This brief was corrected on July 31, 2026, to adjust two statements concerning supplemental coverage. The first change, which affects the first bulleted paragraph on page 3 and related text on page 8, clarifies that supplemental plans include employer-based and Medigap coverage, and that Medigap spending is estimated to fall by 31 percent. The second change, which affects text on pages 3 and 14, states that premiums for Medigap plans could fall by about a third given the estimated 31 percent reduction in spending. These changes do not affect the brief’s findings or conclusions.
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, including employer-based and Medigap coverage, is estimated to fall by $14.1 billion under a $5,900 spending cap. Medigap spending is estimated to fall by 31 percent, which should result in downward pressure on Medigap premiums by a similar magnitude, making Medigap more affordable for those who choose and can afford to purchase it.
- 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.
