Medicare Is Ending a Part D Premium Safeguard. Here Is What Could Change in 2027

Medicare beneficiaries received two very different pieces of prescription-drug news this summer. The first was reassuring: The annual limit on out-of-pocket spending for covered Part D medications will continue protecting people with the highest drug costs. The second was more uncertain: A temporary federal program that helped restrain premiums for stand-alone prescription drug plans will end after 2026.

The Centers for Medicare & Medicaid Services announced on July 28, 2026, that it will discontinue the Part D Premium Stabilization Demonstration at the end of the year. CMS created the voluntary program for stand-alone prescription drug plans in 2025 as insurers adjusted to major changes enacted through the Inflation Reduction Act. The agency now says plan sponsors have gained sufficient experience with the redesigned Part D benefit to prepare reliable bids without the additional temporary assistance. The 2027 Part D market will therefore return to more traditional pricing conditions, although the final premiums and plan offerings will not become public until September.

Ending the demonstration does not mean Medicare Part D is ending, that every premium will soar or that beneficiaries should abandon their current plans immediately. It does remove a layer of federal support that limited how quickly participating stand-alone plan premiums could rise. Some beneficiaries could consequently see larger premium increases than they experienced during the previous two years, while insurers may respond through changes to deductibles, formularies, pharmacy networks and individual plan offerings. The actual effect will vary by plan, location and medications, making the 2027 open-enrollment review more important than usual.

Why Medicare Created the Stabilization Program

The Inflation Reduction Act substantially changed how expensive prescription drugs are financed within Medicare Part D. Before 2024, beneficiaries who reached the catastrophic phase were generally responsible for 5% of their covered drug costs for the remainder of the year. That obligation disappeared in 2024, eliminating beneficiary cost sharing during the catastrophic phase. Beginning in 2025, Medicare also placed a firm annual limit on what beneficiaries pay out of pocket for covered Part D drugs, initially setting the cap at $2,000.

Those protections shifted a larger share of high drug costs away from beneficiaries and the federal reinsurance program and onto Part D insurers and drug manufacturers. Under the redesigned standard benefit, a beneficiary generally pays 25% of covered costs after satisfying the deductible until reaching the annual out-of-pocket threshold. Once the catastrophic phase begins, the beneficiary pays nothing for covered Part D medications, while plan sponsors generally assume 60% of the cost. Manufacturers typically contribute 20% for applicable drugs, and Medicare pays reinsurance of 20% for those drugs and 40% for drugs not subject to the manufacturer discount.

The new structure represented a significant financial adjustment for insurers, particularly companies offering stand-alone prescription drug plans to people enrolled in Original Medicare. CMS was concerned that uncertainty surrounding the higher plan liability could produce volatile bids, sharp premium increases or withdrawals from the stand-alone market. The stabilization demonstration was intended to cushion that transition while insurers gained experience pricing the redesigned benefit.

The program was not part of the permanent statutory Part D benefit. It was an additional demonstration that provided subsidies and premium protections to participating stand-alone plans. Medicare Advantage plans with prescription coverage were not the primary focus because those plans can use rebate dollars from the medical side of Medicare Advantage to reduce or eliminate their drug-plan premiums, an option unavailable to stand-alone Part D sponsors.

How the Temporary Premium Protection Worked

The demonstration supported participating stand-alone drug plans in two principal ways. It reduced the amount used as the base beneficiary premium in plan calculations and limited the amount by which an individual plan’s monthly premium could increase from the previous year. These measures did not guarantee an identical premium for every beneficiary, but they softened the immediate effect of the redesigned benefit on plan pricing.

For 2025, the program reduced the applicable base premium by $15 a month and limited the year-over-year increase for participating plans to $35 a month. CMS reduced the assistance for 2026, providing a $10 base-premium reduction and allowing a participating plan’s monthly premium to rise by as much as $50. The gradual reduction was designed to move plans toward normal market conditions rather than withdrawing all support after the first year.

