Ending the Subsidy After 2026
CMS has said that Part D insurers now have two full plan years of real claims experience under the redesigned benefit — enough, in the agency’s view, to price their 2027 bids accurately without federal support. In late July 2026, CMS confirmed the Premium Stabilization Demonstration will conclude at the end of the 2026 plan year, returning stand-alone drug plans to what the agency calls “traditional market conditions” beginning in 2027. CMS Administrator Dr. Mehmet Oz stated publicly that ending the subsidy should raise premiums by less than $10 a month for most Medicare beneficiaries, with some beneficiaries actually seeing lower premiums.
| The Bottom Line: Medicare Part D Is Not Going Away What’s ending is one temporary federal subsidy program. What’s NOT ending: Medicare Part D prescription drug coverage — still here, still required to be offered nationwide.The annual out-of-pocket (MOOP) cap on covered drugs — it rises slightly each year by law ($2,000 in 2025, $2,100 in 2026, $2,400 for 2027), but the cap itself isn’t going anywhere.The closed donut hole / coverage gap — stays closed.The Medicare Prescription Payment Plan, which lets you spread costs across monthly installments — still available. |
What Might Part D Premiums and Drug Costs Realistically Look Like in 2027?
This is the question every client actually cares about, and the honest answer is: it depends on your specific plan, insurer, and county — but here’s the realistic range of what to expect based on what CMS has released so far.
- CMS has set the 2027 national average monthly bid amount (used to calculate government subsidies for Part D plans) at $296.05, and the national base beneficiary premium at $41.33, with a de minimis amount of $2.
- These are national benchmarks, not the price of any specific plan. Actual 2027 premiums for individual stand-alone plans will vary and won’t be finalized until CMS releases the full plan landscape closer to the Annual Enrollment Period.
- Most beneficiaries should see modest changes — CMS’s own guidance points to increases under $10 a month for most people, with some seeing premiums hold steady or even decrease.
- A smaller group of beneficiaries in certain stand-alone plans could see a larger increase than in recent years, since those specific plans relied more heavily on the subsidy.
- Medicare Advantage plans that include drug coverage (MA-PD) are generally less affected by this change, since many of those plans use manufacturer rebates — not this subsidy — to help hold down what they charge for drug coverage.
It’s also worth noting that the stand-alone Part D market has been shrinking as insurers consolidate their offerings — the number of stand-alone plans nationwide fell from 464 in 2025 to 360 in 2026, according to KFF. That’s a separate, structural trend in how many plan choices exist in a given county, and it’s worth watching during the Annual Enrollment Period — but it is not the same thing as Part D disappearing, and it doesn’t change the coverage guarantees described above.
Other Things Worth Watching Besides the Premium
Regardless of what happens with this subsidy, a few things are worth reviewing every single year, because Part D plans are allowed to adjust them annually:
- Formularies — which drugs are covered and at what cost-sharing tier — can be added, removed, or reorganized.
- Prior authorization requirements may apply to more medications than in past years.
- Step therapy may require trying a lower-cost drug before a more expensive one is approved.
- Pharmacy networks and preferred-pharmacy pricing can shift, changing what you pay at a specific pharmacy.
None of this is new or unique to 2027 — Part D plans review and adjust all of these every year. It’s simply a reminder that a plan that worked well in 2026 isn’t guaranteed to be the best fit in 2027, subsidy or no subsidy.
Myth vs. Fact
| Myth | Fact |
| “Medicare Part D is being eliminated in 2027.” | False. Part D continues to provide prescription drug coverage through private, Medicare-approved plans nationwide. Only one temporary federal subsidy is ending — not the benefit itself. |
| “Everyone’s premium will spike dramatically in 2027.” | CMS’s own administrator has said most beneficiaries should see increases of less than $10 a month, with some seeing lower premiums. Amounts vary by plan, insurer, and county. |
| “The out-of-pocket cap is going away too.” | No. The MOOP cap on covered Part D drugs stays in place regardless of this subsidy — it just rises a bit each year by law: $2,000 in 2025, $2,100 in 2026, and $2,400 for 2027. |
| “This affects my Medicare Advantage drug coverage the same way.” | The subsidy applied mainly to stand-alone Part D drug plans. Most Medicare Advantage plans that bundle in drug coverage use manufacturer rebates to help hold down premiums, a different mechanism entirely. |
| “My current plan will automatically stay my best option.” | Premiums, formularies, and pharmacy networks can all change every year regardless of this subsidy. Reviewing your coverage every fall is the best way to avoid surprises. |
Will everyone pay more for Part D in 2027?
Not necessarily. CMS expects modest changes for most people — likely under $10 a month — but actual amounts vary by plan, insurer, and county.
Is Medicare taking away my prescription drug coverage?
No. Medicare Part D continues to operate exactly as before. Only the temporary subsidy program that helped insurers during the IRA transition is ending.
Is the drug cost out-of-pocket cap going away?
No. The MOOP cap remains in place for covered Part D drugs unless Congress changes the law. It simply adjusts upward each year — $2,000 in 2025, $2,100 in 2026, and $2,400 for 2027 — a routine inflation adjustment, not a policy rollback.
Should I switch plans because of this news?
Not automatically. But this is exactly the kind of year where comparing plans during Annual Enrollment matters more than usual, since premium changes will vary widely by plan and county.
| Mark’s Medicare Tip When comparing plans this fall, look at your total estimated annual cost — premium, deductible, copays, and your specific medications — not just the monthly premium. A plan with a slightly higher premium can still save you more over the year if it covers your medications better. |
Five Ways to Prepare for the 2027 Annual Enrollment Period
- Don’t auto-renew — review your plan even if this year went smoothly.
- Read your Annual Notice of Change (ANOC) carefully when it arrives this fall.
- Compare plans during Annual Enrollment, October 15 through December 7.
- Keep an updated list of your medications, dosages, and preferred pharmacy.
- Ask a local, licensed agent to walk through your options before you enroll.
How AJ Health & Wealth Can Help
As a licensed independent Medicare broker serving Escambia and Santa Rosa counties, Mark Garrett helps seniors throughout Pace, Milton, Pensacola, Jay, and Gulf Breeze compare their Part D and Medicare Advantage options every fall — at no cost to you. With plan-specific premium changes on the horizon for 2027, a quick annual review remains the easiest way to separate the national headlines from what your own coverage will actually look like in January.
| Don’t Wait Until December to Find Out What Changed Mark Garrett and AJ Health and Wealth offer free, no-cost Medicare plan reviews for seniors throughout Pace, Milton, Pensacola, Jay, and Gulf Breeze. Call (850) 316-4378 or schedule online to compare your 2027 options before the Annual Enrollment Period ends. CALENDAR |
Helpful Internal Links
- Medicare Annual Enrollment Period Checklist
- Medicare Advantage vs. Medicare Supplement: Which Fits Your Lifestyle?
- Understanding Your Medicare Summary Notice
About the Author
Mark Garrett is the founder of AJ Health and Wealth, where he has been helping Medicare beneficiaries throughout Northwest Florida understand their Medicare options since 2012.
AJ Health and Wealth is not connected with the Federal Medicare program. By contacting this number, you will be connected with a licensed insurance agent. We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE or your local State Health Insurance Program to get information on all of your options.