There is currently no annual limit on what a beneficiary enrolled in traditional Medicare can owe out-of-pocket for hospital stays and physician-administered services and technologies. A number of Senate Democrats want to change this. They’ve introduced a bill that would cap such expenses annually at $5,000.
If passed and enacted, the legislation would establish a $5,000 annual cap on out-of-pocket costs for traditional Medicare beneficiaries starting in 2028. Once a beneficiary’s combined cost-sharing under Parts A (hospital stays) and B (physician-administered services and technologies) — including hospital deductibles and co-insurance as well as co-payments for physician visits and other items such as infused medicines in clinics — reaches $5,000 in a calendar year, Medicare pays 100% of covered costs for the remainder of that year.
Notably, Medicare Advantage already has a statutory yearly maximum of out-of-pocket expenses of $8,850. Medicare Advantage is the privately run alternative to original Medicare. It now enrolls roughly 54% of Medicare-eligible seniors and disabled people. The existence of a cap may be one of several reasons driving Medicare Advantage enrollment.
What’s the Difference Between Traditional Medicare and Medicare Advantage?
Medicare serves roughly 68 million elderly and disabled Americans. At age 65, Americans are currently automatically enrolled in Medicare to cover costs related to hospital and physician services. Beneficiaries in traditional Medicare can also sign up for outpatient prescription drug coverage (Part D) through stand-alone plans that manage the pharmacy benefit.
Alternatively, those eligible for Medicare can enroll in Medicare Advantage, also called Part C. Here, private insurers receive a set monthly fee per enrollee from the federal government to cover healthcare, including hospital, outpatient and physician services as well as in most plans, prescription drug coverage. All such benefits are integrated under one insurer. The Centers for Medicare and Medicaid Services is exploring auto-enrolling beneficiaries into Medicare Advantage.
Attracted by low premiums and supplemental benefits such as vision and dental care not offered by traditional Medicare in addition to a cap on out-of-pocket expenses, the share of beneficiaries enrolling in Medicare Advantage has increased every year over the last two decades.
Why A Cap Matters
Since Medicare’s inception, beneficiaries enrolled in the traditional version of the program have not had a limit on what they must spend out-of-pocket. Every other major insurance program in the country, including employer-sponsored coverage, Affordable Care Act plans and Medicare Advantage, has an annual out-of-pocket cap.
The proposed bill is projected to directly benefit about 3.2 million beneficiaries who have out-of-pocket spending that exceeds $5,000 in a given year. This represents roughly 11% of enrollees. And, over a 10-year period more than half of traditional Medicare enrollees would be expected to surpass the $5,000 threshold at least once.
Separately, by way of a provision contained in the Inflation Reduction Act passed in 2022 under President Biden, all Medicare beneficiaries already have an annual $2,100 cap on prescription drug out-of-pocket costs.
And evidence suggests that Medicare patients’ access to and utilization of medications has increased as a result of the cap. Researchers examined changes in prescription fills from 2022 to 2025 — before and after Medicare’s annual out-of-pocket spending caps were introduced — and found that the policy “substantially improved patient access.” Fill rates for high-cost drugs, such as treatments for cancer and pulmonary fibrosis, increased substantially.
Similar to out-of-pocket costs for prescription drugs, hospital, physician and outpatient costs borne by Medicare recipients have steadily risen over time. This includes money spent on deductibles (an amount that must be paid before insurance kicks in), co-payments (fixed dollar amounts per prescription or service rendered) and co-insurance (a percentage of the price of technologies or services).*
About half of United States adults say it is difficult to afford healthcare costs. When healthcare is unaffordable, it can lead to cost-related access barriers, like forgoing or delaying medically necessary care. For those who still receive unaffordable healthcare, the bills pile up leading to rising medical debt and other forms of financial instability.
Instituting a cap would likely help limit financial toxicity or the severe monetary strain and emotional distress experienced by patients and their families due to the high costs of healthcare.
* Here, out-of-pocket spending does not include the amount beneficiaries spend on monthly health insurance premiums.