The subsidies appear to have restrained average premiums during the transition. KFF reported that the average monthly premium for stand-alone Part D coverage declined from $39 in 2025 to $36 in 2026, even though certain plans raised premiums by as much as the demonstration’s $50 limit. Medicare Payment Advisory Commission estimates cited by KFF indicated that the demonstration reduced the average monthly stand-alone premium by approximately $26 in 2025 and $16 in 2026.

The program also involved substantial federal spending. KFF, citing a Government Accountability Office estimate, reported that the subsidies totaled approximately $9.8 billion across 2025 and 2026. Critics questioned whether CMS had used demonstration authority to create what could become an expensive ongoing subsidy rather than a limited test of a temporary policy. Supporters argued that the assistance prevented abrupt premium disruption while insurers and beneficiaries adjusted to one of the most significant Part D redesigns since the program began.

Why CMS Says the Program Is No Longer Necessary

CMS based its decision on the bids insurers submitted for the 2027 plan year. The agency said its analysis showed that Part D sponsors now have sufficient experience under the redesigned benefit to support the assumptions used in their prescription-drug-plan bids. CMS concluded that the demonstration could end and that the market could return to traditional pricing conditions in 2027.

That conclusion does not mean CMS has promised stable premiums or guaranteed that every insurer will remain in every market. It means the agency believes insurers should now be capable of estimating their liabilities without the additional demonstration subsidy. The redesigned benefit has been operating long enough for plans to observe actual drug utilization, catastrophic spending and member behavior rather than relying almost entirely on forecasts.

CMS has released preliminary technical information used to calculate Part D payments, including a 2027 national average monthly bid amount of $296.05. That amount is an enrollment-weighted average of plan bids for the basic Part D benefit and is used in calculating federal subsidies; it is not the monthly premium every beneficiary will pay. Individual premiums will depend on each plan’s bid, benefit design, region, enrollment and other factors.

The agency is expected to release finalized Medicare Advantage and Part D plan landscapes, including plan-specific premiums and availability, in mid-to-late September. Until that information is published, claims that a particular beneficiary’s premium will double, decline or remain unchanged are speculative.

Why Critics Believe the Decision May Be Premature

Insurers have gained experience with the redesigned benefit, but the underlying cost pressures have not disappeared. Expensive specialty medications, increased use of high-cost drugs and rapidly growing demand for GLP-1 medications continue to affect Part D spending. KFF noted that the temporary subsidies did not resolve these broader pressures and that they are likely to remain important in 2027 and beyond.

The amount plans must absorb after beneficiaries reach catastrophic coverage is particularly important. Before the redesign, federal reinsurance generally covered 80% of spending in the catastrophic phase. Under the new structure, Medicare’s share dropped substantially, while plan sponsors generally became responsible for 60% of covered costs. That change gives insurers a stronger incentive to manage drug spending, negotiate prices and control utilization, but it also exposes them to greater losses when members require extremely expensive medications.

Stand-alone Part D plans also compete against Medicare Advantage drug plans under different financial conditions. Medicare Advantage organizations can use rebate dollars generated through their medical coverage to lower Part D premiums. In 2026, the average premium for stand-alone drug plans was $36 a month, compared with approximately $8 for the prescription-drug portion of Medicare Advantage plans, and most Medicare Advantage drug-plan enrollees paid no separate drug premium.

This imbalance raises concern about the long-term stability of the stand-alone market serving people who choose Original Medicare. If premiums increase, plan availability declines or formularies become less attractive, beneficiaries may feel pressure to move toward Medicare Advantage even when they prefer Original Medicare with a Medigap policy. Ending the demonstration does not create that market difference, but it may expose stand-alone plans more fully to it.

The Out-of-Pocket Cap Is Not Going Away

The end of the premium demonstration does not reverse the Inflation Reduction Act’s annual limit on beneficiary drug spending. The 2025 cap of $2,000 increased to $2,100 for 2026 and will rise to $2,400 in 2027 under the annual adjustment formula. Once a beneficiary reaches that threshold through qualifying out-of-pocket spending on covered Part D medications, the person enters catastrophic coverage and pays no additional cost sharing for covered Part D drugs during the remainder of the calendar year.

