Part D in 2026-2027

Part D is being reshaped simultaneously by four forces that have never operated in concert before. The IRA’s drug price negotiation program placed the first ten Maximum Fair Prices into effect on January 1, 2026, with fifteen more drugs selected for 2027. The GUARD model imposes mandatory rebates on Part D drugs whose prices exceed inflation-adjusted thresholds. BALANCE introduces GLP-1 coverage for weight management through a Part D bridge starting July 2026 and a full CMMI model in January 2027. And the $2,000 annual out-of-pocket cap, fully operational in 2026, restructures the benefit design in which all of these changes land. Each of these forces alters the formulary, cost-sharing, and plan liability calculus that Part D plan teams use to build benefit packages and submit bids. Together they produce the most complex Part D operating environment since the benefit’s creation in 2006.

The IRA Drug Price Negotiation in Practice

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The ten drugs with negotiated Maximum Fair Prices effective January 1, 2026 are Eliquis (blood clots), Jardiance (diabetes/heart failure), Xarelto (blood clots), Januvia (diabetes), Farxiga (diabetes/kidney disease/heart failure), Entresto (heart failure), Enbrel (autoimmune), Imbruvica (blood cancers), Stelara (autoimmune), and NovoLog/Fiasp (insulin). These drugs accounted for approximately $56.2 billion in total Part D gross covered prescription drug costs in 2023, roughly 20% of all Part D spending, and were used by approximately 9 million Medicare enrollees. The negotiated prices represent discounts from 2023 list prices ranging from 38% for Imbruvica to 79% for Januvia. CMS estimated the negotiated prices would save the Medicare program $6 billion per year and beneficiaries $1.5 billion annually in out-of-pocket costs.

The savings estimates reflect 2023 utilization volumes and will be higher in 2026 because most of the selected drugs have rising prescription volumes. The savings also interact with the $2,000 OOP cap: beneficiaries who previously faced catastrophic spending on these drugs now have both a lower negotiated price and a hard ceiling on their total annual drug costs. The compound effect for a beneficiary on Eliquis and Entresto simultaneously, a common clinical combination for patients with atrial fibrillation and heart failure, is substantial.

Part D plans are required to include all ten selected drugs on their formularies. CMS is monitoring formulary placement and utilization management practices to prevent plans from undermining access to negotiated prices through restrictive tier placement, excessive prior authorization requirements, or step therapy protocols that route beneficiaries to non-negotiated alternatives before allowing access to the selected drug. The formulary mandate means plans cannot use the MFP as leverage to remove the drug from coverage; they must offer it.

The formulary implications extend beyond the selected drugs themselves. The MFPs alter the rebate calculus for plans and PBMs. Before negotiation, plans negotiated rebates with manufacturers through their PBMs as a percentage of the drug’s list price. With MFPs in effect, the manufacturer’s effective price to Medicare is set by statute rather than by PBM negotiation. Existing rebate agreements on selected drugs become irrelevant to the extent the MFP is lower than the prior net price after rebates. For drugs where the MFP exceeds the prior net price (which CMS’s analysis suggests is uncommon for the first cohort), the MFP may actually increase plan costs relative to the pre-negotiation environment. PBM contracting for the selected drugs must be renegotiated to reflect the new pricing reality, and the PBM’s role in managing the cost of these drugs shifts from rebate extraction to utilization management and dispensing efficiency.

CMS has signed agreements with manufacturers for the next 15 drugs, effective January 1, 2027 (MCR-04.12 covers the IRA mechanism, litigation, and second cohort in detail). For 2027, CMS may select drugs covered under both Part D and Part B, expanding the negotiation program beyond the pharmacy benefit into the physician-administered drug space. The cumulative effect of 25 drugs with negotiated prices in 2027 will represent a significant share of total Part D spending and will further restructure formulary strategy for plans operating in both the standalone PDP and MA-PD markets.

GUARD Model Obligations

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The GUARD model imposes mandatory rebates on Part D drugs whose prices exceed a threshold linked to CPI-based inflation limits, operating alongside the IRA negotiation program as a second pricing constraint on the Part D formulary (MCR-01.09).

