Developments in CBO's Projections for Medicare Part D

CBO was asked to describe and explain updates to spending projections published in The Budget and Economic Outlook: 2026 to 2036. In particular, information was requested concerning CBO's original estimates and current projections of the budgetary effects of provisions of the 2022 reconciliation act (Public Law 117‑169) that affect Medicare Part D, the prescription drug program.

The 2022 reconciliation act contains three major provisions affecting prescription drug prices and coverage: drug price negotiation, which requires the Department of Health and Human Services (HHS) to negotiate prices directly with manufacturers for selected high-expenditure drugs; inflation rebates, which manufacturers must pay if increases in their drug prices outpace inflation; and a redesign of Part D to cap enrollees' annual out-of-pocket costs, limit premium increases, and shift more financial liability to plans and manufacturers.

In September 2022, following the enactment in August, CBO projected that enacting those provisions would lead to combined deficit reductions of $129 billion over the 2022–2031 period. At the time, CBO estimated that by 2026, the reductions in direct spending stemming from the first two provisions would more than offset increases associated with enacting the third.

Since then, on the basis of new information, CBO has revised its projections. Evidence now indicates that the spending reductions attributable to drug price negotiation and inflation rebates have been smaller than CBO originally estimated. The costs of the Part D redesign have been significantly larger because of greater-than-anticipated increases in spending because of greater use of prescription drugs.

As a result, the agency now projects that those provisions will combine to increase deficits over the 2022–2031 period.

This letter provides information about the following topics:

• CBO's original estimate of the 2022 reconciliation act, the evidence used to inform that estimate, and key sources of uncertainty;
• Initial effects of the price negotiation and inflation rebate provisions;
• The effects of the Part D redesign; and
• Ongoing updates to CBO's models, including increases in CBO's projections for Part D to account for recent experience with implementing the act's Part D provisions.