The increase from $2,100 to $2,400 is larger than the previous year’s adjustment because the formula reflects growth in average Part D drug expenditures. CMS calculated a 2027 annual percentage increase of 13.65% for the relevant Part D parameters, producing both the higher out-of-pocket threshold and a standard deductible increase from $615 in 2026 to $700 in 2027.

The cap remains one of the most valuable protections in the redesigned program, particularly for beneficiaries taking specialty medications that previously exposed them to continuing 5% catastrophic coinsurance. A person using a medication costing thousands of dollars each month may now reach the annual limit relatively early and then owe no further covered Part D cost sharing for the remainder of the year.

The cap does not include every healthcare or pharmacy expense. Monthly plan premiums do not count toward it, and money spent on medications that are not covered by the plan generally does not count. Cash purchases made outside the Part D benefit, including certain discount-card transactions, may also fail to count toward the deductible or annual out-of-pocket limit. Beneficiaries must therefore verify that their medications remain covered and that purchases are processed through the plan.

Higher Premiums Are Possible but Not Certain

The disappearance of the subsidy creates room for larger premium increases, but it does not guarantee them. Each insurer will have its own experience with claims, enrollment, negotiated drug prices and risk adjustment. Some plans may raise premiums significantly, while others may keep increases modest, reduce premiums or introduce new low-cost alternatives to attract members.

KFF concluded that some stand-alone plan enrollees could face larger increases than they experienced under the demonstration, although plan-specific premiums were not yet known when CMS announced the change. The average effect may also conceal large differences among plans and states. A national average can remain relatively stable while an individual beneficiary’s plan increases sharply, leaves the market or changes its benefit design.

Insurers have several tools beyond the premium. A company may adopt the full $700 deductible for 2027, increase coinsurance on brand-name or specialty drugs, move medications to different formulary tiers or narrow its network of preferred pharmacies. It may also consolidate similar plans, discontinue products with unfavorable enrollment or introduce lower-premium options with less generous coverage.

The 2026 market demonstrated how cost pressure can appear outside the headline premium. Most Part D enrollees were in plans charging either the full standard deductible or a partial deductible, and the share of Medicare Advantage drug-plan enrollees facing a prescription deductible rose dramatically compared with 2024. Coinsurance also became more common for preferred and nonpreferred brand medications.

A beneficiary who looks only at the monthly premium may therefore choose a plan that appears inexpensive but costs considerably more when prescriptions are filled. The correct comparison must include the premium, deductible, drug-specific copayments or coinsurance, formulary rules and pharmacy pricing.

Formularies May Matter More Than the Premium

A Part D formulary is the list of medications a plan covers and the conditions attached to that coverage. Insurers group drugs into tiers, with generic medications generally placed in lower-cost tiers and specialty products placed in higher-cost categories. They may also require prior authorization, step therapy or quantity limits before paying for certain prescriptions.

A plan responding to increased financial responsibility may review which drugs it covers, negotiate harder with manufacturers or favor medications that produce lower net costs after rebates and discounts. A drug covered favorably in 2026 could move to a higher tier in 2027, become subject to coinsurance or require additional authorization. Another plan might add the medication or offer a more favorable price.

Beneficiaries should not assume that a plan remaining available under the same name will provide identical coverage. The premium could remain nearly unchanged while the cost of one important medication increases substantially. Conversely, a more expensive premium may produce a lower total annual cost when the plan covers several brand or specialty drugs more generously.

Plan formularies are required to meet Medicare standards, but they do not cover every medication in exactly the same manner. A physician’s statement that a drug is medically necessary does not automatically establish that every Part D plan will cover it without restrictions. The annual comparison should therefore begin with the beneficiary’s current medication list rather than with advertisements promoting a low monthly premium.

