Recent data suggest that federal spending on the Medicare Part D benefit, which covers prescription drugs sold in retail settings, will increase much more in 2026 than CBO and others previously projected. Specifically, recent bids from private insurance plans administering the Part D benefit anticipate a 35 percent increase in their annual per-enrollee costs in 2026. Before the bids were submitted, CBO expected that such costs would increase by roughly 5 percent. If the insurers' expected costs for plans remained at that higher level, spending by Medicare on the Part D program over the next decade would be about $500 billion more than CBO previously projected. The agency is seeking research to help explain the unexpected growth in costs.
How Has Spending on Part D Drugs Grown in Recent Years?
Per-enrollee spending on drugs in Part D has varied over time, reflecting shifts in drug introductions and growth in particular therapeutic classes. From the inception of Part D in 2006 to 2023, annual growth rates of per-enrollee spending (net of rebates and discounts) ranged from a 2 percent reduction to an 11 percent increase; growth in most years was less than 6 percent. Greater spending growth was often associated with particular drug classes. For example, annual growth exceeded 8 percent in 2014 and 2015, coinciding with the introduction of an expensive class of drugs that treat hepatitis C. Annual spending growth again exceeded 8 percent in 2022 and 2023, coinciding with marketwide growth in spending on drugs that treat diabetes (antidiabetics).
Insurers' projections of per-enrollee costs for Part D (as reflected in their bids) have followed roughly similar trends. From 2017 to 2022, annual growth in projected per-enrollee costs for Part D plans with the basic benefit ranged from a 5 percent reduction to a 4 percent increase. Since then, those projections have increased substantially: by 20 percent in 2024, 42 percent in 2025, and 35 percent in 2026.
How Has Recent Spending on Part D Drugs Compared With CBO's Projections?
CBO anticipated some, but not all, of the recent increases in insurers' projected per-enrollee costs. One driver of those increases has likely been key prescription drug provisions in the 2022 reconciliation act, which have been phased in over the past three years (CBO 2023). For example, a cap on out-of-pocket spending was introduced in 2024 and lowered in 2025. CBO expected that reduction and other changes to shift costs from enrollees to plans, which would result in higher bids from private insurers in both years. Bids were even higher than expected in 2025 (CBO 2024), signaling that other marketwide and demand-related factors were potentially playing a role. CBO concluded that those higher bids were likely explained by stronger-than-expected growth in spending on prescription drugs in 2023, rather than an underestimate of insurers' projections of how the benefit change would affect spending. (Insurers relied on 2023 data to forecast 2025 benefit spending.) That stronger spending growth was possibly driven by increased spending on antidiabetics. The projections of cost increases from 2023 to 2025 in insurers' 2025 plan bids suggest that their initial expectations for how the changes in benefit structure would affect spending on drugs aligned with CBO's modeling (CBO 2024).
For 2026, CBO expected per-enrollee costs for Part D plans to increase by about 5 percent, which was close to the historical average annual growth rate for the program. The agency anticipated that costs associated with the 2022 reconciliation act's benefit changes would be fully absorbed by insurance plans by the end of 2025. It also expected some plan savings in 2026 from the Medicare Drug Price Negotiation Program, though less than initially projected (CBO 2024, Chapter 2; CBO 2025). Those savings were expected to be offset by continued growth in spending on a class of drugs initially approved to treat diabetes and later approved for chronic weight management and the treatment of other conditions, such as cardiovascular problems (CBO 2024, Chapter 3). (Although Medicare does not cover anti-obesity medications for weight management alone, some beneficiaries qualify for coverage if they also have another condition for which an anti-obesity medication has received approval from the Food and Drug Administration.)
