End of Part D Subsidies Raises Stakes for Medicare Enrollment

They say being a smart shopper is the first step to financial stability.

Clients shopping for Medicare coverage should heed that advice if they want to avoid nasty surprises when paying for prescription drug coverage next year. Federal subsidies that have helped keep Part D drug plan premiums lower in recent years will stop after Dec. 31, which could impact both plan pricing and drug coverage, according to Kimberly Lankford, a Medicare expert and reporter at The Wall Street Journal. Making the wrong choice or simply failing to review one’s options could cause unnecessary strain on retirees’ budgets and even loss of access to preferred medications. Advisors can provide a huge benefit to clients grappling with the changes, but only if they’re up to speed on them. 

“It’s always important to revisit Medicare decisions, but it’s even more important this year,” Lankford told Retirement Upside. “You have to look at all your options through the plan finder tools on Medicare.gov. Dig into the drug formularies and cost-sharing requirements. Do the whole analysis.”

Sayonara, Subsidies 

The Trump administration’s choice to scrap the subsidies stole headlines last week, Lankford said, but the program was always temporary and would have phased out after 2027 anyway. They were created to help defray higher premium costs resulting from the Inflation Reduction Act’s capping of out-of-pocket spending for prescription drugs. About the cap: 

• The annual spending cap is $2,100 in 2026, following an initial $2,000 cap implemented in 2025. 
• The cap is linked to inflation and will increase to $2,400 next year. 

“When the law passed, there was fear that the cap would disrupt Part D pricing or drug coverage,” Lankford said. “The Trump administration has voiced confidence that the market has now stabilized sufficiently and that ending the subsidies a year early isn’t a problem.”

Sticker Shock. The real effect on Part D premiums won’t be known until October, but even if premiums go up a lot, it’s important to keep the broader context in mind. “Some people might have a bit of sticker shock for their drug coverage options,” Lankford said. “Some might consider going down the Medicare Advantage route because of what seem to be attractive, low premiums. People need to be very careful about those decisions.”

That’s because Advantage plan premiums can look attractive, but that’s only part of the story. Advantage plans have limited provider networks and require more prior authorization for medical procedures, for example. There’s also greater cost sharing in general between the insurer and the insured. 

Clients can always switch back to original Medicare later, but that comes with risks if their health declines, Lankford said. “It’s a very different animal, so again, it’s key to actually run the analysis and really look carefully at the total potential cost.”