Introduction: Key insights from 2026 Medicare Advantage and prescription drug bids
As the 2026 Medicare Advantage (MA) open enrollment period approaches and the MA landscape continues to evolve, the 2026 bid cycle brought significant changes and trends impacting all key stakeholders, including life sciences companies. Understanding the nuances of MA bids is essential for organizations navigating changes resulting from the Inflation Reduction Act (IRA), pricing and benefit design strategies, and formulary management. New challenges and uncertainties have emerged, influencing how health plans have shaped their offerings in the 2026 MA market.
Here are six key insights from the 2026 MA bids that life sciences leaders should consider when planning for the future.
1. Part D maximum fair prices (MFPs) implemented for the first time in 2026
In 2026 bids, some health plans and their pharmacy benefit managers (PBMs) attempted to place negotiated drugs, especially Eliquis and diabetic drugs, on the non-preferred tier to manage costs, but they were unsuccessful in justifying these tiering decisions to the Centers for Medicare and Medicaid Services (CMS). Additionally, as more drugs become negotiated, the availability of prescription drug rebates will diminish. Health plans and their PBMs will need to identify additional sources of rebates or leverage other financial mechanisms. This could involve innovative contracting models, enhanced formulary management, or increased utilization management. Life sciences companies can leverage the insights gained from the impact of MFPs on the 2026 bids to guide their financial strategies for next year’s bids, taking into account the new list of MFP drugs for 2027.
2. Rebates continue to play a crucial role in health plan financials
Prescription drug rebates can directly reduce premiums for MA members or be used to enhance their benefits.1 Despite an overall decrease in rebates resulting from minimal or no rebates for MFP drugs, health plans still heavily rely on rebates to maintain low premiums and remain competitive. When evaluating different formularies offered by PBMs, higher rebate formularies were advantageous compared to higher drug cost discounts. Because health insurers are expected to have higher liability in 2026, health plans continued to prioritize rebates for non-MFP brand-name and specialty medications when they prepared their MA bids.
3. Emerging market challenges in 2025: Trends and market exits/consolidations
In 2025, several emerging market challenges significantly impacted the Medicare landscape. The IRA’s introduction of a $2,000 cap on Part D out-of-pocket (OOP) expenses in 2025 drove a substantial increase in drug utilization. The individual non-low-income (NLI) gross drug cost per member per month (PMPM) increased by 27% in 1st half 2025 compared to 1st half 2024, whereas low-income (LI) trends were 11%.2 MA plans are experiencing high cost trends that outpace government funding, creating financial pressures that may influence drug formulary decisions. Additionally, recent plan terminations and consolidations have reduced the number of available options, particularly in rural markets, which could limit member choice and alter market dynamics.3 These 2025 emerging market challenges were critical for health plans to consider as they prepared their 2026 bids to remain competitive in the market.
4. Benefit design changes in 2026 continue to be a focus for health plans
In 2025, cost sharing for brand-name drugs in the individual Part D market shifted from flat copayments to coinsurance, making OOP costs harder for members to predict.4 Part D deductibles became more prevalent and increased from 2024 to 2025, where the proportion of Medicare Advantage Prescription Drug (MAPD) members that will face a deductible was three times higher: 60% in 2025 from 21% in 2024 (assuming they do not switch plans).5 In 2026, similar trends continued, with additional plans introducing coinsurance on brand-name drug tiers (including preferred brands) and/or raising deductibles. These changes reflect how plans are responding to Part D market changes, such as lower overall rebates and higher-than-expected 2025 drug cost trends, as described above. Plans are also adjusting cost sharing to stay competitive and avoid adverse selection.
