Medicare Cost Cap Act Would Establish Out-of-Pocket Maximum in Traditional Medicare

Key Takeaways

• The Medicare Cost Cap Act (S. 2305) would establish a $2000 annual out-of-pocket cap for Medicare Part A and Part B services in traditional Medicare beginning in 2028, with the limit indexed annually for inflation.
• The legislation directs the Centers for Medicare & Medicaid Services (CMS) to implement a system to track beneficiary cost sharing and includes changes to Medigap coverage, preventing supplemental plans from covering costs above the new annual cap.
• If enacted, the proposal could reduce beneficiaries' financial exposure while potentially affecting competition between traditional Medicare and Medicare Advantage and reshaping the role of supplemental coverage in the Medicare market.

A group of Senate Democrats has introduced the Medicare Cost Cap Act, legislation that would establish a new annual out-of-pocket spending limit for beneficiaries enrolled in traditional Medicare.^1,2 The proposal aims to address one of the longstanding differences between traditional Medicare and many other forms of health coverage: the absence of an annual cap on beneficiary cost sharing for Medicare Part A and Part B services.¹

If enacted, the legislation would create a $2000 annual out-of-pocket maximum for covered Medicare services beginning in 2028, with the cap indexed for inflation in future years.¹ The proposal also would prohibit supplemental Medigap policies from covering expenses that exceed the annual limit, reflecting that beneficiaries would no longer face unlimited financial exposure under traditional Medicare.¹

What the Bill Would Do

Under the legislation, Medicare beneficiaries enrolled in traditional Medicare would have their annual cost-sharing obligations capped at $2000 for Medicare Part A and Part B covered services.¹

The bill directs CMS to implement a process for tracking beneficiary cost sharing and ensuring that providers and suppliers no longer collect cost sharing once a beneficiary reaches the annual limit.¹

To offset a portion of the additional federal spending associated with the new benefit, the legislation proposes changes to Medicare supplemental insurance. Medigap plans would no longer reimburse beneficiaries for cost sharing incurred after the annual out-of-pocket maximum has been reached.¹

The annual cap would be adjusted over time based on inflation.¹

Why It Matters

Traditional Medicare currently differs from many employer-sponsored health plans, Affordable Care Act marketplace plans, and Medicare Advantage plans because it does not include a comprehensive annual out-of-pocket maximum for Part A and Part B services.²

According to the bill's sponsors, establishing a spending cap would provide beneficiaries with greater financial predictability and reduce the risk of catastrophic medical expenses, particularly for individuals requiring frequent hospitalizations or ongoing specialty care.²

For managed care organizations, the proposal could narrow one of the structural benefit differences between traditional Medicare and Medicare Advantage, where annual out-of-pocket maximums are already required. While Medicare Advantage plans would continue to offer supplemental benefits and care management programs beyond traditional Medicare, the addition of a spending cap in fee-for-service Medicare could influence beneficiary plan selection and competitive dynamics during future enrollment periods.³

The proposal also could affect the Medigap market by reducing the role of supplemental coverage in protecting beneficiaries from catastrophic cost exposure.¹

What Comes Next

The Medicare Cost Cap Act has been introduced in the Senate and referred to the Senate Finance Committee for consideration.² As with other standalone Medicare reform proposals, the legislation would need to advance through committee review before consideration by the full Senate and House of Representatives.²

Whether the proposal advances independently or becomes part of a broader Medicare legislative package remains to be seen. For health plans, providers, and other stakeholders, the legislation highlights continued congressional attention on beneficiary affordability and the structure of cost sharing within traditional Medicare.²

Reference

1. Medicare Cost Cap Act, S. 2305, 119th Cong. (2026). Accessed June 26, 2026. https://www.finance.senate.gov/imo/media/doc/medicare_cost_cap_act_bill_text.pdf
2. Senate Committee on Finance. Blunt Rochester, Wyden, Schumer lead legislation to cap Medicare costs for seniors. News release. Published June 25, 2026. Accessed June 26, 2026. https://www.finance.senate.gov/ranking-members-news/blunt-rochester-wyden-schumer-lead-legislation-to-cap-medicare-costs-for-seniors
3. Casolo E. Lawmakers pitch cap on Medicare beneficiary out-of-pocket costs. Becker's Hospital Review. Published June 25, 2026. Accessed June 26, 2026. https://www.beckershospitalreview.com/finance/lawmakers-pitch-cap-on-medicare-beneficiary-out-of-pocket-costs/