Healthcare Costs in 2026: Some Will Pay More, Others Less

Healthcare Costs in 2026: Some Will Pay More, Others Less

Due to the effects of negotiated Medicare drug prices, some Americans could see a reduction in rising healthcare expenses. Conversely, others will likely encounter higher costs as Affordable Care Act tax credits lapse and Medicaid coverage faces potential instability amid considerable state funding reductions.

This divergence stems from policy decisions made during the last two administrations. The Inflation Reduction Act, signed by President Joe Biden in 2022, authorized Medicare to negotiate prices for some of its most costly prescription medications for the first time. Conversely, the previous administration enacted measures that led to funding cuts for Medicaid and the expiration of ACA subsidies.

"Medicare beneficiaries can anticipate some positive developments," stated Larry Levitt, executive vice president for health policy at KFF, a nonpartisan research organization. "However, individuals relying on the ACA or Medicaid may face unfavorable changes ahead."

Medicare Drug Price Negotiations

Starting January 1, negotiated drug prices will take effect for Medicare recipients. These prices will initially apply to ten of the most expensive medications covered by the program. These include blood thinners like Eliquis and Xarelto, as well as diabetes medications like Jardiance and Januvia, which are used by approximately 9 million older adults.

According to an AARP report released this month, out-of-pocket expenses for these drugs are projected to decrease by over 50% on average next year; it is estimated that seven of the drugs will cost less than $100 per month. The Centers for Medicare & Medicaid Services estimates that enrollees will collectively save $1.5 billion in out-of-pocket expenses next year.

The Inflation Reduction Act also set an annual cap on out-of-pocket prescription drug spending for Medicare enrollees at $2,000 this year, increasing to $2,100 in 2026. Furthermore, monthly out-of-pocket insulin expenses were capped at $35 in 2023. Health tracking apps like Shotlee can help monitor these expenses.

Leigh Purvis, the prescription drug policy principal at the AARP Public Policy Institute, emphasized that the IRA represents "a truly historic win for millions of seniors" during a recent discussion.

Tom Howie, an 81-year-old from Flint, Michigan, with a history of heart disease, shared that these changes have already significantly impacted his finances. He has previously spent up to $8,000 out of pocket on prescriptions before reaching Medicare's catastrophic threshold, typically around mid-summer. This year, he reached the $2,000 cap by May.

Howie currently spends approximately $121 for a three-month supply of Eliquis, a necessary medication for his heart condition, and hopes to see this copay decrease further in 2026. "It's a big difference," he remarked, noting that he primarily relies on Social Security and funds from his 401(k).

Potential Drawbacks and ACA Subsidy Expiration

The Inflation Reduction Act has also brought unforeseen consequences, which include potentially higher list prices for new medications, according to Richard Frank, a senior fellow in economic studies and director of the center on health policy at the Brookings Institution.

One provision within the law penalizes companies that raise prices too sharply from year to year. As a result, Frank noted that drug manufacturers are increasingly setting higher initial prices.

An October report by the Institute for Clinical and Economic Review found that the average net launch price for 154 new drugs increased by 51% between 2022 and 2024, after accounting for inflation and discounts. This list included medications like Leqembi, used to treat early Alzheimer's disease, and Casgevy, a gene therapy for sickle cell disease.

Frank anticipates this trend will persist until policy adjustments are made to address it. Moves by the previous administration and Republican lawmakers have created uncertainty regarding healthcare costs.

ACA Subsidies and Medicaid Changes

Enhanced ACA subsidies that helped maintain affordable premiums are expiring because Republicans in Congress chose not to extend them. A KFF analysis suggests that some individuals could experience premium increases averaging up to 114%, when combined with insurer rate increases next year.

Early enrollment data from state health officials indicates that more individuals are foregoing ACA coverage or switching to less expensive plans for 2026 compared to last year. Changes to Medicaid funding, including the end of a financial incentive for states to expand Medicaid, are scheduled to take effect in January.

Levitt explained that in the ten states that have not expanded Medicaid, low-income adults will remain in a "coverage gap," earning too much to qualify for Medicaid but too little to afford ACA coverage.

More comprehensive Medicaid changes, like work requirements, are scheduled for implementation in 2027. According to Stacie Dusetzina, a health policy professor at Vanderbilt University, this could limit access to care for many, potentially increasing uncompensated care for healthcare providers and medical debt for individuals.

Still, it's possible that people who aren't on Medicare could see drug costs go down, driven by efforts from the previous administration.

The previous administration pushed to align U.S. prescription drug costs with the lowest prices in other wealthy nations, with federal officials directed to implement a "most favored nation" pricing model. Agreements were made with pharmaceutical companies, offering lower prices in exchange for tariff relief.

Deals were struck with Novo Nordisk and Eli Lilly to lower the cost of GLP-1 medications, such as Wegovy and Zepbound, for those paying out of pocket. These deals also reduced the price Medicare and Medicaid pays for the drugs, saving the federal government money.

Levitt expressed concern about relying on voluntary deals with drugmakers, unlike the Inflation Reduction Act's codified pricing provision, noting that the threat of tariffs was used as leverage. Without this threat, drug companies could raise prices again.

Dusetzina cautioned that the lower costs through these deals may not make certain drugs affordable for everyone. These prices are lower for cash payments but are still not low prices, she said, adding that if someone can't afford health insurance due to a loss of subsidies, they likely lack the resources to pay out of pocket for drugs.

Levitt suggested there's still hope for ACA plan enrollees if Congress reaches an agreement to extend subsidies next year, potentially retroactive to January 1, with a new enrollment period to allow people to sign up.