From reviewing Part D plan bid data across multiple filing cycles, the 35% per-enrollee cost overshoot in 2026 is the largest single-year deviation from CBO projections since the program launched in 2006. And the pattern of escalating revisions, with per-enrollee costs rising 20% in 2024, 42% in 2025, and 35% in 2026, points to a structural repricing rather than a one-time adjustment. CBO itself acknowledged this when it published A Call for New Research in the Area of Spending on Medicare Part D in early 2026, explicitly requesting external actuarial and economic research to help explain why plan bids have diverged so far from baseline projections.

If insurers’ expected costs remain at current bid levels, federal Part D spending over the next decade would exceed CBO’s previous projections by roughly $500 billion. CBO’s February 2026 baseline revision added $0.6 trillion to projected Part D outlays for the 2025 to 2035 window, making this the single largest upward technical revision to any mandatory spending program in the current baseline cycle. This article breaks down the three structural forces driving the overshoot: the Inflation Reduction Act Part D redesign mechanics, GLP-1 and specialty drug utilization acceleration, and a market consolidation dynamic that may be reducing competitive discipline in plan bidding.

$239.27
National Average Monthly Bid Amount, 2026
~$500B
Decade-Long CBO Spending Gap
35%
Per-Enrollee Cost Increase vs. CBO’s 5%

The Bid Data: Three Years of Escalating Overruns

The national average monthly bid amount (NAMBA) is the enrollment-weighted average of all applicable Part D plan bids for basic benefits. It represents what plans expect it will cost, per member per month, to deliver the Part D benefit. CMS uses the NAMBA to calculate the direct subsidy the federal government pays to each plan.

The trajectory over the past three years is striking:

Contract Year NAMBA Year-over-Year Change CBO Pre-Bid Projection
2024 $64.28 Baseline (pre-redesign) Aligned
2025 $179.45 +179% ($115.17) Lower; ~20% per-enrollee increase expected
2026 $239.27 +33% ($59.82) ~5% per-enrollee increase expected

The 2025 jump reflects the structural benefit redesign under the Inflation Reduction Act: the elimination of the coverage gap, the new $2,000 out-of-pocket cap, and the shift of catastrophic phase liability from the federal reinsurance layer to plan sponsors. That jump was partially anticipated. What was not anticipated was the magnitude: CBO expected per-enrollee costs to increase by roughly 20% in 2024, but actual bid data came in higher. The 42% increase in 2025 per-enrollee costs compounded the miss. And by 2026, with CBO projecting a modest 5% increase, plans submitted bids reflecting 35% growth, a seven-fold deviation from forecast.

CBO projects that if these bid-level costs persist, Medicare Part D outlays over the 2025 to 2035 decade would be approximately $500 billion higher than prior projections (CBO). The February 2026 baseline formally booked $0.6 trillion in additional Part D spending, the largest single-program upward revision in the baseline cycle (Committee for a Responsible Federal Budget).

Driver One: The Part D Redesign Liability Shift

The Inflation Reduction Act of 2022 restructured the Part D benefit in phases, with the most consequential changes taking effect in 2025. For actuaries modeling Part D economics, the redesign fundamentally altered the distribution of financial liability across the benefit phases.

The Pre-2025 Benefit Structure

Before 2025, Part D had four distinct phases: deductible, initial coverage, coverage gap (the “donut hole”), and catastrophic. In the catastrophic phase, the federal government bore 80% of costs through reinsurance, plans bore 15%, and beneficiaries paid 5% coinsurance. This structure meant that for the highest-cost beneficiaries, federal reinsurance absorbed the vast majority of marginal drug spending.

The Post-Redesign Structure

Starting in 2025, the redesign collapsed the benefit to three phases (deductible, initial coverage, and catastrophic) and rewired the liability percentages:

Catastrophic Phase Liability Pre-2025 Post-2025
Federal reinsurance (non-applicable drugs) 80% 40%
Federal reinsurance (applicable/brand drugs) 80% 20%
Plan sponsor liability 15% 60%
Beneficiary cost sharing 5% 0% (capped at $2,000 annually)
Manufacturer discount (applicable drugs) N/A in catastrophic 20%

The plan sponsor liability quadrupled from 15% to 60% in the catastrophic phase for brand drugs, while beneficiary exposure dropped to zero above the $2,000 cap. This is the mechanical driver of the NAMBA explosion from $64.28 to $179.45 between 2024 and 2025: plans absorbed liability that was previously spread across the federal government and beneficiaries.

