Splitting Your Healthcare Bill, Not Cutting It
Trump cut a Medicare subsidy early. It exposes the whole broken debate.
Last week, the Trump administration announced it will end a subsidy to insurance companies that has kept the costs of Medicare drug programs down, a year before it was scheduled to expire. As a result, roughly 25 million seniors on traditional Medicare who buy separate drug coverage will see an increase in their prescription drug premiums.
To understand why this subsidy existed, and what its end actually changes, you have to go back to how Medicare’s drug benefit was built in the first place.
A Program With No Government Option
When Congress created Medicare Part D in 2006, it did something Medicare’s other parts don’t do: it handed the entire program to private insurance companies. There is no government-run version of Part D the way there is for hospital coverage under Part A. Every senior on traditional Medicare who wants drug coverage enrolls in a private plan, and each insurer decides which drugs it covers and at what price. To keep premiums down, the government agreed to assume some of the risk by paying 80% of a senior’s catastrophic drug costs.
Capping Costs, Shifting Risk
In 2022, the Inflation Reduction Act capped what seniors pay out of pocket for prescription drugs to $2,000 a year starting in 2025. In addition, the percentage that Medicare paid toward catastrophic drug costs was reduced from 80% to 20%, requiring the insurance company to cover 60% of that cost and the drug manufacturers to cover 20%. In short, thanks to the Inflation Reduction Act, seniors pay less, the government pays less, and insurers absorb most of the difference.
To help insurers adjust to that new liability, the government created a temporary subsidy in 2024, paying insurers directly to soften the transition. This is the subsidy that the Trump Administration just cut.
What We Don’t Know Yet
This change will take place at the beginning of 2027, a year ahead of the original schedule. So, at this time we do not know what the effect will be on seniors’ drug insurance premium. CMS says most seniors will see an increase of $10 to $20 per month. KFF’s Juliette Cubanski, director of the organization’s Medicare policy program, told the Washington Post it’s “certainly possible” some beneficiaries could face “relatively steep” increases without the subsidy in place.
The Wrong Focus
The focus has been on how to divide the cost of expensive drugs among seniors, insurers, and taxpayers. Almost none of it has been about lowering what the drugs actually cost.
Most wealthy countries negotiate drug prices directly and pay less for the same medicines as a result. The United States has only just begun to do this. Medicare’s new negotiating authority has cut prices by 38% to 85% on the 25 drugs negotiated so far in its first two rounds. There is also a working proof of concept already inside the federal government: the VA negotiates directly with manufacturers for about 9 million veterans, roughly a third the size of the traditional Medicare population buying separate drug coverage, but as a single buyer instead of hundreds of competing plans. Except for that negotiating authority, and one CMS rule still working through the approval process, the administration’s other drug-pricing efforts have moved through executive pressure and voluntary manufacturer deals, not binding law or finalized regulation.
However, there are some new efforts to actually lower drug prices in a handful of Democratic-led states. Five states have recently established their own efforts to lower drug costs by creating boards with authority to cap what can be charged for expensive drugs. This work is still in its early stages, and no board has yet forced a price down, but it’s a genuinely different model than anything happening at the federal level.
Stay tuned. When open enrollment brings real 2027 numbers, we’ll look at what actually changed for the people paying it.
An Underused Program
In researching this post, I learned about a program worth knowing regardless of what happens to premiums: Extra Help, Medicare’s Low-Income Subsidy, which waives the Part D premium and deductible entirely for anyone earning up to about $23,475 a year individually or $31,725 as a couple, with modest asset limits. CMS estimates two to three million eligible seniors haven’t applied. Applying at ssa.gov takes about ten minutes. If you know someone who might qualify – a family member, a neighbor, a fellow congregant - it’s worth sharing directly or mentioning to your church, library, or senior center as something worth posting.
Endnotes
CMS ending the Part D Premium Stabilization Demonstration, Oz “bailout” statement: KFF, CMS’s Decision to End Temporary Subsidies to Medicare’s Stand-Alone Drug Plans Could Mean Larger Premium Increases for Some Beneficiaries Next Year
Cubanski’s “relatively steep” quote to the Washington Post: FOX 5 DC, Medicare Part D subsidy program will end in 2027: Here’s what to know
Original 2024 creation of the Premium Stabilization Demonstration: CMS, News Alert: CMS Releases Preliminary 2025 Medicare Part D Bid Information and Announces Premium Stabilization Demonstration
IRA Part D redesign and the catastrophic-phase reinsurance shift from 80% to 20-40%: Congressional Research Service, Medicare Part D Premium Stabilization Demonstration
Medicare drug price negotiation results, rounds one and two: CMS, CMS Delivers Savings for Seniors on 15 Major Drugs for Cancer and Chronic Disease
VA direct price negotiation and purchasing structure: U.S. Government Accountability Office, Prescription Drugs: Department of Veterans Affairs Paid About Half as Much
MFN pricing as executive action and voluntary deals, GLOBE/GUARD proposed rule status: Crowell & Moring, Trump Administration Pursues MFN Pricing for Prescription Drugs
State Prescription Drug Affordability Boards, Illinois’s failed effort, implementation status: MultiState, Prescription Drug Affordability Boards Face Implementation Hurdles
Extra Help 2026 income and asset limits, underenrollment estimate: CoveredUSA, Medicare Extra Help Eligibility 2026: Income and Asset Limits