Medicare is headed for a more expensive 2027, as new federal data show rising prescription drug spending, higher Part D premiums and early warnings of benefit cuts across Medicare Advantage plans.

Demand for medications is surging partly because of innovations and partly because of changes in the law.

I previously discussed how the Inflation Reduction Act established an annual cap on out-of-pocket prescription drug spending by Part D policyholders. The cap was $2,000 in 2025, $2,100 in 2026 and will be indexed after 2026. That cap is partly responsible for the increase in prescription drug spending.

More than one in five Part D policyholders hit the $2,000 limit (known as the catastrophic spending level) in 2025, according to an estimate from a group of congressional Medicare advisers known as MedPac.

Another way to look at the data is that 66% of total drug spending was in the catastrophic spending category. By reducing beneficiaries’ out-of-pocket cost are they reach the cap, the law can increase use of covered drugs. The largest spending increases were for cancer and diabetes treatments, though GLP-1 spending also increased significantly.

Spending above the annual cap is paid for by taxpayers, insurers and drug manufacturers.

The Inflation Reduction Act reduced beneficiaries’ incentives to limit drug spending while shifting more of the cost to insurers, manufacturers and Medicare. The result is that Part D beneficiaries are likely to bear higher costs.

That is likely to begin in 2027 when insurer subsidies end under the Part D Premium Demonstration Project. After 2029 the 6% annual limit on increases in the Part D base premium expires.

Beneficiaries are likely to see higher premiums, copayments and deductibles if Congress does not reform the program. Reduced coverage of certain medications also is likely.

Medicare Advantage Plans Prepare For 2027 Changes

Another recent report indicates that in 2027 Medicare Advantage plans are likely to change more than initially expected.

Advantage plans changed significantly over the last few years. Insurers left the market, reduced the number of plans they offered and reduced benefits.

But statements from insurers and other information indicated there would be fewer plan changes from 2026 to 2027.

However, insurance brokers told Axios that the early information they received from Advantage plan insurers indicates there are likely to be significant benefit reductions in Advantage plans in 2027, especially from the major insurers Humana and UnitedHealthcare.

Some widespread benefit changes reported by the brokers are decreases in major dental benefits, increases in copayments for specialist care and changes in out-of-pocket drug costs.

Advantage plans that pay all or part of Part B premiums for their members are likely to reduce or eliminate that practice.

Some insurers said they plan to control costs by limiting the number of members, which could mean freezing enrollment partway before the Annual Enrollment Period ends.

Insurers say that medical costs keep rising and members are seeking more care than in the past.

Fraud Risks Persist In Medicare Advantage

In other recent news, the Inspector General for the Department of Health and Human Services issued a report concluding that Medicare Advantage plans are vulnerable to fraud involving durable medical equipment and other supplies.

Advantage plans are a major target for fraud, but many of them lack appropriate safeguards. Because of the lack of controls, plans pay for medical equipment for deceased beneficiaries or those who did not request it. The frauds involve items such as prosthetics, wheelchairs, orthotics and other supplies and equipment.

One factor is that regulations do not require suppliers to enroll in Medicare when they bill Advantage plans instead of Medicare directly. That allows suppliers to bypass a vetting process.

The report recommends several policy changes be made by both Medicare and insurers to reduce fraud.