CMS’s aggregate reinsurance payments to Part D plans fell from 46% of total Part D spending in 2024 to only 17% in 2025 (CMS Final CY 2025 Part D Redesign Program Instructions). That single data point captures the magnitude of the liability transfer.

The Behavioral Response CBO Underestimated

Eliminating beneficiary cost sharing above the $2,000 cap removed the price signal that historically constrained utilization in the catastrophic phase. CBO modeled a behavioral response, but the magnitude exceeded expectations. First-year data from the Part D redesign shows catastrophic phase utilization running approximately 22% above the Milliman and Wakely base cases, driven primarily by GLP-1 adherence, oncology regimen completion, and autoimmune biologic continuation rates (CMS CY 2025 Part D Financial Data).

When beneficiaries no longer face 5% coinsurance on $10,000-per-month specialty drugs, they stay on therapy longer. This is a predictable actuarial result, and the directional expectation was correct. The calibration was not. The interaction between the zero cost-sharing catastrophic phase and the categories of drugs that concentrate in that phase (specialty, oncology, GLP-1) amplified the behavioral response beyond what historical demand elasticity estimates suggested.

Driver Two: GLP-1 and Specialty Drug Cost Acceleration

The second structural force is the trajectory of specialty drug utilization, with GLP-1 receptor agonists serving as both the most visible example and a significant standalone cost driver.

GLP-1 Spending in Medicare Part D

In 2024, Medicare Part D processed 21.8 million claims for GLP-1 medications, generating $27.5 billion in gross spending before rebates (CMS). These figures capture GLP-1 use for diabetes, which has been a covered Part D indication for years. The policy question now centers on obesity coverage, which Part D has historically excluded under the Social Security Act’s prohibition on weight-loss drug coverage.

CMS announced the BALANCE model (Better Approaches to Lifestyle and Nutrition for Comprehensive Health) in December 2025 as a voluntary framework to expand GLP-1 access for obesity treatment in Part D at a negotiated $245 net price. On April 21, 2026, CMS announced that the BALANCE model will not be implemented in Part D for 2027, citing insufficient plan sponsor participation (CMS). Instead, CMS extended the Medicare GLP-1 Bridge program through December 31, 2027, providing eligible beneficiaries access to Wegovy, Zepbound, and Foundayo at a $50 monthly copay.

The Bridge program is narrower than BALANCE would have been, but it still introduces incremental GLP-1 spending into Part D. Each million new GLP-1 users in Medicare implies approximately $1.74 billion per year in federal Part D spending at the $245 negotiated price, or $890 million at the $149 starter-dose price (CBO). CBO estimated in October 2024 that authorizing full Medicare coverage of anti-obesity medications would increase federal spending by about $35 billion from 2026 through 2034. A separate peer-reviewed economic evaluation projected $65.9 billion in total Part D GLP-1 costs over ten years for 30 million eligible Medicare beneficiaries, offset by $18.2 billion in healthcare savings, for a net $47.7 billion increase (PMC/JAMA Network Open).

Broader Specialty and Pharmacy Spending

GLP-1s are not the only driver. U.S. net prescription drug spending grew 11.4% in 2024 to $487 billion in aggregate, up from 4.9% growth in 2023 (IQVIA). GLP-1 drugs accounted for 29% of that spending growth. But oncology, immunology, and rare disease categories are all contributing to the specialty pharmacy acceleration that flows through Part D catastrophic phase costs.

The ASHP national drug expenditure survey reported overall pharmaceutical expenditures growing 10.2% in 2024 to $805.9 billion, with utilization increasing 7.9% and new drug introductions adding 2.5%, while existing drug price increases remained essentially flat. This pattern of volume-driven growth rather than price-driven growth is significant for actuarial modeling: it means the spending acceleration is structural and cannot be solved through rebate negotiations alone.

For Part D specifically, the interaction between specialty drug growth and the redesigned benefit is multiplicative. Higher-cost drugs concentrate in the catastrophic phase, where plan sponsor liability quadrupled. So a 10% increase in specialty drug volume generates a far larger increase in plan-level costs than it would have under the pre-2025 benefit design, because plans now absorb 60% of the marginal dollar rather than 15%.

