Drug Coverage Harder to Find for Traditional Medicare Enrollees

Declining enrollment, fewer plan offerings, and persistently higher premiums are raising concerns about the stability and viability of the market for Medicare stand-alone prescription drug plans.

Known simply as “PDPs,” the plans provide drug coverage for beneficiaries in traditional, fee-for-service Medicare. They also provide premium-free “benchmark plans” for fee-for-service beneficiaries who receive the Medicare prescription drug Low Income Subsidy. Medicare Advantage drug plans provide both medical and drug coverage for enrollees, who account for more than half of all Medicare beneficiaries.

Major insurers like Cigna Corp., Centene Corp., Aetna Inc., and Humana Inc. offer both PDPs and Medicare Advantage drug plans (MA-PDs).

But as MA enrollment outpaces traditional Medicare, fewer PDP plans are offered, reducing beneficiary access and choice, and concentrating PDP market risk into a handful of plan sponsors and their contracts with PBMs.

Eleven companies offered 709 PDPs in 2024, but only seven are offering 464 PDPs in 2025. That 35% drop leaves the smallest number of PDP offerings since the Part D benefit was launched in 2006, according to KFF. The number of premium-free, stand-alone plans has also nosedived, with four of the 34 PDP regions offering only one such plan this year.

The dwindling PDP sponsors and offerings can lead to “severe distortions of what the pricing looks like” said Tim Dube, senior vice president for policy and regulatory insights at the Pharmaceutical Care Management Association, during a recent Part D panel discussion. Average premiums for PDPs was $43 in 2024, compared to just $9 for MA-PDs, KFF noted.

MedPAC Explores Problem

The lower premiums only strengthen MA-PDs competitive advantage. And with higher gross costs than MA plans for the basic drug benefit—despite enrolling a population with lower expected drug costs—PDPs are more likely to incur losses, according to the Medicare Payment Advisory Commission.

“While any one of these trends alone may not, by themselves, raise immediate concerns about the stability of the PDP market, all of these trends combined suggest that there may be underlying issues,” Shinobu Suzuki, a MedPAC principal policy analyst, said at the commission’s November meeting.

MedPAC, which advises Congress on Medicare, is looking at structural challenges PDPs face. It’ll present more findings in the spring and could make recommendations to Congress on how to strengthen the PDP market to ensure drug coverage for FFS enrollees is viable long-term.

“I worry that the way that things have been going, we’re not going to have an affordable and attractive option for people who want to stay in traditional Medicare, and I think that makes this work very urgent and important,” MedPAC member Stacie Dusetzina said in November.

A health policy professor at Vanderbilt University School of Medicine, Dusetzina said in a recent article that a “public Part D stand-alone plan option” might be a solution. However, “resistance to such an option will be substantial,” she wrote, because it “could lower profits for private plans, pharmacy benefits managers, and drug manufacturers in favor of lower costs for beneficiaries and taxpayers.”

Congressional Action Required

This year, Mutual of Omaha withdrew from the Medicare prescription drug market, while the Medicare agency terminated the PDP contract of Clear Spring Health Insurance Co. due to low quality ratings from 2022 through 2024.

Kylie Stengel, an associate principal at Avalere, said the PDP market erosion stems from the way formulas for PDP payments and LIS benchmarks are set in law. Both are based on “enrollment-weighted averages,” she said.

“This means that if MA-PDs continue to maintain substantially lower bids and premiums, and enrollment continues to shift” their way, they’ll “continue to bring down” both the average payments to stand-alone plans, and the LIS “benchmarks” that determine which PDPs qualify as zero-premium benchmark plans, Stengel said. The lower the benchmark, “the more difficult it is to qualify” as a LIS benchmark plan, leading to fewer such offerings.

This makes it “kind of a vicious cycle where PDPs struggle more and more to compete” with MA-PDs, Stengel said. “So to truly fix these issues, I think it needs to be something Congress needs to potentially act on.”

Enrollment in Part D topped 54 million in 2024, MedPAC reported. Of that, PDP enrollment slipped to 23 million last year, down 8% since 2020. MA-PD enrollment increased to 24.7 million last year, up 34% since 2020.

Because MA drug plans receive government rebates that allow them to enhance plan offerings and buy down or eliminate Part D premiums, PDPs—which have no additional funding source—typically have higher premiums.

“So there’s not really a level playing field when it comes to the choice facing beneficiaries,” Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, said of MA plans’ competitive advantage.

Inflation Reduction Act Not Enough

Further complicating the PDP market: It’s more lucrative for drug plans to enroll Medicare beneficiaries in an MA-PD, rather than a stand-alone plan. Dube said PDPs served as a “loss leader” for drug plans hoping to steer enrollees to MA-PDs.

Consumer-friendly provisions of the Inflation Reduction Act will increase costs and coverage liability for Part D plans this year. To ease the transition for PDPs, the Centers for Medicare & Medicaid Services launched a demonstration program that lowers the plans’ base premium by up to $15 this year, holds premium increases to $35, and increases government risk-sharing to help PDPs absorb potential losses.

The program will cost $5 billion this year, and can be extended for two more years. But it’s “only a short-term solution,” said Stengel, of Avalere.

“None of the changes are a silver bullet, necessarily, and won’t really completely fix the problems,” she said. “More of a permanent solution is needed to really stabilize the stand-alone PDP market to keep it from eroding even further,” assuming no other payment changes occur on the MA side, Stengel added.