Pharmacy Networks Can Quietly Change the Cost

Part D plans generally contract with networks of pharmacies, and many distinguish between standard and preferred network pharmacies. A preferred pharmacy may charge lower copayments or coinsurance because it has agreed to the plan’s pricing terms. Another in-network pharmacy may still fill the prescription but at a higher cost. Medicare advises beneficiaries that preferred in-network pharmacies can reduce out-of-pocket spending compared with other pharmacies in the same plan network.

A pharmacy that was preferred in 2026 may lose that status in 2027, while another chain or local pharmacy may become less expensive. Mail-order pricing may also change, and the best pharmacy for generic medications may not be the least expensive option for brand-name drugs. Beneficiaries using several medications should compare the complete annual cost rather than relying on the price of one prescription.

Network changes are especially important in rural communities where alternatives may be limited. A plan that appears inexpensive on Medicare’s comparison tool may require a long drive to reach its preferred pharmacy. Convenience, transportation and access should be included in the decision, particularly for beneficiaries with mobility or health limitations.

The pharmacy should also be asked to process prescriptions through the Medicare plan rather than automatically using an outside discount program. A cash or discount-card price may occasionally be lower, but the payment may not count toward the Part D deductible or annual out-of-pocket threshold. The immediate saving should be compared with the possible effect on reaching catastrophic coverage later in the year.

Do Not Change Plans Before Seeing the Actual 2027 Terms

CMS has announced the end of the stabilization demonstration, but the 2027 plan landscape is not yet final. Beneficiaries should not disenroll, switch coverage or assume that their current plan will become unaffordable based solely on the national announcement. The relevant question is how the decision affects the particular plan available in the beneficiary’s ZIP code.

Plans send members an Annual Notice of Change each fall describing changes that will take effect the following January. Medicare identifies September as the period when members receive this notice, which should explain changes to premiums, deductibles, cost sharing, coverage and other plan rules.

The notice should be read carefully rather than filed with other insurance mail. A premium change is normally easy to identify, but formulary and pharmacy changes may require reviewing separate documents or using the plan’s online tools. Beneficiaries should confirm each medication’s tier, restrictions and estimated price at their preferred pharmacy.

The current plan remains in effect through December 31 unless the beneficiary qualifies for another enrollment opportunity and makes an earlier change. Elections completed during Medicare’s annual Open Enrollment Period, which runs from October 15 through December 7, generally become effective January 1. Enrolling in a new drug plan during that period ordinarily replaces the old Part D coverage automatically when the new plan begins.

A 2026 Plan That Worked Well May Be Wrong for 2027

Part D coverage should be reviewed every year even when a beneficiary’s health and medications have not changed. Plans alter premiums, deductibles, formularies and pharmacy arrangements annually, while competing plans may improve their benefits or enter the market.

The end of the demonstration makes the review especially important because the protection against large year-over-year premium changes will no longer apply in the same way. A beneficiary who automatically renews could accept a substantial increase that would have been visible through a simple comparison.

Automatic renewal remains appropriate when the current plan continues covering all medications at a competitive total cost. Changing plans merely because another carries a lower premium can be harmful when the new plan excludes a drug or charges substantial coinsurance. The objective is not to find the least expensive premium but to minimize expected total cost while preserving access to necessary medications.

Plan comparison should include the full calendar year because the beneficiary may move through several coverage stages. A plan with a higher deductible may still be inexpensive for someone taking only low-cost generics, while a person using costly medications may care more about formulary coverage and how quickly spending reaches the annual cap.

How to Compare Plans Correctly

The Medicare Plan Finder at Medicare.gov allows beneficiaries to enter their prescriptions, dosage, frequency and preferred pharmacies before comparing available Part D and Medicare Advantage drug plans. The results estimate premiums and prescription costs over the year, making it easier to see whether a low-premium plan produces a high total expense. Medicare’s annual enrollment rules allow beneficiaries to switch Part D plans between October 15 and December 7, with the new election taking effect January 1.

The medication list must be accurate. A comparison based on an outdated prescription, incorrect dosage or generic version that the patient does not use can produce misleading results. Beneficiaries should gather prescription bottles or a current pharmacy list before beginning the search.