Driver Three: Market Consolidation and Bidding Dynamics

CBO identified a third contributing factor that receives less attention in coverage focused on drug costs: the deterioration of competitive dynamics in the standalone Part D plan (PDP) market.

The PDP Market Collapse

The number of standalone PDPs has fallen 55% since the IRA’s passage, reaching a record low of 360 plans for 2026, down from 464 in 2025 (Drug Channels). Four major plan sponsors, including Cigna, Clear Spring Health, Elevance Health, and Mutual of Omaha, have exited the PDP market. Five companies (Aetna, Health Care Service Corporation, Humana, UnitedHealthcare, and Wellcare) now account for 94% of all PDPs. Typical beneficiaries encounter only eight to twelve plan options for 2026, down from twelve to sixteen in 2025.

CBO noted in its research call that “historically strong competition among insurers to provide Medicare drug coverage has kept profit margins low,” but that “recent instability in the market, particularly for stand-alone prescription drug plans, may be leading to less competition and higher profit margins” (CBO). This is the classic insurance market concentration dynamic: fewer competitors reduce pricing discipline, allowing surviving plans to embed higher margins without losing enrollment share.

Administrative Cost Reclassification

A related signal: CMS revised its estimate of insurers’ overhead costs in 2026 from 6.5% to 11.4% of net benefit costs (CBO, citing CMS data). This nearly doubling of the recognized administrative load reflects both genuinely higher operational complexity under the redesigned benefit and potentially higher profit margins embedded within administrative cost assumptions. CBO flagged this revision explicitly as an area where external research could help decompose the legitimate cost increase from margin expansion.

The Premium Stabilization Demonstration

Recognizing the market stress, CMS launched the Part D Premium Stabilization Demonstration as a voluntary program in 2025 to cushion the transition. For 2026, CMS adjusted the parameters: reducing the uniform base beneficiary premium reduction from $15 to $10, increasing the allowable premium increase limit from $35 to $50, and eliminating the narrowed risk corridor thresholds (CMS). Despite these interventions, the national base beneficiary premium rose to $38.99, a 6% increase from $36.78 in 2025. The gap between what beneficiaries pay in premiums and what plans bid for the benefit continues to widen, with the federal direct subsidy absorbing the difference.

CBO’s Research Call: What the Agency Wants to Understand

In a step that is unusual for a nonpartisan scoring agency, CBO published a formal request for external research to help explain the Part D spending divergence. From tracking CBO publications across multiple budget cycles, this kind of public research solicitation is rare; CBO typically relies on its internal modeling and published academic literature rather than issuing open calls for help.

The research areas CBO identified align with the actuarial questions that health plan pricing teams have been wrestling with since the first redesigned bids were submitted:

Beneficiary Behavioral Response to Cost-Sharing Changes

CBO wants updated research on how beneficiaries respond to out-of-pocket caps, specifically whether the demand elasticity parameters from pre-IRA studies (many calibrated to the coverage gap closure) are transferable to the new benefit design. The $2,000 cap creates a fundamentally different incentive structure than the pre-2025 5% catastrophic coinsurance, and early utilization data suggests the behavioral response is larger than the standard demand curve framework predicted.

Insurer Pricing and Bidding Behavior

CBO is explicitly asking for research into how plans construct their bids: what assumptions they make about utilization, what margins they embed, and how the competitive environment affects bid discipline. This is a direct acknowledgment that the scoring agency’s traditional approach of modeling drug costs may not adequately capture the strategic behavior of plan sponsors in a concentrating market.

Drug Spending Trends and the GLP-1 Variable

The agency wants better data on how the GLP-1 class is affecting Part D spending, both through direct utilization growth and through potential offset effects on other categories of medical spending. The offset question is actuarially significant: if GLP-1 use reduces downstream cardiovascular, diabetes complication, and joint replacement costs, the net fiscal impact is smaller than the gross drug spending increase. But quantifying that offset in a Medicare population requires longitudinal claims data that is only now becoming available.