In July 2025, the Centers for Medicare & Medicaid Services (CMS) released the national average bid amount for the Medicare Part D program for 2026 (CMS 2025). The announcement reported that, before the effects of premium stabilization, the base premium (the average monthly amount paid by the beneficiary) increased by $75.38, or 35 percent, from last year's value. (CBO expects the increase in premiums paid by Medicare enrollees to be less than 35 percent because the premium stabilization policy in the 2022 reconciliation act limits increases in the base premium to 6 percent.) CMS's calculations suggest that insurers expect their overall costs for the Part D benefit to be much higher in 2026 than in any previous year. That increase far exceeds what was expected in either CBO's January 2025 baseline budget projections or CMS's 2025 Medicare trustees report.
Possible Reasons for the Increase in Expected Costs for Part D Plans in 2026
CBO has identified the following factors that may explain or contribute to insurers' expectations of higher costs for Part D plans in 2026:
- Beneficiaries' response to reductions in cost sharing,
- Higher overhead costs for insurers,
- Administrative actions, and
- Marketwide trends in drug spending.
Beneficiaries' Response to Reductions in Cost Sharing
The cap on out-of-pocket spending and other changes in the 2022 reconciliation act reduced Part D beneficiaries' required cost sharing (the amount they pay for a prescription). CBO, CMS, and private insurers may have underestimated the cost to insurers of the reduced cost-sharing requirements for beneficiaries with high spending on prescription drugs in 2025. When actual costs proved higher than anticipated, insurers may have incorporated that higher-than-expected cost increase in their 2026 plan bids. A private actuarial firm's analysis of early 2025 claims data found large increases in spending on specialty drugs for beneficiaries whose cost sharing was most affected by the benefit changes (Milliman 2025).
CBO based its estimates on high-quality evidence from both a randomized experiment and the closure of the Part D coverage gap—a policy change that reduced beneficiaries' out-of-pocket costs (RAND 1993, Chandra 2021). The agency adjusted its estimates to reflect its assessments that a cap on out-of-pocket spending would primarily affect people with very high spending on prescription drugs and that such people are likely to perceive their drugs as important to their health or quality of life. Therefore, in CBO's assessment, the people most affected by the policy are less likely to change their spending on prescription drugs in response to changes to cost sharing than people with lower spending.
The actual increase in spending resulting from the reduction in out-of-pocket costs may have been larger than CBO projected. One possible explanation is that beneficiaries' behavioral responses to cost-sharing changes are more similar among people at different levels of spending on prescription drugs than the agency expected. Another possibility is that the findings from the studies CBO consulted do not apply to current circumstances, perhaps because the mix of high-cost drugs that beneficiaries use is different today than when those studies were conducted.
Alternatively, CBO may have underestimated the potential for spending growth partly because it did not anticipate changes in manufacturers' policies that would shift more of the cost of expensive drugs to Part D plans. The agency's analysis relied on historical claims data, which may not have captured certain transactions funded through drug manufacturers' patient assistance programs. Some manufacturers have changed eligibility criteria for their assistance programs in response to the benefit changes in the 2022 reconciliation act (Pfizer 2025). As a result, prescriptions for certain expensive drugs may be submitted to insurance plans for coverage instead of supplied directly through the patient assistance program—increasing the volume of prescriptions financed by the government.
Higher Overhead Costs for Insurers
Apart from rising demand, insurers are also building higher profit margins and higher administrative costs into their plan bids. (Those costs are included as part of the total cost of providing the Part D benefit so that insurers make a sustainable return on their investment.) Over the past year, CMS revised its estimate of insurers' overhead costs in 2026 from 6.5 percent to 11.4 percent of net benefit costs, citing new cost-sharing limits and flexibilities from the 2022 reconciliation act (CMS 2024 and 2025 Medicare Trustees Reports). Changes in the competitiveness of markets for Part D plans may also play a role. Historically, strong competition among insurers to provide Medicare drug coverage has kept profit margins low. But recent instability in the market—particularly for stand-alone prescription drug plans—may be leading to less competition and higher profit margins (MedPAC 2025, Chapter 4; Modern Healthcare 2025).
