The AARP is calling on Congress to pass the Medicare Cost Cap Act of 2026. The bill (S. 4886) proposes a $5,000 annual limit on out-of-pocket expenses for Medicare Part A and Part B services, set to begin in 2028. This change would affect around 34.3 million individuals currently enrolled in original Medicare.

Why It Matters

Millions enrolled in traditional Medicare face unlimited out-of-pocket costs for hospital and outpatient care. This situation leaves them vulnerable to enormous medical bills in cases of severe illness or extensive treatment. Unlike private health insurance plans and Medicare Advantage, traditional Medicare lacks an annual cap on spending for deductibles, copayments, and coinsurance.

What To Know

The proposed legislation aims to establish a spending limit for people using traditional Medicare. AARP, a leading advocacy group for older Americans, supports this measure as a financial shield for seniors and those with disabilities. It would address a crucial distinction between traditional Medicare and Medicare Advantage plans.

While Medicare Advantage, Medicare Part D, Medicaid, employer-sponsored coverage, and individual marketplace coverage all have various caps on out-of-pocket expenses, original Medicare places no limit on health care spending per year. This absence means that individuals with chronic conditions or substantial illnesses might face overwhelming personal costs, Nancy LeaMond, AARP’s chief advocacy and engagement officer said.

Under the proposed bill, expenses such as deductibles, copayments, and coinsurance would contribute to the $5,000 cap. Monthly premiums would not. Once beneficiaries reach the cap, Medicare would fully cover additional covered costs for the remaining year. The cap would adjust annually based on Medicare spending growth.

Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, expressed concerns about potential privatization moves.

Aligning Traditional Medicare with Medicare Advantage spending caps might seem reasonable, but it could lead to further privatization by making the two programs appear more similar, incentivizing a shift towards private plans, he told Newsweek.

Medicare Now and Under the New Bill at a Glance

Potential Savings for Seniors

Supporters argue that the bill could yield substantial savings. Brown University researchers estimate beneficiaries could save an average of $1,255 annually. These savings would protect seniors from excessive medical bills due to hospitalizations or severe illnesses. However, tradeoffs may arise with narrower provider networks and additional administrative steps.

Your primary care doctor may be in-network, while the hospital may not be, leading to unexpected costs. Or care could be delayed due to multiple necessary prior authorizations, Thompson noted.

Senate Democrats estimate 3.2 million Medicare beneficiaries would benefit by 2028, with over half of traditional Medicare beneficiaries likely exceeding the cap at least once over the next decade.

Donald Trump and Republicans have severely cut health care, leaving many Americans struggling to afford essential care, said Senate Democratic Leader Chuck Schumer. Our legislation to lower out-of-pocket costs for seniors with Medicare is crucial. No one should go bankrupt from medical care needs, he added.

Comparison with Medicare Advantage

Medicare Advantage plans already include annual out-of-pocket limits. Over the past ten years, enrollment in Medicare Advantage nearly doubled, attributing some growth to anticipated lower out-of-pocket costs.

If enacted, a $5,000 annual spending cap would offer meaningful financial protection for those dealing with cancer, extended hospital stays, or serious conditions. It makes traditional Medicare more competitive with Medicare Advantage by reducing the risk of significant medical bills, said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin.

Drew Powers of Powers Financial Group mentioned potential political conflicts within the Trump administration’s agenda of privatizing Medicare.

While some suggest this cap aligns traditional Medicare with Medicare Advantage, I doubt the administration seeks to place these programs on equal footing. Medicare Advantage is seen as a path to Medicare privatization, Powers commented.

The proposal also aligns with recent changes to Medicare’s prescription drug coverage. Medicare Part D plans already established yearly out-of-pocket limits for 2026 and 2027.

What Happens Next

The bill awaits Senate consideration, having already been referred to the Senate Finance Committee. However, passing it may prove challenging, given the potential increase in federal spending. Reallocating costs to Medicare could significantly elevate government expenditures.

Finance expert Michael Ryan, founder of MichaelRyanMoney.com, emphasized the legislative hurdles:

Don’t anticipate an easy pass. The bill is fresh, lacks a Congressional Budget Office score, and no funding source has been pinpointed. Often, such bills languish in committee rather than advance, Ryan stated.