Plan Market Competitiveness and Administrative Costs

CBO wants research on whether consolidation in the PDP market is allowing plans to embed higher margins, and whether the reported increase in administrative costs from 6.5% to 11.4% of net benefit costs reflects legitimate operational complexity or margin expansion. For actuaries working on Part D bids, this question has practical implications: if regulators conclude that margins are excessive, the policy response could include tighter bid review standards, enhanced risk corridors, or MLR-style constraints.

Patient Assistance Programs and Manufacturer Coupons

CBO also flagged a research gap around how manufacturer patient assistance programs interact with the redesigned benefit. Under the new structure, where the $2,000 cap limits beneficiary exposure, the role of copay assistance changes. If manufacturers shift copay assistance dollars toward the initial coverage phase to influence formulary positioning, the savings CBO modeled from reduced manufacturer coupon spending may not materialize as expected.

Actuarial Implications: What This Means for Health Plan Pricing

The $500 billion gap is not an abstract budget scoring exercise. It flows directly into several actuarial workstreams.

Part D Bid Construction for CY 2027

Plan actuaries building CY 2027 Part D bids face a credibility problem. They now have one year of redesigned benefit experience (CY 2025), and the first-year data shows bid-to-experience variance running approximately 14% unfavorable industry-wide. Catastrophic phase utilization exceeded base case projections by 22%. The Manufacturer Discount Program net economics ran 1 to 2 loss ratio points unfavorable to bid assumptions. These data points need to flow into the CY 2027 bid cycle, but one year of post-redesign data carries limited credibility under standard actuarial procedures (ASOP No. 25).

The practical challenge: pricing actuaries must choose between giving full weight to the emerging experience (which may overstate the long-run trend if 2025 included pent-up demand) or blending with pre-redesign trends (which demonstrably understated costs). Most consulting firms are recommending a credibility-weighted blend with heavier weighting on the post-redesign data, supplemented by explicit risk margins for the remaining uncertainty.

Reserve Development on CY 2025 Part D Books

For plan sponsors that filed CY 2025 bids at levels below actual experience, reserve strengthening is already underway. Risk corridor recoveries are cushioning 4 to 6 points of the bid-to-experience miss (CMS Part D Financial Data), but plan sponsors outside the corridor bands face full exposure to the variance. Three of the top ten plan sponsors filed notices to exit specific PDP regions for 2027, a signal that the CY 2025 financial results were severe enough to trigger market withdrawal decisions.

Medicare Advantage Part D Integration

For MA-PD plans, the Part D cost overshoot compounds with the MA rate-setting dynamics. CMS finalized a 2.48% MA payment increase for CY 2027, a substantial reversal from the initial 0.09% advance notice (CMS CY 2027 Final Rule). But MA-PD plan actuaries must now model the Part D component of their bids against a backdrop of materially higher drug costs, which reduces the margin available for supplemental benefits. The interaction between MA payment rates and Part D bid construction creates a joint optimization problem that is more constrained than in any prior bid cycle.

The GLP-1 Coverage Overhang

The BALANCE model delay and GLP-1 Bridge extension create a bifurcated pricing challenge. Plans must model the Bridge program’s incremental GLP-1 costs (Wegovy, Zepbound, and Foundayo at the $50 copay) while simultaneously pricing for the possibility that full obesity coverage could be mandated legislatively. The Treat and Reduce Obesity Act has bipartisan support in Congress, and CBO’s October 2024 score of $35 billion over a decade may understate the fiscal impact if the Part D spending trajectory continues to exceed baseline assumptions.

For plan actuaries, the GLP-1 variable is the widest confidence interval in the 2027 bid. Diabetes-indication GLP-1 spending is already embedded in claims experience. Obesity-indication coverage is partially covered through the Bridge, potentially expanded through legislation, and carries utilization projections that range from conservative (1 to 2 million new users) to aggressive (8 to 10 million) depending on eligibility criteria, adherence assumptions, and the availability of oral GLP-1 formulations expected to reach market in late 2026 and 2027.

The CMS Policy Response: Corridors, Demonstrations, and the 2027 Final Rule

CMS is responding to the spending overshoot through several parallel channels.

The CY 2027 Medicare Advantage and Part D Final Rule, published April 2, 2026, codifies the post-redesign benefit structure for 2027 and beyond: eliminating the coverage gap phase permanently, establishing the $2,000 annual out-of-pocket threshold, removing catastrophic phase cost sharing, and incorporating the Manufacturer Discount Program that replaced the Coverage Gap Discount Program on January 1, 2025 (CMS). The rule makes the redesigned benefit permanent regulatory architecture rather than transitional policy.

