A new bill would cap Medicare enrollees' annual expenses at $5,000 - and could cost the government 'tens of billions'

By Jessica Hall

The long-shot proposal would guarantee some cost protection to all people with Medicare

A cost cap would save Medicare enrollees an average of about $1,200 a year, a study found.

A new legislative proposal aims to create a $5,000 cap on out-of-pocket costs for traditional Medicare beneficiaries, but such a measure could be costly for the federal government and difficult to pass in a divided political environment.

A group of 15 Democratic senators, including Ron Wyden of Oregon, Chuck Schumer of New York and Lisa Blunt Rochester of Delaware, introduced the Medicare Cost Cap Act on Thursday.

The measure would limit the costs traditional Medicare beneficiaries face each year. That would guarantee all people with Medicare have some cost protection and provide some parity between traditional Medicare plans and private plans known as Medicare Advantage, which cover more than half of all Medicare enrollees.

"One of the largest gaps in Medicare coverage is the lack of a cap, which is unlike virtually every other insurance available. This means if you have ongoing or expensive healthcare needs, you're exposed to the risk of an unknown amount, which could be substantial," said Jeannie Fuglesten Biniek, the deputy director for the program on Medicare policy at KFF, a health policy and research firm.

A cost cap would save enrollees an average of about $1,200 a year in direct savings and reductions in their Medigap supplemental premiums, according to a study by Brown University. Over the next 10 years, about half (52%) of beneficiaries are expected to exceed the proposed $5,000 cap at least once. About 3.2 million traditional Medicare enrollees, or 11%, would benefit from a cap if it were implemented in 2028, the study found.

At issue is the 20% share of Medicare costs that enrollees have to pay for medical services after they've met any deductibles. Unless a traditional Medicare enrollee has an extra Medigap plan to offset extra costs, they face potentially high extra expenses. About 43% of people enrolled in traditional Medicare have Medigap supplemental insurance, according to health policy research firm KFF. The average Medigap premium was $217 in 2023, according to KFF.

Under the legislative proposal, any spending toward a beneficiary's care would count toward the $5,000-a-year cap. That compares with the average out-of-pocket limit for Medicare Advantage enrollees of $5,421 for in-network services, and $9,825 for both in-network and out-of-network services combined in 2026, according to KFF.

"Americans spend their entire working lives paying into Medicare but those with traditional Medicare are the only group not protected from financial ruin. This bill modernizes Medicare, lowers costs, and brings peace of mind to the millions of seniors and those with disabilities who rely on this program," Blunt Rochester said in a press statement. "No one should be one health emergency away from going bankrupt."

The proposal also includes provisions to help low-income older people more easily qualify for special programs that help reduce costs.

"This obviously has no chance of becoming law this year," said Matthew Fiedler, senior fellow at the Center on Health Policy at the Brookings Institution. "In a future world, if Democrats control Congress and the White House, this could very well be actively on the agenda. The question is: Where does it fall on the priority list?"

The Congressional Budget Office has not yet said how much the new legislative proposal would cost. Any new costs would come as the Medicare program overall faces financial depletion in 2033 and the nation deals with escalating debt.

"It would have a meaningful cost to the federal government," Fiedler said. "It would likely be tens of billions of dollars a year in federal costs. It's not a cheap thing to do."

The proposal also could reduce the attractiveness of Medicare Advantage programs, which have a cap on out-of-pocket spending. With similar financial risk in both programs - traditional Medicare and Medicare Advantage - older adults may want the traditional program that does not restrict choices of doctors or provider networks, analysts said.

While the size of Medicare Advantage provider networks varies greatly across counties and across plans, Medicare Advantage beneficiaries, on average, have access to about half of the physicians available to traditional Medicare beneficiaries in their area, according to KFF.

Medicare Advantage, which offers other perks such as hearing, dental and vision coverage, currently costs the government more per beneficiary than traditional Medicare.

"This bill would be an important first step towards bringing traditional Medicare in line with other health insurance coverage by adding an out-of-pocket cap as well as starting to rebalance the traditional program with private Medicare Advantage," said David Lipschutz, co-director of the Center for Medicare Advocacy.

The proposal would also make it easier to qualify for Medicare Savings Programs to make Medicare more affordable for more people, Lipschutz said.

While financial support exists for low-income Medicare enrollees, administrative barriers often prevent and discourage beneficiaries from accessing these programs, analysts said. That leads to missed benefits and higher out-of-pocket costs for these low-income people.

"For some low-income Medicare beneficiaries - they aren't signing up due to some burden or barrier. They're eligible for the program but not enrolled," Fuglesten Biniek said. "This could help address that."

More than half a million enrollees who qualify for Medicare Savings Programs are not enrolled, according to a press statement accompanying the proposed legislation.

Medicare Part B premiums, which cover doctors and hospital outpatient services, eclipsed $200 a month for the first time this year, straining the finances of many retirees.

More than 7 million enrollees spent more than 10% of their monthly income on premiums, Fuglesten Biniek said.

-Jessica Hall

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06-27-26 1530ET