The Medicare Cost Cap Act, introduced on June 24 by Senator Lisa Blunt Rochester of Delaware, would limit out-of-pocket costs in traditional Medicare Parts A (inpatient hospital care) and B (outpatient services and doctor’s visits) to $5,000 annually. The Inflation Reduction Act of 2022 had capped Part D (prescription drug coverage) spending at $2,000 (now $2,100).
Before the bill’s introduction, we independently estimated the effects of adding an out-of-pocket cap of $5,900 on Medicare Part A and Part B spending. Because the median in-network cap in Medicare Advantage plans was estimated to be $5,900 in 2026, a Medicare Part A and Part B cap of $5,900 would align cost-sharing rules across traditional Medicare and Medicare Advantage. Currently, the statutory limit on out-of-pocket costs in Medicare Advantage plans is $9,250 in-network, which is higher than what the typical plan now provides.
In this analysis, which was supported by Arnold Ventures, we compare the effects on beneficiaries’ cost-sharing obligations under three spending cap thresholds ($5,000; $5,900; and $9,250). We find that under the proposed $5,000 cap, an estimated 4.5 million traditional Medicare beneficiaries would see lower cost-sharing obligations, with beneficiaries who have out-of-pocket spending above the cap saving $6,470 on average. We also estimate that the proposed cap would increase Medicare program spending in a single year by an estimated $36.2 billion.
Millions of beneficiaries would save on health care with an out-of-pocket spending cap
Using the Urban Institute’s Medicare Policy Microsimulation Model (MCARE-SIM), we estimate spending on 2026 Medicare, supplemental insurance, Medicaid, and out-of-pocket costs for Parts A, B, and D services under current law and with the caps applied.
Source: The Urban Institute’s Medicare Policy Microsimulation Model (MCARE-SIM) estimates for 2026 using the 2016–19 Medicare Current Beneficiary Survey.
Notes: Analysis limited to enrollees with traditional Medicare. Estimates are for enrollees and spending in 2026 if the reform were fully implemented. Per capita spending amounts are rounded to the nearest $10. Cost-sharing spending includes deductibles, coinsurance, and copayments; premiums are excluded.
We find that with a $5,000 cap, 4.5 million traditional Medicare beneficiaries (12.9 percent) in 2026 would see lower out-of-pocket spending or lower cost-sharing covered by Medicaid or supplemental plans (e.g., Medigap or employer-sponsored plans). With a $5,900 cap, 3.8 million people would see lower cost sharing. And with a $9,250 cap, 2.1 million people would see lower cost sharing.
Because people who spend less in one year may experience a health event that pushes their spending over the cap in a subsequent year, many more beneficiaries would benefit from the cap over a longer period. With a $5,000 cap, we expect 60.3 percent of the current cohort of traditional Medicare beneficiaries to have cost sharing over the cap at least once in the next 10 years. With a $5,900 cap, 52.9 percent (and with a $9,250 cap, 32.1 percent) would have cost sharing exceeding the cap at least once in the next 10 years.
Traditional Medicare does not currently have an out-of-pocket cap, though Medicaid and supplemental coverage (including Medigap and employer-based coverage) shield many beneficiaries from high out-of-pocket expenses. Under all cap scenarios, people without Medicaid or supplemental coverage would benefit most directly. We estimate that beneficiaries with out-of-pocket spending above the cap would, on average, save $6,470 with the $5,000 cap, $6,880 with the $5,900 cap, and $7,650 with the $9,250 cap.
Out-of-pocket spending caps would increase overall Medicare costs
If a $5,000 cap were fully implemented in 2026, the additional cost to Medicare would be $36.2 billion. The cost of a $5,900 cap would be $31.8 billion, and a cap of $9,250 would cost $20.6 billion.
Congress would need to decide how to finance this additional spending or offset its cost through savings elsewhere. Without modifications to current Medicare financing, the Part A portion would be paid through the Hospital Insurance trust fund (projected to face insolvency in 2033) and the Part B portion would be paid through a mix of general revenue spending (i.e., deficit spending) and increased Part B premiums paid by Medicare beneficiaries. Reducing overpayments to Medicare Advantage plans could generate savings to pay for an out-of-pocket cap in traditional Medicare.
We also modeled how a broader set of reforms could unify cost sharing across Parts A and B with a single $600 deductible and 20 percent coinsurance. The broader reform included the $5,900 cap and a higher Medigap deductible of $750. These additional reforms partially offset the cost of the cap. With the broader reform, Medicare spending would increase by an estimated $14.5 billion, less than half of the $31.8 billion increase with the $5,900 cap alone.
Finally, a cap would likely cause Medigap premiums to fall because supplemental payments made by Medigap plans would fall significantly. Medigap plan payments would fall by an estimated 35.5 percent with the $5,000 cap, 30.9 percent with the $5,900 cap, and 19.4 percent with the $9,250 cap, which should result in downward pressure on Medigap premiums of similar magnitude, making Medigap more affordable.
At the same time, reduced exposure to high out-of-pocket costs under a cap would reduce the need to purchase Medigap for beneficiaries who primarily want to protect against catastrophic out-of-pocket costs. Similarly, the cap would reduce spending by Medicaid and employer-based supplemental plans that currently cover cost sharing for many enrollees.
The Medicare Cost Cap Act also includes provisions that would expand financial assistance to Medicare beneficiaries with low incomes. In upcoming work, we will examine the effects and costs of policies that limit cost-sharing burdens for Medicare beneficiaries with lower incomes through subsidies.
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