I always want to avoid getting into politics in this group and strive to deal only in facts when it comes to educating those currently on Medicare or soon to be.
I want to make that clear as I tell you not to panic if you saw headlines in the last few days that read like this one: “Trump slashes Medicare drug subsidies, cutting against affordability message.”
Let me explain what this is all about, the history behind it, and why it’s not anywhere close to the crisis that some of these headlines and news outlets are attempting to make it.
In 2025, part of the Inflation Reduction Act went into place and affected those with Medicare Part D prescription coverage.
What it did, starting in 2025, was limit how much someone who has Medicare Part D prescription insurance could pay out of pocket for covered medicine in a calendar year to $2,000. That cap was increased to $2,100 in 2026 and will be $2,400 in 2027. After that amount has been paid out of pocket by the insured for covered medications, all ensuing covered drugs are then $0 for the remainder of the year.
Sounds great. And it has been for millions of people on Medicare. There’s one problem however, the cost to impose the new out of pocket cap was extremely large and someone had to pay for it.
What isn’t being explained is Big Pharma was given a huge reduction in what they were responsible for discounting drugs; from 75% when someone went into the Donut Hole prior to 2025, to 25% once someone met their $2,000 limit. This was a multi-billion dollar gift to Big Pharma, an industry already making hundreds of billions a year in profits, all courtesy of The Inflation Reduction Act.
The 50% reduction in costs to Big Pharma, became the burden of the Part D insurance companies to cover and they justifiably adjusted their premiums much higher for 2025 to cover the huge expense the new regulation imposed on them.
It was right before the 2024 November election when in response to these higher premiums, the Biden administration agreed to give the Part D companies an extra $6.2 billion in subsidies in 2025, $3.6 billion in 2026, and around $3 billion in 2027 if they would agree to lower the proposed higher premiums and limit any increases over that 3-year period. Every company obliged.
2027 was the last year these extra subsidies were to be given out and the amount to insurance companies was scheduled to be $10/month per person enrolled in one of their Part D plans, for a total of $120 for the year. When you see the headline that Part D subsidies are being cancelled, the $120 per person enrolled is what will no longer be paid to the Part D insurance companies in 2027. The extra subsidies simply ended a year earlier than originally planned.
This $120 annual cost will either be absorbed by the insurance companies, passed onto people on Part D, or a little of both, instead of being paid for by all taxpayers.
I anticipate the end result will be slightly higher monthly premiums and/or some additional cost for generic prescriptions for people on Medicare Part D. I understand at a time when everything is getting more expensive, for many, $10 to $25 per month in additional premium and drug costs, the amount I anticipate the average person will pay, may be a hardship. We empathize with those who are struggling financially and work with them every day to find solutions. However, as presented in most of the headlines and articles I’ve read, it was made to sound much worse and put people in a panic, which I consider irresponsible journalism. I don’t want this to cause unnecessary anxiety for those on Medicare.
If you’re concerned about these additional costs, there may be opportunities to reduce some elsewhere, especially for those who can pass medical underwriting to get a new Supplement plan. If you’ve had your Supplement 5 years or longer or are currently on antiquated Medigap Plans C, G, or F, you can likely save from $1,000 to $4,000 per year by moving to Plan N which we recommend to 99% of our clients who prefer Supplements. Give the office a call a 724-603-3403 or email me personally at Aaron@GetYourBestPlan.com with questions or for a quote.