The Premium Stabilization Demonstration continues into 2026 with modified parameters, but CMS narrowed the intervention by reducing the beneficiary premium subsidy from $15 to $10 and widening the allowable premium increase band. This signals CMS’s recognition that artificial premium suppression is not sustainable when underlying plan costs are growing at 33% per year.

On the GLP-1 front, the decision to delay BALANCE and extend the Bridge program through 2027 buys time for CMS to evaluate utilization and cost data from the Bridge before committing to a permanent expanded coverage model. The Bridge program is administratively simpler than BALANCE’s voluntary participation model, and the extension suggests CMS concluded that insufficient insurer buy-in made BALANCE unworkable for the 2027 contract year.

Fiscal Context: Where $500 Billion Sits in Federal Health Spending

CBO projects total Medicare spending to nearly double from current levels to almost $2.0 trillion by 2036, driven by aging demographics and per-beneficiary cost growth (CBO February 2026 Baseline). The $500 billion Part D overshoot represents roughly a quarter of the total Medicare spending growth over that window, concentrated in the prescription drug benefit rather than Parts A or B.

For context, the entire Inflation Reduction Act was scored as saving approximately $237 billion over a decade through its health provisions (drug price negotiation, inflation rebates, and premium subsidy extensions). If the Part D spending gap persists at anything close to the $500 billion level, it would more than fully offset the IRA’s projected health savings, converting the legislation from a net fiscal saver on health spending to a net cost driver on the drug benefit alone.

The Committee for a Responsible Federal Budget flagged this dynamic in its February 2026 analysis, noting that the Part D spending increase of $0.6 trillion in the 2025 to 2035 baseline represents the most significant mandatory spending revision outside of macroeconomic reestimates (CRFB). Social Security and health care spending combined are projected to grow from 11.2% of GDP ($3.4 trillion) in 2025 to 12.5% of GDP ($5.9 trillion) by 2036, and the Part D overshoot is a material contributor to that trajectory.

Why This Matters for Actuaries

The $500 billion Part D spending gap is not a budget curiosity. It touches multiple actuarial practice areas simultaneously.

Health plan pricing actuaries working on Part D bids face the most direct impact. The credibility challenge of blending one year of post-redesign experience with pre-redesign historical data, while building in explicit margins for GLP-1 utilization uncertainty and market consolidation effects, represents a genuinely novel pricing problem. Standard trend projection methods calibrated to the pre-IRA benefit design need recalibration, and the industry is still developing consensus on how to weight the emerging data.

Reserving actuaries at Part D plan sponsors must assess whether CY 2025 reserve development patterns represent a one-time adjustment or a new baseline. If catastrophic phase utilization continues at 22% above initial projections, reserves set using pre-redesign assumptions will be structurally inadequate. The risk corridor mechanism provides a partial cushion, but plan sponsors outside corridor bands carry full exposure.

Government actuaries and policy analysts face the question of whether CBO’s traditional scoring methodology needs updating for post-IRA Part D. The magnitude of the forecast miss, seven times the expected per-enrollee cost increase in 2026, suggests that the models CBO used to score the IRA’s Part D provisions may have underestimated both the behavioral response to cost-sharing elimination and the interaction between specialty drug growth and the redesigned benefit structure. CBO’s public research call is an implicit acknowledgment of this gap.

Consulting actuaries advising pharmaceutical manufacturers, PBMs, and plan sponsors on Part D strategy face a pricing environment where the rules of the game changed materially in 2025 and the data to calibrate new assumptions is still accumulating. The BALANCE model delay, Bridge program extension, and potential legislative expansion of GLP-1 coverage add scenario uncertainty that must be explicitly modeled rather than buried in trend assumptions.

The pattern of 20%, 42%, and 35% per-enrollee cost increases across three consecutive years is the strongest signal that the Part D spending trajectory has shifted to a structurally higher level. Whether the gap narrows as pent-up demand normalizes, or widens as GLP-1 coverage expands and specialty drugs proliferate, is the central actuarial question for federal health program financing over the next decade.

Further Reading

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