Financial Outlook of Medicare Part D Analyzed by American Enterprise Institute

The American Enterprise Institute recently analyzed the financial outlook of Medicare Part D as presented in the 2026 Social Security and Medicare Trustees reports. The Congressional Budget Office (CBO) has increased its estimates for Medicare Part D expenditures, raising significant concerns about Medicare's financial sustainability and the accuracy of the CBO’s legislative scoring.

Medicare Trustees provide annual updates on various program aspects, including Medicare Part D, which covers prescription drugs. This component is funded through beneficiary premiums and substantial state and federal contributions. Legislative changes in 2022 improved the drug benefit by eliminating the "doughnut hole" and introducing a $2,000 annual cap on out-of-pocket expenses starting in 2024. These changes have increased program costs but have kept annual premium rises to 6 percent to protect beneficiaries from larger hikes. Additionally, a demonstration project aimed at keeping premiums low through subsidies has been questioned for its legality, as it was implemented without Congressional approval.

The Medicare Trustees report also highlighted that the Hospital Insurance Trust Fund, responsible for Medicare Part A, faces potential insolvency by the second quarter of 2033. At that point, it will only cover 89 percent of its scheduled benefits. The escalating costs of Medicare Part D significantly contribute to the broader challenge of federal debt management. These concerns prompted the House Budget Committee to ensure that the CBO provides precise forecasts to facilitate informed legislative decisions crucial to Medicare's future. In addressing these issues, House Budget Committee Chairman Jodey Arrington, alongside Jason Smith and Brett Guthrie of the House Ways and Means and Energy and Commerce Committees respectively, conveyed their apprehensions about recent budget projections in a letter to the CBO.