Unlike Medicare Advantage (MA), traditional Medicare places no limit on what enrollees pay out of pocket for hospital and medical services under Parts A and B. For enrollees who incur very high costs, this gap in financial protection can be substantial. We estimate the effects on beneficiary and program spending of adding a $5,900 cap on Part A and Part B cost sharing in traditional Medicare. We also estimate the effects of a broader reform that unifies the deductible and coinsurance structure across Parts A and B along with the same out-of-pocket cap.

Key findings include the following:

• About 3.8 million traditional Medicare enrollees (11 percent) are estimated to have Part A and Part B cost sharing in 2026 that exceeds $5,900. The estimated average cost sharing for Medicare beneficiaries with spending above the $5,900 cap is $13,750. The cap would reduce per capita cost sharing to $6,550, or by more than 50 percent.
• A $5,900 cap would increase Medicare spending by an estimated $31.8 billion in 2026, or roughly 2.5 percent of total Medicare spending. Of this, $8.5 billion would accrue to Part A and $23.3 billion to Part B, with the Part B increase requiring either higher premiums (by about 3.8 percent) or a congressional decision to hold premiums at their current levels.
• Supplemental plan spending would fall by an estimated $14.1 billion, or about 50 percent, putting significant downward pressure on Medigap premiums. This could make Medigap more affordable.
• State Medicaid programs would also realize significant savings, no longer covering cost sharing that Medicare would absorb under the cap.
• A broader reform combining the $5,900 cap with a unified deductible of $600 and 20 percent coinsurance across both Parts A and B, along with Medigap reforms, would increase Medicare spending by $14.5 billion. The unified cost-sharing structure shifts some costs back to beneficiaries, reducing the net Medicare cost relative to the cap alone.

Adding an out-of-pocket cap to traditional Medicare would deliver meaningful financial protection to the highest-cost beneficiaries while imposing a relatively modest burden on the Medicare program. Reduced supplemental plan spending should translate into lower Medigap premiums, and state Medicaid budgets would see substantial savings.