August 2026 marked four years since the Inflation Reduction Act was signed into law, with 2026 being the second year of the fully redesigned Medicare Part D benefit. For beneficiaries, some key aspects of the redesign have worked as intended: Cost sharing was capped for the first time, and out-of-pocket spending for patients with the highest prescription drug costs fell substantially.
The redesign changed how costs, revenue, and risk are allocated among beneficiaries, plans, pharmaceutical manufacturers, and the federal government. However, the mechanisms translating plan bids into plan revenue were not correspondingly revised. The Centers for Medicare and Medicaid Services updated the Part D risk adjustment model coefficients to reflect the redesigned benefit, but the structure of the model was unchanged. The model continues to predict drug costs from medical diagnoses without using individual beneficiaries’ prescription drug history, as has always been the case, and its coefficients are calibrated on claims experience from several years before the payment year. That lag has created challenges in the first few years of the redesign, because the change in beneficiary behavior following the redesign is far larger than the year-over-year variation the model normally absorbs.
Throughout this paper, we provide an objective review of the Medicare Part D benefit redesign and its effects on stakeholders. We cover the following key discussion points.
- What the redesign delivered: redistributed costs among beneficiaries while reducing costs for high users
- Where the funding mechanics did not keep pace: drug trend and maximum out-of-pocket accumulation, risk adjustment, negative premiums, and other factors
- Areas that could be addressed: categories of potential adjustments to funding mechanics and their trade-offs