Time To End Biden’s Medicare Part D-estruction

Far too often, when bad government policy fails to deliver, the first reflex in Washington is to throw more money at the problem. This reflex has been destroying American health care for years.

This pattern is seen clearly in the Affordable Care Act (ACA), as millions of Americans learn their insurance costs will skyrocket in 2026. Washington has long thrown good money after bad—and the result has been ever-rising costs for patients and taxpayers. This pattern can also be seen in Medicare Part D. The stand-alone Part D market is now in active collapse. Plan participation is plummeting. Options are shrinking. And costs are soaring despite skyrocketing subsidies from taxpayers.

The Biden administration’s “solution” for Part D, like its ACA “solution,” was to shovel more money into the program. The Trump administration has a chance to correct this error and break the cycle.

The Inflation Reduction Act of 2022 succeeded in decreasing the out-of-pocket costs for Part D enrollees—but there’s no such thing as a free lunch. Costs went up for insurers, so plans had to increase premiums or leave the market. The premiums are heavily subsidized, so the higher the premium, the higher the cost to taxpayers. The Biden administration wanted to avoid premium hikes before the 2024 election, so it created a three-year program that essentially gave insurers $5 billion to not raise Part D premiums.

The problem is that this good-money-after-bad solution created a cliff. The minute it expires at the end of 2027, premiums will spike. To avoid this, the Centers for Medicare and Medicaid Services has decided to phase down this bailout program early, reducing the level of subsidies to insurers for 2026.

The IRA Bears Responsibility

The IRA included the largest changes to Part D’s structure since its enactment in 2003. This caused average monthly plan bids to rise from $35 in 2023 to $239 in 2026—a 589% increase in just three years. This caused subsidies from the federal government to skyrocket.

The core problem is structural: the IRA shifted far more liability onto insurers without changing underlying drug costs, so plans responded the only way they could — by massively increasing bids. Bids heavily factor into setting premiums, so when bids rise, premiums inevitably rise — and because premiums factor heavily into subsidy calculations, that means taxpayer costs explode as well. The IRA guaranteed higher premiums, fewer plan options, and greater dependence on federal bailouts.

The significant jump in average bids, announced three months before the 2024 presidential election, represented a major political hazard for the Biden administration. Instead of working with Congress to pass legislation to fix the problems created by the IRA, the Biden administration tried to cover them up. They created a so-called demonstration to cap how much insurers could increase premiums and boosted reimbursement for losses sustained by insurers. In all, it cost $5 billion for just 2025.

The Biden administration used Medicare demonstration authority for this program, but this instance was a gross abuse of that authority. This bailout could not demonstrate anything, as 99% of plans participated, and there was no control group. The demonstration just papered over the abject failures of the IRA.

It also created a hostage situation: If the Trump administration were to either let the demonstration continue as intended or shut it down early, premiums would spike the following year. So, CMS chose the best practical course, phasing down the bailout, moderating the impact each year so there is not a massive premium spike in 2028.

If all of this sounds familiar, that’s because it’s the same playbook currently being run on the enhanced COVID-era Obamacare subsidies. Those enhanced subsidies pumped billions of taxpayer dollars into the pockets of insurers to offset Obamacare’s escalating premiums and created a cliff after 2025.

Moving Forward

Part D needs reform, particularly after the IRA. Congress should consider raising the current out-of-pocket cap in order to reduce premiums. The IRA set the current cap at $2,100, but only around 3% of seniors will spend above $2,000.

Raising the cap slightly would reduce how much insurers must cover in the catastrophic phase, lowering their projected liability and therefore their bids. Because premiums are tied to those bids, even a modest adjustment in the cap meaningfully reduces premiums and, in turn, federal subsidies—without impacting almost any seniors.

What Congress should certainly not do is continue to bail out bad policy with good money, whether it’s in the ACA, Part D, or the rest of our health care system. These bailouts paper over problems and lead to escalating costs, shocking fiscal cliffs, and unworkable complexity that hurts us all.

Jackson Hammond is a senior policy analyst at the Paragon Health Institute.