Under GUARD, manufacturers whose Part D drug prices have increased faster than inflation above a specified threshold, set at approximately $69 million in total Medicare spending with CPI escalation, must either enter into voluntary pricing agreements with CMS or face mandatory rebate obligations. The two-track structure gives manufacturers a choice between proactive compliance through a voluntary agreement that locks in pricing terms and reactive compliance through mandatory rebates calculated based on the price increase above the inflation-adjusted baseline.

For Part D plans, GUARD creates operational implementation requirements that layer on top of existing claims processing and formulary management infrastructure. Plans must incorporate GUARD rebate status into their formulary tier placement decisions: drugs subject to GUARD rebates have a different effective cost to the plan than drugs without rebate obligations, which changes the tier assignment calculus. Claims processing systems must flag GUARD-eligible drugs, calculate manufacturer rebate obligations, and manage the reconciliation process between plan payments and manufacturer rebate returns. Plans that also participate in PBM rebate arrangements face a three-layer pricing architecture for some drugs: the list price, the PBM-negotiated rebate, and the GUARD mandatory rebate, each of which must be tracked and reconciled.

The interaction between GUARD and IRA negotiation for drugs subject to both mechanisms is a complexity that the CY 2027 proposed rule and advance notice have not fully resolved. A drug selected for IRA negotiation has an MFP that functions as a price ceiling. If that same drug is also subject to GUARD rebates because its historical price exceeded inflation benchmarks, the manufacturer may owe rebates under GUARD in addition to accepting the MFP under the IRA. Whether the two mechanisms produce complementary or duplicative savings depends on the specific drug’s pricing history, and CMS has indicated it will provide additional guidance as the two programs mature.

The BALANCE GLP-1 Bridge

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BALANCE is the CMMI model that brings GLP-1 medication coverage for weight management into the Medicare benefit for the first time (MCR-01.05). The Part D bridge begins in July 2026, with the full model launching January 2027. For Part D plan teams, the bridge creates an immediate formulary and cost management challenge that will define the CY 2027 bid cycle.

Under the BALANCE bridge, Part D plans must include specified GLP-1 medications for weight management on their formularies and provide coverage to eligible beneficiaries who meet clinical criteria. The clinical eligibility requirements include BMI thresholds, documented comorbidities, and participation in lifestyle support programs that include nutritional counseling, physical activity programming, and behavioral health support. The lifestyle intervention requirement is the MAHA dimension of the model: BALANCE conditions continued GLP-1 coverage on the beneficiary’s engagement with non-pharmacological health improvement, not just the prescription.

The cost management challenge is significant. Semaglutide (Wegovy/Ozempic) and tirzepatide (Mounjaro/Zepbound) carry list prices exceeding $1,000 per month before manufacturer agreements. The utilization trajectory for GLP-1 weight management medications has been steep in the commercial market, and BALANCE’s extension of coverage to Medicare beneficiaries will channel previously uninsured demand through Part D. Plans modeling the financial impact of BALANCE bridge coverage face the same actuarial uncertainty that accompanied other benefit expansions: the eligible population is large, the clinical demand is strong, and the utilization rate is difficult to predict because no comparable Medicare coverage precedent exists.

How plans price GLP-1 coverage into their CY 2027 bids is one of the cycle’s most consequential actuarial decisions. Plans that underestimate uptake will face the MLR pressure that supplemental benefit utilization miscalculation created in prior years. Plans that overestimate uptake will price themselves out of competitive benefit packages, losing enrollment to competitors who bid more aggressively. The manufacturer agreements CMS has negotiated with Eli Lilly and Novo Nordisk as part of BALANCE (including the significant price reductions announced in November 2025) reduce but do not eliminate the cost management challenge. Even at reduced prices, GLP-1 utilization at scale represents a material new cost category in the Part D benefit.

The Premium Stabilization Demonstration

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CMS introduced the Part D premium stabilization demonstration for CY 2025 to cushion the premium impact of the IRA’s benefit redesign. The demonstration uses federal funds to offset premium increases that would otherwise result from the restructured plan liability and manufacturer discount obligations under the redesigned benefit. CMS continued the demonstration for CY 2026 with less generous terms.

