Rising Medicare Part D Premiums May Boost Medicare Advantage Enrollment

The Trump administration has decided to terminate a temporary subsidy program aimed at keeping premiums for Medicare Part D prescription drug plans affordable. This action could result in millions of seniors facing significantly higher premiums starting in 2027, potentially encouraging a shift towards Medicare Advantage plans offered by private insurers.

The “Part D Premium Stabilization Demonstration” program was initially launched by the Biden administration in 2024 and subsequently renewed by the Trump administration in 2025. Its primary objective was to stabilize premiums and prevent plans from exiting the market following the redesign of Part D under the Inflation Reduction Act (IRA). While the IRA capped out-of-pocket costs for patients, it shifted greater financial responsibility to insurers. These subsidies amounted to $9.8 billion combined in 2025 and 2026, reducing average premiums by 40% in 2025 and an estimated 27% in 2026.

The Centers for Medicare & Medicaid Services (CMS), an agency within the U.S. Department of Health and Human Services, justified ending the subsidy, stating that plans now possess sufficient experience to price their bids independently. While CMS Administrator Dr. Mehmet Oz suggested that most beneficiaries would see premium increases of less than $10, with some potentially experiencing reductions, analysts and advocacy groups express different concerns. At least 11 million of the approximately 25 million Medicare beneficiaries enrolled in standalone Part D plans are projected to face premium hikes, with 45% of this group potentially seeing monthly increases in the $11 to $20 range.

This development could trigger a notable shift in the health insurance market. Medicare Advantage plans, which serve as a private alternative to traditional Medicare, often feature lower premiums and bundled prescription drug coverage. Currently, over 54% of the Medicare-eligible population is enrolled in Medicare Advantage plans. Unlike standalone Part D plans, Medicare Advantage plans can leverage Medicare funds (through rebates) to keep their premiums low, creating what some describe as an “unfair advantage.” This dynamic might influence budget-conscious seniors to opt for Medicare Advantage plans, even if they are not otherwise the optimal choice for their needs.

The Trump administration's decision is viewed as part of its broader agenda to reform government health programs. The administration has also put forth proposals to overhaul Medicare physician payments and enhance oversight of federal healthcare spending. Democrats have criticized the move as an assault on healthcare affordability, particularly at a time when the cost of living is a top concern for voters ahead of the upcoming midterm elections.

Market analysts anticipate that the reduced affordability of standalone Part D plans could lead to a relative shift in enrollment towards Medicare Advantage plans over time. However, it is also emphasized that Medicare Advantage plans may come with provider networks and other restrictions, necessitating careful consideration before making a switch. The full impact on individual plan premiums will become clearer in September when CMS releases the final 2027 plan details.