Another source of instability for insurers is the potential for tariffs to increase the cost of providing the Part D drug benefit. Although prescription medications have thus far been exempted, tariff policy has changed frequently in 2025. In particular, the Department of Commerce began investigating imports of pharmaceuticals and their source ingredients to determine their impact on national security, an investigation that could result in tariffs. If tariffs on prescription drugs led to increased prices in the future, insurers would bear most of the added costs and would not be able to adjust their plan bids retroactively. Insurers thus may be preemptively building some of those costs into the overhead component of their bids, contributing further to rising costs for plans.
Administrative Actions
Administrative actions following the 2022 reconciliation act may also be contributing to the higher costs reflected in plan bids. Last year, CMS announced temporary subsidies for certain prescription drug plans from 2025 to 2027 (CMS 2024). For 2025, those subsidies capped year-over-year increases to monthly premiums for stand-alone prescription drug plans at $35, even for plans with above-average growth in bids. The cap will rise to $50 in 2026. Historically, insurers have limited the growth of their plan bids to keep their premiums competitive. However, if insurers expect administrative actions to shield enrollees from the full impact of increased premiums, they may be less constrained in submitting bids with higher costs. Those effects may persist over time if insurers expect the subsidies to recur.
Marketwide Trends in Drug Spending
Spending on prescription drugs (net of rebates and discounts) in the United States grew by 11.4 percent in 2024, up from 4.9 percent growth in 2023 (IQVIA 2025). Since 2019, spending growth has outpaced the 2024 rate only once—in 2021, when drug spending increased by 13.1 percent with the adoption of vaccines and treatments for COVID-19. In 2019 and 2020, annual spending growth was less than 2.5 percent.
According to IQVIA (a health care consultancy), drugs that have experienced high rates of spending growth mainly include older therapies, such as drugs approved for additional uses, but they also include several new drugs launched in 2023 or 2024. The therapeutic classes with the highest rates of spending growth in 2025 were oncology, immunology, anti-obesity, and antidiabetics. Because IQVIA's data reflect nationwide spending for all prescription drugs—including drugs administered by physicians rather than purchased in retail settings—those trends may not fully apply to the Part D program. But they suggest that broader patterns of drug spending are contributing to insurers' expectations of higher costs.
What Research Would Be Especially Useful?
CBO will continue analyzing the unexpectedly rapid growth of projected per-enrollee costs in bids from Medicare Part D plans as it prepares cost estimates and projections for the Congress. The agency welcomes new research on factors that could drive higher spending on prescription drugs, including updated research on behavioral responses to caps on out-of-pocket spending, analysis of changes in benefit designs of Part D plans and enrollees' responses to those changes, and analysis of marketwide trends in spending on prescription drugs. Research on marketwide trends might include analysis of the patient populations or therapeutic classes of drugs that drive spending growth, as well as analysis of trends in the share of spending and drug use attributable to generic drugs. CBO is particularly interested in studies of insurers' pricing and bidding behavior and in analyses of other factors affecting costs and bids for Part D plans, such as patient assistance programs, market competition, or administrative policies.
Tamara Hayford is the Deputy Director of Health Analysis, and Asha Saavoss is the Chief of the Medicare Cost Estimates Unit in the Budget Analysis Division. This blog post includes contributions from Austin Barselau, Michael Fialkowski, Jeffrey Kling, Aditi Sen, Chapin White, and Heidi Williams (a consultant to CBO).
As part of the legislative process, CBO supplies the Congress with cost estimates for legislation, economic and budget projections, and other economic assessments. Information from the research community is an important element of the agency's analyses. This is the 12th in a series of blog posts discussing research that would enhance the quality of the information that CBO uses in its work. (Earlier posts in the series discussed the need for new research in the areas of energy and the environment, finance, health, hepatitis C, labor, macroeconomics, national security, new drug development, nutritional standards in the Supplemental Nutrition Assistance Program, obesity, and taxes and transfers.) Please send comments to communications@cbo.gov.