Medicare Part D Demonstration Program Will End on 12/31/26

Background on the Medicare Part D demonstration program

The Inflation Reduction Act capped out-of-pocket Part D costs beginning in 2025. The Medicare Part D Premium Stabilization Demonstration program was implemented in 2025 as a voluntary demonstration for standalone prescription drug plans to address volatility and variation in premiums following the benefit changes mandated by the Inflation Reduction Act. The demonstration subsidy was aimed at supporting the transition as insurers determined how to set premiums under the revised Medicare Part D rules.

The demonstration program operated in 2025 and 2026 to help stabilize standalone prescription drug plan (PDP) premiums. It provided monthly subsidies, $15 per member in 2025 and $10 per member in 2026, to help reduce the base beneficiary premium and capped year-over-year monthly premium increases.

CMS’s announcement that the Medicare Part D demonstration program will end early

On July 28, 2026, CMS announced that the demonstration program will conclude at the end of 2026, instead of running through 2027, as originally planned. CMS contends that this subsidy is no longer needed because Part D plan sponsors already have sufficient experience under the redesigned Part D benefit to support their assumptions in developing the prescription drug plan bids.

Considerations for sponsors of retiree health plans

The phasing out of the Demonstration subsidy impacts standalone Part D PDPs and PDP Employer Group Waiver Plans (EGWPs). The change also affects private insurers involved in the Part D market, which will have to adjust their pricing to account for this change in 2027.

For 2027, the base Medicare Part D beneficiary premium will increase by about 6 percent from $38.99 in 2026 to $41.33. CMS predicts that with the demonstration program expiring, individual premiums for standalone Part D PDPs will increase by less than $10 for most beneficiaries. However, some speculate that increases could be higher, noting that premiums may need to rise to reflect the full cost of the Inflation Reduction Act benefit redesign. More specific Part D premium details are expected to be announced by CMS in late September.

It is unclear whether rising Part D premiums will lead more beneficiaries to migrate to Medicare Advantage plans, which already have substantially lower premiums.

Note, the end of the demonstration program does not create any new compliance obligations but rather increases the financial and actuarial risk borne by Part D sponsors by eliminating temporary federal subsidies and premium-stabilization protections that helped offset the costs of the IRA Part D redesign.

Sponsors of Medicare PDPs or EGWPs should keep an eye on 2027 pricing and plan details as insurers adjust to the end of stabilization funding.