5. 2026 Part D prescription hierarchical condition category (RxHCC) model: Greater disparity in normalization factors between MAPD and PDP, and imbalances between NLI and LI members
CMS introduced a new 2026 RxHCC model for the upcoming bid year, which affects risk scores and, consequently, plan revenue, as the direct subsidy is risk adjusted. With the direct subsidy increasing significantly from $1.97 in 2023 to $200.28 in 2026, risk scores are becoming increasingly critical. For 2026, the normalization factors are set at 1.194 for MAPD plans and 0.877 for Prescription Drug Plans (PDPs)—a difference of 0.317.6 In addition, the 2026 RxHCC model is based on calendar year (CY) 2023 Part D claims data, which does not reflect the increasing NLI claims trends in 2024 or 2025. This results in a misalignment between the risk score model and the anticipated claims experience for NLI and LI members. As a result, depending on a health plan’s population mix (MAPD vs PDP, NLI vs. LI), plans had to consider these changes to their 2026 revenue when determining premiums and considering benefit changes. Potential revenue reductions from the new RxHCC could result in plans seeking other financial levers to mitigate their liability, such as adjusting formularies and increasing utilization management, which could subsequently affect drug utilization and life sciences sales.
6. The Most Favored Nation (MFN) policy and tariff changes might not have been factored into the 2026 bids
MFN: The Executive Order7 signed by President Trump in May 2025 introduced MFN pricing targets, which aim to align U.S. drug prices with the lowest prices in other countries. This policy could lead to significant changes in pricing strategies and market competition, as manufacturers work to meet these targets and avoid potential administrative actions.8 Due to the timing and limited information in the May announcement, it was unlikely that MFN was a factor in 2026 health plan bids.
Tariffs: Tariffs on imported drugs, medical supplies, and devices can raise costs, especially for generic drugs that rely on active ingredients sourced from India and China. These increased costs may not be fully passed on due to price controls and contracts, potentially leading to pricing pressure, supply disruptions, and margin strain for life sciences companies. The exact impact of tariffs will depend on future policy decisions, market pressure, and operational responses, and remains uncertain at this time. As with MFN, uncertainty and timing related to tariffs likely kept health plans from incorporating the effects of the tariffs into their 2026 bids.
Conclusion: Positioning life sciences companies for success in future bid cycles
The 2026 MA bids introduced significant changes for all stakeholders—including life sciences companies—that should be considered as they prepare for future bid cycles. As we look ahead to the 2027 MA bids, life sciences companies should leverage insights from the 2026 MA bids and detailed data analytics to inform their pricing strategies. This will enable the companies to anticipate and address new opportunities and challenges while engaging effectively with health plans and PBMs to successfully navigate the continually evolving MA landscape.
1 Alston, M., Dieguez, G., & Tomicki, S. (2018, May 21). A primer on prescription drug rebates: Insights into why rebates are a target for reducing prices. Milliman. https://www.milliman.com/en/insight/a-primer-on-prescription-drug-rebates-insights-into-why-rebates-are-a-target-for-reducing.
2 Cline, M., Madden, R., & Holcomb, K. (2025). Milliman MedIntel Part D trend insights: Utilization trends for non-low income Part D members show no signs of slowing in the first half of 2025 [White paper]. Milliman. https://www.milliman.com/en/insight/medicare-medintel-part-d-trend-insights-halfyear-2025.
3 Friedman, J. (2024). Medicare Advantage under pressure: How MA-PD plans are responding in 2025 [White paper]. Milliman. https://www.milliman.com/en/insight/medicare-advantage-ma-pd-plans-2025.
4 Cubanski, J., & Damico, A. (2024, November 22). Medicare Part D in 2025: A first look at prescription drug plan availability, Premiums, and Cost Sharing. KFF. https://www.kff.org/medicare/medicare-part-d-in-2025-a-first-look-at-prescription-drug-plan-availability-premiums-and-cost-sharing/.
6 CMS. (2025, April 7). Announcement of Calendar Year (CY) 2026 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies. https://www.cms.gov/files/document/announcementofcalendaryear2026medicareadvantagecapitationratesandpartcandpartdpaymentpoliciesg.pdf.
7 Exec. Order No. 14297, Federal Register, 20749 (2025). https://www.federalregister.gov/documents/2025/05/15/2025-08876/delivering-most-favored-nation-prescription-drug-pricing-to-american-patients.
8 Whorley, M. (2025, July 17). Most-Favored-Nation Executive Order: 6 considerations for life science companies. Milliman. https://www.milliman.com/en/insight/most-favored-nation-eo-considerations-life-science.