Health Law Daily Wrap Up, MEDICARE PART D—CBO REPORTS: CBO reverses 2022 score, now projects reconciliation act drug provisions will increase deficits, (Jul 31, 2026)

By Jordan Sonderegger

The three prescription drug provisions of the 2022 reconciliation act, originally scored as a $129 billion deficit reduction through 2031, are now expected to increase deficits over that period.

The Congressional Budget Office (CBO) reversed its original projection that the prescription drug provisions of the 2022 reconciliation act (P.L. 117-169) would reduce federal deficits, reporting instead that the three provisions will increase deficits over the 2022–2031 period. CBO attributed the reversal to smaller-than-estimated savings from drug price negotiation and inflation rebates, and to costs of the Part D redesign that have been significantly larger than estimated. The agency has not issued an updated point estimate of the redesign's total budgetary effect, saying the redesign, administrative actions, and market wide spending trends are difficult to disentangle. The letter responds to a May 2026 request from House Budget Chairman Jodey Arrington, Ways and Means Chairman Jason Smith, and Energy and Commerce Chairman Brett Guthrie. (CBO Letter to House Chairmen (July 29, 2026)).

Background. The 2022 reconciliation act contains three major provisions affecting prescription drug prices and coverage: drug price negotiation, which requires HHS to negotiate prices directly with manufacturers for selected high-expenditure drugs; inflation rebates, which manufacturers must pay when their price increases outpace inflation; and a redesign of Part D that caps enrollees' annual out-of-pocket costs, limits premium increases, and shifts more financial liability to plans and manufacturers. In September 2022, a month after enactment, CBO estimated the three provisions would together reduce deficits by $129 billion through 2031: a $99 billion reduction from drug price negotiation and $63 billion from inflation rebates, offset by a $30 billion increase from the Part D redesign and $3 billion in implementation costs. Both savings estimates incorporated Part B as well as Part D effects. CBO expected the first two provisions to more than offset the third by 2026.

Drug Price Negotiation. CBO originally assumed HHS leverage, layered on top of the statutory ceiling prices, would cut net prices for selected drugs by roughly 50 percent on average. Prices CMS announced in August 2024 for the first negotiation group were 22 percent below the 2023 average net prices. CBO then revised its assumption to a range of 25 to 50 percent, using a 37.5 percent midpoint, and added $34 billion to its February 2024 Part D baseline through 2034 to account for the smaller reductions. Prices announced in November 2025 for the second group came in 44 percent below 2024 net prices, within the revised range. Faster-than-expected Part D spending growth has since raised CBO's projections of both spending on drugs likely to be selected and savings available from negotiating their prices.

Inflation Rebates. CBO also lowered its projection of Part D savings from the inflation rebate provision. Overall price inflation ran faster than assumed in 2022, raising the benchmarks CMS uses to calculate rebate liability. That both reduced rebates owed to Medicare and weakened manufacturers' incentive to hold price increases below the benchmark. On the Part B side, where CMS has published figures, manufacturers owe $14 million for 2023 and $122 million for 2024; CBO estimated that Part B rebates would reduce direct spending by about $23 billion over 2022–2031, with $2.3 billion of that in 2023 and 2024. The agency cautioned that its estimate did not separate cash rebates from price reductions taken instead of rebates, making the figures difficult to compare directly.

Part D Redesign. The redesign accounts for the largest share of the revision. CBO said it significantly underestimated the per-enrollee cost increase at the time of implementation. Plan bids for 2025 exceeded expectations, driven partly by heavier-than-anticipated use of certain drug classes, including antidiabetics, in 2023, the experience year plans used to price those bids. For 2026, plans projected a 35 percent increase in annual per-enrollee costs; CBO had expected roughly 5 percent, about the program's average growth rate. CBO issued a call for research in November 2025 to explain the gap. The resulting evidence does not fully account for the higher bids. Still, it indicates that enrollees increased their drug use as out-of-pocket costs fell. Later evidence points to increases beyond what CBO expected, particularly for high-cost specialty drugs.

Baseline Projections. CBO added roughly $700 billion to projected Part D outlays over 2026–2035 in its February 2026 baseline, about $550 billion of it reflecting the 2026 bid information, which CBO attributed mainly to the redesign. Total projected outlays for 2026–2035 now stand at $2.1 trillion, up from $1.5 trillion in the January 2025 baseline, and exceed the pre-act path: CBO's May 2022 baseline put outlays at $1.2 trillion over 2026–2032, $0.2 trillion below the current projection for those years. Projected per-enrollee spending in 2032, marked down from about $3,500 to $2,600 after the act passed, is back to roughly $3,500.

Market Structure. CBO flagged the contraction in stand-alone prescription drug plans, citing CMS data analyzed by KFF showing that 360 plans were offered in 2026, down from 766 in 2022. Access to Medicare Advantage drug plans has remained relatively stable, while the share of enrollees receiving coverage that way has grown. CBO does not model plan availability, but said it is tracking how a temporary premium subsidy for stand-alone plans, which runs through 2027, and reduced competition among them affect bidding and plan margins. New CBO modeling of premiums across plan types informed its estimate of that subsidy and will shape future projections.

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