Medicare Part D redesign reshapes market

The Inflation Reduction Act’s redesign of Medicare Part D is changing the economics of prescription drug coverage, but that change has not been uniform across the market. There are now fewer options available for both Medicare’s standalone prescription drug plans and Medicare Advantage prescription plans, according to a recent analysis by IPD Analytics.

IPD Analytics’ analysis focused on plan availability and enrollment trends following the 2025 benefit redesign, focusing on changes in the standalone prescription drug plans and Medicare Advantage prescription offerings, sponsor market participation, and directional enrollment movement.

The greatest contraction was in standalone plans. The number of unique prescription drug plan offerings declined about 22% from 2025 to 2026. Medicare Advantage: there was an approximate 9% decline in traditional plans. But special needs plans that have a Part D component grew by 21%.

At the same time, between 2025 and March 2026, the overall enrollment in the standalone prescription plans increased by about 1.55 million, while the Medicare Advantage prescription drug enrollment declined roughly by about 786,000.

Enrollment from terminated PDPs was largely absorbed by other standalone PDPs remaining in the market, said Shanelle Scales, Pharm.D., of IPD Analytics. “Sponsors are becoming more selective about where and how they participate,” she said in an interview.

Scales said this is a market concentration story. “Some sponsors exited or consolidated, while others gained substantial enrollment. Beneficiaries may still have coverage choices, but increasingly those choices may be concentrated among a smaller number of larger organizations. The redesign did not eliminate any sort of Part D competition, but it definitely appears to be reshaping the landscape among those willing to compete and under what conditions.”

What’s changed

The Inflation Reduction Act of 2022 includes several changes to prescription drugs in Medicare. The Inflation Reduction Act established a cap on out-of-pocket spending for prescription drugs; in 2026, the cap is $2,100. Up to this limit, drug manufacturers are required to provide brand drugs at a 10% discount, and plan sponsors are responsible for 65% of the cost.

But the biggest change was in the catastrophic phase. After patients have reached the out-of-pocket cap, manufacturers are required to provide brand drugs at a 20% discount, and plan sponsors are responsible for 60% of the cost.

As a result, plans appear to have reassessed which products remain financially viable and have narrowed plan portfolios, the IPD Analytics analysis found. Plan sponsors have prioritized offerings with stronger enrollment, margin potential, or population-specific value.

Specifically, standalone prescription drug plan offerings declined from 464 plans in 2025 to 360 in 2026, a loss of 104 plans or 22.4%. IPD Analytics has suggested this likely reflects increased plan liability, premium pressure, and fewer tools to offset higher drug costs compared with Medicare Advantage prescription drug plans.

The largest declines for the standalone plans occurred in Northern New England and Virginia, which each lost five options. Several regions across the South, Midwest, Mountain West, and West Coast lost three to four prescription drug plan options.

Meanwhile, Medicare Advantage prescription drug plans decreased from 3,642 in 2025 to 3,321 plans, an 8.8% decrease, while the special needs plans increased 1,466 in 2025 to 1,769, an increase of 20.7%. Sponsors are likely reassessing plan and service-area participation, particularly in counties where combined medical and pharmacy economics may not support sustainable margins. These changes in Medicare Advantage and in special needs plans suggest, IPD Analytics said, that plans are prioritizing targeted products designed for specific populations, such as dual-eligible beneficiaries or individuals with chronic conditions.

“I would describe the changes primarily as the [standalone] PDP contraction combined with strategic repositioning within Medicare Advantage,” Scales said. “There are still plans available for beneficiaries when it comes to both PDP and MAPD.”

The change in the Medicare prescription drug market are not unexpected, Scales said. “MA plans have more levers to pull because they’re in a better position to spread that risk across a broader membership.”

Outlook for 2027

Going forward, she says there will likely be more contraction of the standalone Medicare drug market. “I expect a more concentrated and selective market. That would translate to fewer differentiated plan designs, continued consolidation in some regions, and sponsors being really more disciplined about where they participate and where they would expect to see competition especially in scale, formulary economics, and risk management.”

Related: CMS sets the 2027 Part D bid amount at $296.05; will end premium subsidy program

One thing to watch, Scales said, is the impact of the termination of the Part D Premium Stabilization Demonstration, a program launched in 2025 for standalone prescription drug plans to smooth out premium volatility. CMS recently announced that it is ending the program at the end of 2026, one year earlier than planned.

In a post on X, CMS Administrator Mehmet Oz, M.D., said, “We are stabilizing the market, so this bailout is no longer needed. Premiums will go up by less than $10 for most Medicare recipients, with many even seeing lower premiums.”

Scales says 2027 will “provide a clearer picture of what the redesigned Part D market looks like under more normal risk-sharing conditions.”