The Trump administration announced Tuesday it will end a multi-billion-dollar federal subsidy program for Medicare Part D prescription drug plans after the 2026 plan year, a decision that could lead to monthly premium increases for millions of seniors starting in 2027.

The voluntary initiative, known as the Medicare Part D Premium Stabilization Demonstration, was introduced in 2025 to cushion premium volatility for insurers following structural changes to the drug benefit under the Inflation Reduction Act. According to government estimates, the program provided roughly $3.6 billion in federal subsidies to private insurers in 2026 alone.

Market Stabilization or Higher Costs?

Centers for Medicare & Medicaid Services (CMS) Administrator Dr. Mehmet Oz defended the decision on social media, characterizing the program as an unnecessary taxpayer funded bailout for insurance companies.

“We are stabilizing the market so this bailout is no longer needed,” Oz stated, adding that plan sponsors now have sufficient experience operating under the updated Part D framework to set competitive rates without extra federal support.

According to administration projections regarding the 2027 plan year:

• 25% of enrollees are expected to see monthly premiums remain the same or decrease.
• 30% of enrollees could see premium increases of less than $10 per month.
• 45% of enrollees are projected to face monthly premium increases ranging between $11 and $20.

Impact on Seniors and Insurers

The phase-out impacts roughly 25 million Medicare beneficiaries currently enrolled in stand-alone Part D prescription coverage. Health policy experts warn that rising premiums for stand-alone drug plans could accelerate a shift toward Medicare Advantage, the privatized alternative to traditional Medicare that typically bundles health and prescription coverage, often at lower monthly costs.

Insurance trade group AHIP and major carriers noted they are reviewing the decision as they evaluate plan bids for 2027. Official plan rates and final premium figures for the upcoming coverage year are scheduled to be released to the public this fall ahead of Medicare’s annual open enrollment period.