{"id":852983,"date":"2026-09-19T07:00:19","date_gmt":"2026-09-19T07:00:19","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/852983\/"},"modified":"2026-09-19T07:00:19","modified_gmt":"2026-09-19T07:00:19","slug":"medicares-sudden-drug-cost-surge","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/852983\/","title":{"rendered":"Medicare\u2019s Sudden Drug Cost Surge"},"content":{"rendered":"

For its first 15 years, Medicare\u2019s prescription drug benefit was a fiscal success story: it had cost much less than expected, and its expense was rising slower than inflation. But from 2021 to 2025, the program\u2019s price tag<\/a> suddenly jumped, from $105 billion to $182 billion. For 2026, it is projected to leap again, to $222 billion.<\/p>\n

The main driver of this development is not expensive new drugs but an enormous miscalculation of the cost of the 2022 Inflation Reduction Act, which the Biden administration boasted<\/a> would save taxpayers billions.<\/p>\n

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Congress established a prescription drug benefit for Medicare beneficiaries in 2003, almost 40 years after instituting coverage for hospitalizations and physician services. Medicare Part D<\/a> makes Prescription Drug Plans (PDPs) responsible for purchasing drugs from manufacturers\u2014in return for monthly payments funded 92 percent<\/a> by public subsidies and 8 percent from beneficiary premiums.<\/p>\n

This arrangement initially worked well. PDPs steered beneficiaries to consume cheaper generic drugs and negotiated reduced prices from manufacturers of branded drugs. In 2013, the cost of the program was about 50 percent<\/a> lower than the Congressional Budget Office (CBO) had projected when the drug benefit had first been enacted. Over the next eight years, the cost of the program per beneficiary<\/a> actually fell after adjusting for inflation<\/a>.<\/p>\n

But from 2021 to 2026, the estimated cost of Medicare Part D suddenly leapt<\/a> from $105 billion to $222 billion\u2014a 70 percent increase in total expenditures, after inflation. What accounts for this surge in expenses?<\/p>\n

Prices for existing drugs have declined steadily<\/a> over the past decade. The problem is an increase in utilization of the most expensive branded drugs, which typically cost thousands of dollars per course of treatment. One study<\/a> estimated that gross U.S. spending on newly developed GLP-1 drugs alone had risen to $132 billion in 2025. Even with rebates and discounts reducing this cost by half<\/a>, such developments account for enormous increases in expenditures across all payers.<\/p>\n

Yet Medicare spending on prescription drugs grew roughly 50 percent faster<\/a> than<\/a> spending<\/a> by private insurance from 2021 to 2025\u2014even though Medicare did not cover GLP-1 drugs for weight loss until 2026<\/a>. The rise in Medicare prescription drug costs similarly outstripped that in Medicaid<\/a> and Medicare Part B<\/a> (which pays for physician administered drugs). From 2024 to 2025 alone, Medicare prescription drug spending surged across the board, with single-year increases ranging<\/a> from 10 percent for antivirals to 38 percent for antipsoriatics.<\/p>\n

The swelling costs of Medicare Part D owe much to the Inflation Reduction Act<\/a> of 2022. Astonishingly, that legislation was enacted in large part because the CBO projected<\/a> that it would reduce Medicare drug costs for taxpayers.<\/p>\n

The reform tried to address<\/a> a real problem: rising out-of-pocket drug costs. These had jumped due to an unintended detail of Part D\u2019s structure: the federal government largely absolved PDPs of responsibility for paying for drugs after gross annual expenditures consumed by individual beneficiaries exceeded a catastrophic threshold ($9,719 in 2020<\/a>). That gave PDPs and manufacturers an incentive to couple inflated list prices to enormous rebates. Beneficiaries were caught in the middle, being typically required to pay a percentage of gross costs as coinsurance\u2014a potentially enormous amount with no upper limit.<\/p>\n

The Inflation Reduction Act modified<\/a> Part D\u2019s payment structure. It capped out-of-pocket costs for beneficiaries and evened out the responsibility of PDPs for expenditures above and below the catastrophic threshold. The CBO estimated<\/a> that the cost of doing this would be more than offset by savings that the legislation generated from capping prices for single-source drugs, enabling congressional Democrats to claim $288 billion<\/a> in net savings over ten years to \u201cpay for<\/a>\u201d the rest of the legislation.<\/p>\n

Unfortunately, the CBO\u2019s projections proved hugely overoptimistic<\/a>: it overestimated how much regulatory caps would reduce drug prices and greatly underestimated the extent to which eliminating coinsurance for two-thirds<\/a> of drug spending would cause utilization to soar. A recent study<\/a> estimated that the Inflation Reduction Act\u2019s elimination of coinsurance alone expanded utilization of the highest-cost medications by 23 percent.<\/p>\n

In February 2026, the CBO sharply raised its estimate<\/a> of the cost of Medicare Part D over the next decade, from $1.5 trillion to $2.1 trillion. It noted that this was primarily due to the Inflation Reduction Act.<\/p>\n

And this figure is undoubtedly still a substantial underestimate. Normally, the increase in the cost of plans would have pushed up beneficiary premiums by 141 percent<\/a> from 2024 to 2027. The Inflation Reduction Act provided additional funding to bear this additional cost, but that is set to run out in 2029. Unless Congress further expands subsidies (potentially increasing the cost of the program by another 15 percent), beneficiaries will be hit with a sudden premium hike in 2030.<\/p>\n

Medicare Part D was clearly in need of a tune-up in 2022. But the CBO too readily accepted claims that it would be possible to reduce costs for beneficiaries and expand their access to drugs without causing a surge in taxpayer costs. That mistake has proved extremely expensive and will be hard for policymakers to undo.<\/p>\n

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City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).<\/p>\n","protected":false},"excerpt":{"rendered":"For its first 15 years, Medicare\u2019s prescription drug benefit was a fiscal success story: it had cost much…\n","protected":false},"author":2,"featured_media":852984,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[97,252,253],"class_list":["post-852983","post","type-post","status-publish","format-standard","has-post-thumbnail","category-health-care","tag-health","tag-health-care","tag-healthcare"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/852983","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=852983"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/852983\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/852984"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=852983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=852983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=852983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}