The CY 2027 advance notice did not address whether the demonstration would continue for a third year. The uncertainty creates a planning gap for plans and beneficiaries. If the demonstration ends or scales back further, Part D premiums will rise to reflect the plan liability increases the demonstration had been absorbing. CMS’s Part D premium projections for 2026 showed average premiums declining, partly because the demonstration suppressed the increases that the redesigned benefit would otherwise produce. Without the demonstration, the premium trajectory reverses.

For beneficiaries, the premium stabilization demonstration is invisible: they see the premium they pay, not the federal subsidy that reduced it. If premiums jump in 2027 because the demonstration ends, beneficiaries will experience a premium increase they did not anticipate and cannot easily attribute to a policy decision rather than to their plan’s pricing choices. The premium stabilization demonstration’s future is one of the most consequential unknowns in the CY 2027 Part D environment.

Formulary Strategy in 2026-2027

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The simultaneous introduction of MFPs, GUARD rebates, BALANCE GLP-1 coverage, and the $2,000 OOP cap forces a comprehensive formulary redesign that touches every therapeutic category.

For the ten first-cohort IRA drugs, plans must include them on formulary and ensure access. Tier placement decisions for these drugs now reflect the MFP rather than the list price: a drug whose effective cost to the plan dropped by 50% through negotiation may move to a preferred tier to signal beneficiary cost savings, or plans may maintain current tier placement and capture the cost reduction as plan savings rather than passing it through as lower beneficiary cost-sharing. The competitive dynamic will determine which approach dominates: plans that move negotiated drugs to lower tiers may attract enrollment from cost-sensitive beneficiaries.

For drugs subject to GUARD mandatory rebates, formulary positioning reflects the effective post-rebate cost. Drugs with high GUARD rebates become relatively cheaper for plans, potentially displacing drugs in the same therapeutic category that are not subject to GUARD. The formulary sorting effect pushes plans toward drugs where the combined effect of IRA negotiation, GUARD rebates, and PBM rebates produces the lowest effective cost, which may or may not align with clinical preference.

The utilization management toolkit remains essential. Step therapy, prior authorization, and quantity limits continue to function as cost management mechanisms for high-cost drugs, including GLP-1s under the BALANCE bridge. Plans will apply utilization management to BALANCE-covered GLP-1s within the bounds CMS establishes, balancing access requirements against cost control. The $2,000 OOP cap changes the specialty drug tier calculus: beneficiaries who previously avoided specialty tier drugs because of 25% to 33% coinsurance that could produce thousands of dollars in annual cost-sharing now face a capped exposure regardless of drug cost. Plans may see increased utilization of specialty drugs as the beneficiary cost barrier declines, which flows into plan liability and premiums.

Biosimilar and interchangeable biologic opportunities emerge as the negotiated drug landscape creates space for formulary substitution. Several of the IRA first-cohort drugs face biosimilar competition within the next two to five years. Plans that position biosimilars as preferred alternatives to the originator products can capture the price differential between the MFP for the originator and the lower acquisition cost of the biosimilar. The biosimilar strategy is particularly relevant for Enbrel (etanercept biosimilars are available), Stelara (ustekinumab biosimilars entering the market), and the insulin products where interchangeable biosimilars offer additional cost reduction beyond the MFP.

The Part D formulary that emerges from the CY 2027 cycle will be the most structurally complex in the program’s history, reflecting the layered interaction of statutory negotiation, mandatory rebates, CMMI model coverage requirements, and benefit redesign. Plans that navigate this complexity successfully will build formularies that balance cost management, access requirements, competitive positioning, and clinical appropriateness across a pricing landscape that no prior year’s experience fully prepares them for.

Related Reading

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MCR-01_05 BALANCE: The GLP-1 Gambit MCR-01_09 GLOBE and GUARD: MFN Drug Pricing Arrives in Medicare MCR-07_04 Prescription Drug Costs: What Changes Are Coming to Your Medications