The Inflation Reduction Act (IRA) of 2022 was designed to lower prescription drug costs for Medicare beneficiaries through a series of reforms. Now approaching the second year of changes, the impact has been mixed. While out-of-pocket costs have gone down for about 11 million of the 54.8 million people enrolled in Medicare Part D (at an estimate of $600 each in 2025), the balance of enrollees have witnessed increased premiums and deductibles as well as a reduction in the number of available plans.
What Changed Under the IRA?
No More “Donut Hole”
The first change that simplified prescription drug benefits was the removal of the coverage gap, commonly referred to as the Donut Hole. Beginning in 2024, beneficiaries no longer face cost-sharing in this phase, leading to both savings and more predictable costs throughout the year.
The Medicare Prescription Payment Plan
Another change was the ability to finance your expensive medications under the Medicare Prescription Payment Plan. All Part D plans now include an option to spread out-of-pocket costs over the calendar year (when a medication has a monthly out-of-pocket cost of $600 or more). It is estimated that the enrollment into this benefit is around 200,000, which is far fewer than expected.
$35 Insulin
Another change was capping the monthly cost of covered insulin at $35 per month for a one-month supply. This benefit has been around for years, but became official in 2022, and overall its impact has been very positive.
Medicare Drug Price Negotiation Program
The Medicare Drug Price Negotiation Program allows Medicare to negotiate lower prices on certain Medicare covered medications. This program began to research and negotiate costs in 2024 and, in 2026, 10 selected medications will be offered to enrollees at a lower cost.
The negotiated prices are expected to reduce list costs by 38–79%, saving Medicare beneficiaries an estimated $1.5 billion and lowering expenses for about 9 million enrollees. The medications include Eliquis, Januvia, Jardiance, Imbruvica, Farxiga, Entresto, Stelara and Fiasp/NovoLog.
$2,000 Out-of-Pocket Maximum
For the first time, Medicare Part D has an annual cap on what a beneficiary can spend. Beginning in 2025, no enrollee will pay more than $2,000 in a year for covered prescriptions. While this provides much-needed relief for those with high drug costs, it also comes with a significant cost burden for plan providers.
In 2026, the cap for all plans will increase to $2,100.
How has this impacted your plan?
The initiation of an actual maximum out of pocket, contributed to increased premiums and plan exits. In 2024, the maximum out of pocket for a beneficiary was around $3,400. In 2025, it dropped to $2,000. This significant decrease in out-of-pocket costs increased the costs for the insurance providers as they now have to provide increased catastrophic cost sharing much earlier in the plan year than in years past.
How Did Costs Shift for Plan Providers and CMS?
Under the IRA, CMS transferred a large portion of their prescription drug payments to plan providers and pharmaceutical companies. As a result of this transfer of costs, plan providers had to respond with changes in plan costs.
Here is how the costs were transferred:
Prior to 2024, in the catastrophic phase, costs of medications were divided as follows:
- CMS would pay 80% of the costs in this phase,
- Part D plan paid 15%, and
- The member paid 5%.
Starting in 2024, the split shifted dramatically:
- CMS now pays 20%,
- Plan providers pay 60%, and
- Pharmaceutical companies pay 20% through discounts.
By CMS passing their costs on to the plan provider, the plan providers were forced to absorb much higher costs, which led to increased premiums, deductibles, copays and coinsurance. In order to continue to provide plans, plans had to pass these higher costs onto the consumers.
What is the Impact of These Changes on Plan Availability?
Plan Exits
One of the clearest impacts is a significant increase in plans exiting the Part D program. According to the Kaiser Family Foundation, in 2025 there will be 464 stand-alone Part D plans across the 34 regions of Medicare nationwide. This represents a 35% decrease compared to 2024. While this doesn’t directly raise member costs, it limits competition, which often helps improve benefits and control pricing.
Increased Costs for Members
As mentioned previously, the plan providers cannot absorb the higher cost sharing and expenses; therefore, they have to pass these costs onto members in the form of higher premiums, deductibles and copays/coinsurance.
With such significant cost shifting, this explains why premiums in many cases have increased significantly over the past two years.
Tracking the Rising Costs
To better understand how much costs have risen, look at the National Average Monthly Bid Amount (NAMBA), the weighted average Part D bid CMS uses to determine the base premium subsidy. The base premium subsidy is the amount CMS sends to the plan provider each month to provide funds to cover prescription drug costs.
Here are the costs since the IRA began:
- 2024: $64.28
- 2025: $179.45
- 2026: $239.27
This significant increase in NAMBA premiums shows just how much the IRA’s changes have shifted costs to plan providers. While CMS will indicate they have reduced their cost sharing, overall the costs for Part D have skyrocketed with these changes. Ultimately, the majority of consumers will feel a negative impact.
What Is CMS Doing to Help With Increased Premium Costs?
CMS passed the Medicare Part D Premium Stabilization Demonstration to help manage Part D costs and efficiency and offset premium increases.
The funding for this demonstration comes from the Center For Medicare and Medicaid Innovation (CMMI), which was established by the Affordable Care Act in 2010.
- In 2025, the program offers up to $15 monthly subsidy for plans with premium increases under $35/month.
- In 2026, this subsidy is being reduced to $10 monthly and the premium increase will rise to $50.
By reducing the premium subsidy, this will also increase monthly premiums for beneficiaries.
What Does This Mean for You?
The recent changes in Part D have created a ripple effect on costs. While the demonstration program helps offset some expenses, most of the added financial burden is being passed along through higher plan bids and increased plan premiums.
While premiums account for just 13% of total Part D spending, they are one of only two revenue streams for plan providers (the other being CMS funding). With costs climbing, plan providers have little choice but to adjust premiums and benefit structures.
Looking ahead to 2026, expect to see more plans leaving the market along with continued increases in premiums, deductibles, copays and coinsurance.
The Impact on Agents
Finally, the changes haven’t only affected beneficiaries. With plan provider’s profit margins being squeezed, most Part D plan providers are no longer paying commissions to agents. As a result of this decision by plan providers, we are unable to provide the same level of service to our clients because we are not generating any income.
Because agents cannot charge clients fees for Medicare services, this makes it harder to provide the same level of support to Part D enrollees. Unless CMS or Congress steps in, this reduced compensation will continue to affect how much assistance agents can provide.
We will continue to do our best to help all our clients, but unfortunately, there are situations where we will be unable to provide enrollment assistance, customer support and plan estimates.
What is MP Group Doing For Our Clients?
We’ll continue monitoring these changes closely as 2026 approaches.