Each medication should be checked for prior authorization, step therapy and quantity limits. The beneficiary should also compare at least two convenient pharmacies because the cost can differ significantly within the same plan. Anyone expecting to travel or spend part of the year in another state should confirm that the plan’s network will remain practical outside the home area.

People who find the process difficult can obtain free counseling through their State Health Insurance Assistance Program or contact Medicare directly. An insurance agent can also assist, but the beneficiary should determine which insurers and plans the agent represents. An agent who contracts with only part of the market may not be able to provide a complete comparison.

Low-Cost Plans Are Likely to Remain Available

The end of the stabilization program does not mean every stand-alone drug plan will become expensive. Insurers still have a strong incentive to offer competitively priced products, particularly plans designed for beneficiaries using primarily generic medications. A low-premium plan with the standard deductible can remain attractive when the member’s prescriptions have low copayments or are inexpensive even before the deductible.

In 2026, approximately three in 10 stand-alone Part D enrollees were in plans with no monthly premium, although availability varied by location and plan. Premiums also differed significantly according to whether a plan offered basic or enhanced coverage. Beneficiaries in plans charging the full standard deductible generally paid lower average premiums than those in plans offering no deductible.

The trade-off must be understood. A plan designed around low premiums and generic medications may provide poor value for someone taking expensive brand or specialty drugs. An enhanced plan may charge more each month but offer a lower deductible, better tier placement or more favorable cost sharing.

The presence of a low-cost option therefore does not guarantee an affordable option for every patient. Part D costs are highly personalized because the answer depends on the exact medications used and the contracts each plan has negotiated.

The Medicare Prescription Payment Plan Remains Available

Beneficiaries with high drug costs can continue using the Medicare Prescription Payment Plan, which allows Part D out-of-pocket costs to be spread across the remaining months of the calendar year rather than paid in a large amount at the pharmacy. The program does not reduce the total cost or change the annual cap; it changes only the timing of payments.

This option can be particularly helpful for someone who expects to reach the annual out-of-pocket threshold early in the year because of an expensive medication. Without the payment plan, the beneficiary might owe a substantial amount during the first several prescription fills and then nothing after reaching catastrophic coverage. Spreading that obligation can make monthly budgeting easier.

The program may be less useful for someone who enrolls late in the year because the remaining balance must be divided over fewer months. Anyone leaving the payment plan or changing plans remains responsible for amounts already incurred.

The payment option should not distract from comparing coverage. Spreading a high bill does not make a poorly matched plan more affordable. The first priority remains selecting a plan that covers the medications at the lowest reasonable total annual cost.

Extra Help May Protect Beneficiaries With Limited Resources

The Part D Low-Income Subsidy, commonly called Extra Help, assists eligible beneficiaries with premiums and prescription cost sharing. In 2026, approximately 13.6 million people were enrolled in the subsidy, with many receiving coverage through Medicare Advantage Special Needs Plans or benchmark stand-alone drug plans.

People receiving Extra Help may face different premiums and copayments from those shown for beneficiaries without the subsidy. Some stand-alone plans qualify as benchmark plans and can be available without a premium for the basic benefit, although a beneficiary enrolled in a nonbenchmark or enhanced plan may owe part of the premium.

The benchmark plans can change from year to year. A person receiving Extra Help should review any notice explaining reassignment or premium liability rather than assuming the current plan will remain free. Medication coverage and pharmacy access should still be reviewed because automatic reassignment may prioritize premium eligibility rather than the best fit for every prescription.

Beneficiaries who believe they may qualify should apply through Social Security or seek assistance through Medicare or a local counseling program. The potential savings can be significantly more important than selecting among plans based solely on advertised premiums.

What the End of the Program Does Not Mean

The announcement does not eliminate Medicare’s prescription-drug benefit, remove the annual out-of-pocket cap or require beneficiaries to pay additional amounts after reaching catastrophic coverage. It does not change the 2026 plan currently in force, and it does not establish the final 2027 premium for any individual policy.

