The 2026 Medicare Trustees Report puts total benefit payments at $1.2 trillion in 2025 (KFF). Part B is 48% of that and Part D is 15%, and they are now driven by policy cycles that have nothing to do with each other. Blending them into one PMPM and applying a single adjustment factor is the most reliable way to miss a 2027 bid.

Key Takeaways

  • Part B spending on skin substitutes went from $252 million in 2019 to more than $10 billion in 2024, nearly 40-fold on pricing rather than wound care volume, before CMS reset reimbursement at $127.28 per square centimeter.
  • $19.6 billion of projected 2026 FFS savings from that single policy change, worth roughly $11 a month on the Part B premium.
  • The national average monthly Part D plan bid tripled from $64.28 to $179.45 in 2025 as the IRA moved catastrophic-phase liability from 80% federal to 60% plan, 20% manufacturer and 20% CMS reinsurance.
  • Part D reaches $346 billion by 2035 on 6.7% compounded growth, nearly two points faster than last year's 4.8% projection, revised explicitly for GLP-1 adoption and specialty pipeline.
  • MedPAC's $76 billion overpayment decomposes into about 11 points of favorable selection and 4 points of coding intensity, and only one of those responds to risk model policy.

One Line Item, Forty Times, in Five Years

Within the $481 billion of combined Part A and Part B traditional Medicare spending in 2025, physician fee schedule services are 15% of the A/B total, outpatient hospital 16% and inpatient 33%. MA bids benchmark to per-capita FFS A/B spending by county, so Part B movements reach benchmark rates directly.

The skin substitute episode shows what that exposure looks like in practice. Part B spending on those products went from $252 million in 2019 to more than $10 billion in 2024, nearly 40-fold in five years, driven almost entirely by launch prices on new products rather than growth in the wound care population.

CMS reset reimbursement at $127.28 per square centimeter in the CY 2026 physician fee schedule final rule and projects $19.6 billion of gross FFS savings in 2026 from that change alone. Without it the Part B monthly premium would have run roughly $11 higher.

A plan that built its 2025 bid on Part B trend calibrated to the skin substitute trajectory was pricing against a spending base CMS then compressed by roughly 90%. The point is not that skin substitutes were unique. Part B contains physician-administered drugs, infusion therapy and outpatient procedure volumes each governed by payment policies on independent reform cycles, and Medigap carries the same exposure without a prior authorization backstop, since it wraps Part B cost-sharing on traditional Medicare.

Four Assumption Sets, Four Clocks

Part D spent $181 billion in 2025 and the Trustees project $346 billion by 2035, a 6.7% compounded rate against 4.8% in last year's report, revised for GLP-1 adoption and specialty pipeline growth. That acceleration sits on top of a redesign that redistributed liability in 2025.

The IRA moved the catastrophic phase from 80% federal cost-bearing above the out-of-pocket threshold to 60% plan, 20% manufacturer through the Discount Program and 20% CMS reinsurance. Plans priced it immediately: the national average monthly bid went from $64.28 to $179.45. The out-of-pocket cap was $2,000 in 2025 and moves to $2,100 in 2026 with indexing after.

Two 2027 pressures interact on top of that. CMS's second negotiation round placed Ozempic, Rybelsus and Wegovy on the selected drug list with maximum fair prices effective 2027, which cuts unit cost but moves those drugs into a category where CMS catastrophic reinsurance runs 40% rather than the standard 20%. And the July 2026 GLP-1 Bridge program gives Part D enrollees access at $50 per monthly supply through December 2027, compressing premium revenue on that population while utilization keeps accumulating.

Assumption component Base case (2027 bid) Adverse scenario Primary exposure
Part B utilization trend 4.5% to 5.5% ex-skin substitute reset 6.5%+ driven by physician-administered drug volume or new outpatient payment policy MA benchmarks, Medigap claims, Part B premium
Risk score normalization (V28 + coding intensity adjustment) Modest compression; 5.90% statutory coding intensity floor maintained CMS shifts to 2023-calibrated model in 2028, accelerating compression by 200+ bps MA bid margin, plan profitability, exit decisions
Part D catastrophic liability (GLP-1 and specialty) 6% to 7% trend on selected drugs post-negotiation; 60% plan catastrophic share GLP-1 adherence ramp above bid assumptions; oral formulations launch 2027 and expand eligible population Part D plan bids, MA Part D buy-down, premium stabilization
Supplemental benefit compression and plan-exit selection Benefit reduction of 3% to 5% value-equivalent as rebate pools compress Disproportionate exit of healthy enrollees following benefit reductions; adverse selection into remaining plans MA risk pool quality, MA MLR, 2028 bid assumptions

Each row is a separate assumption with its own driver. A Part B assumption needs a baseline FFS trend, a physician fee schedule conversion factor and an explicit carve-out for categories with pending CMS payment policy changes. A Part D assumption needs a selected-drug unit cost path, a GLP-1 adherence ramp consistent with the bridge program's July launch, and a catastrophic reinsurance recovery assumption at the right percentage. The aggregate $1.2 trillion and the 6.7% Part D rate describe program sustainability and the Q2 2033 HI trust fund trajectory. They are not bid inputs.

The Pool Reprices Itself Without the Trend Moving

Medicare Advantage enrolls 35 million beneficiaries, 55% of eligible participants, up 1.1 million year over year, and took $534 billion in 2025 payments, 53% of all Part A and Part B payments. That gap is where the 14% per-enrollee payment premium comes from.

MedPAC's March 2026 decomposition of the $76 billion figure splits it cleanly. Favorable selection is about 11 percentage points, meaning MA enrollees spend roughly 11% less than FFS enrollees at similar risk scores. Coding intensity is about 4 points. The residual is mechanical benchmark inflation, since MA payments are a percentage of county FFS benchmarks.

Only the second responds to model policy, and CMS has been working it: V28 at 100% weight in CY 2026, the statutory 5.90% coding intensity adjustment in both 2026 and 2027, and the 2027 exclusion of diagnoses from unlinked chart review records. For CY 2027 CMS retained the 2024 model calibration on 2018 diagnosis and 2019 expenditure data rather than the updated calibration proposed in the advance notice, which was net positive for plans and left the coding wedge open.

Favorable selection does not respond, because it reflects who enrolls rather than how they are coded: MA enrollees skew younger within the eligible band, more likely to qualify by age than disability, and more likely to arrive through employer group coverage.

Rebates are what that margin funds. A plan bidding below its county benchmark keeps a share, averaging nearly $2,400 per enrollee in 2026, deployed to supplemental benefits, reduced cost-sharing or premium reductions.

Which sets up the feedback loop. When a plan trims supplemental benefits or raises cost-sharing, the members who leave are the healthy ones who enrolled for the benefit; the members for whom network and care management matter stay. If exit selection runs at 1.5 times the broader Medicare ratio, a 5% enrollment decline lifts the remaining pool's risk score 2 to 3 points with no change in actual medical trend, compressing the next bid before the actuary has data to reprice it.

The 3 million MA beneficiaries who disenrolled through 2026 plan exits and contractions are that mechanism at scale: plans that contracted kept a higher-acuity residual, while plans absorbing the switchers grew without a matching risk-score increase, because those members had been coded under a prior plan's V28 intensity rather than FFS patterns.

Further Reading

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