It also does not prove that insurers will leave the market in large numbers. The stand-alone Part D market remains active, with millions of beneficiaries and substantial federal subsidies. Insurers may view the new pricing environment as an opportunity to gain enrollment through competitive plans, particularly when another sponsor raises premiums or reduces its offerings.

At the same time, the decision should not be dismissed as an accounting change that beneficiaries can ignore. The demonstration provided billions of dollars in additional support and placed meaningful limits on premium increases. Removing that support creates greater potential for the effects of rising drug costs and increased plan liability to reach consumers through premiums or benefit design.

The appropriate response lies between panic and complacency. Beneficiaries should wait for the final plan information, then examine it carefully before open enrollment ends.

The Most Important Medicare Mail May Arrive in September

The Annual Notice of Change will reveal far more about a beneficiary’s 2027 costs than national predictions about the Part D market. The document should be reviewed alongside the plan’s formulary, pharmacy directory and Evidence of Coverage.

The first step is to identify the new monthly premium and deductible. The next is to verify whether every medication remains covered, whether it has moved to a different tier and whether new prior-authorization or step-therapy requirements apply. The beneficiary should then confirm that the preferred pharmacy remains preferred and compare the estimated annual cost with other plans available locally.

A plan should not be rejected because the premium increased by several dollars when it continues providing the best total medication cost. It should not be retained because the premium stayed low when a crucial drug is no longer covered favorably. The premium is only one line in a much larger calculation.

The review should be completed early enough to resolve questions before December 7. Waiting until the final hours of open enrollment can make it difficult to contact plans, physicians, pharmacists or counselors when information appears inconsistent.

Part D Is Becoming More Protective and More Complicated

The redesigned Part D benefit offers stronger protection to people with very high prescription costs than the program provided only a few years ago. Beneficiaries no longer pay 5% indefinitely in the catastrophic phase, and the annual out-of-pocket limit places a clear ceiling on covered drug cost sharing. In 2027, that ceiling will be $2,400, even when the retail price of the covered medication is many times higher.

Those protections do not make Part D simple. Shifting more responsibility to insurers gives plans stronger incentives to manage formularies, negotiate with manufacturers and direct members toward preferred drugs and pharmacies. Beneficiaries gain protection from unlimited catastrophic costs but may encounter greater variation in premiums, deductibles and coverage restrictions.

The temporary stabilization program delayed part of the pricing pressure while the market adjusted. CMS now believes that adjustment period has lasted long enough. Critics believe insurers are still confronting costs that could destabilize the stand-alone market or make Original Medicare less attractive to people who need separate drug coverage.

The disagreement will not be resolved by the July announcement. It will become visible in September when the 2027 plans, premiums and formularies are released.

The Right Response Is to Review, Not React

A beneficiary does not need to make a decision today. The current plan remains in place through December 31, and the information needed for a meaningful 2027 comparison has not yet been finalized. The correct preparation is to update the medication list, identify preferred pharmacies and watch for the Annual Notice of Change.

Once the new plan information is available, every beneficiary should compare total expected costs rather than simply renewing automatically. The review should include premiums, deductibles, copayments, coinsurance, coverage restrictions and pharmacy networks. Someone taking no medications or only inexpensive generics may reach a very different conclusion from a person using insulin, cancer treatment, an autoimmune drug or another high-cost therapy.

CMS may be correct that insurers now have enough experience to price the redesigned benefit without additional subsidies. Critics may also be correct that the removal of those subsidies will expose beneficiaries to larger premium changes while expensive drug use continues rising. Both outcomes can coexist because the national market may remain stable while particular plans and members experience significant disruption.

The end of the stabilization demonstration is therefore not a reason to abandon Medicare Part D. It is a reason to stop treating annual renewal as an administrative formality. The beneficiaries most likely to avoid unnecessary costs in 2027 will be those who wait for the actual plan details, examine every medication and pharmacy, and choose coverage based on the year ahead rather than the plan that happened to work last year.