S4886 Would Cap Out-of-Pocket Costs in
Traditional Medicare

S 4886, the Medicare Cost Cap Act, introduced in late June by Senate Democratic leadership, with Senator Murray as an original co-sponsor, establishes a $5,000 annual cap on out-of-pocket costs for Traditional Medicare (TM) beneficiaries starting in 2028.

Medicare would pay 100% of our health care bills once out-of-pocket (OOP) costs, including what a Medigap policy paid, reached $5000 annually.

In a recent article posted by the Center for Health and Democracy’s Newsletter, HEALTH CARE uncovered, Wendell Potter, a former high ranking insurance executive, writes, “since traditional Medicare has existed, it has had a flaw so obvious and so consequential that it is understandable why many seniors have enrolled in private Medicare Advantage plans despite the many downsides of doing so; there is no limit on what a beneficiary enrolled in traditional Medicare can owe in a single year.”

According to Potter, S4886 “counts both direct beneficiary payments and payments made by Medigap or other wraparound coverage toward the $5,000 threshold. In practice, this means the cap functions as a true ceiling on total cost-sharing liability, not just on what comes directly out of a beneficiary’s pocket.”

Medicare Advantage (MA) is required to have an out-of-pocket cap. Despite the significant problems with MA, many Medicare beneficiaries choose MA because they do not want to risk financial ruin if they have a chronic condition or contract a serious illness like cancer. While many of us do purchase Medigap insurance with our Traditional Medicare (TM) coverage, for very many Medicare beneficiaries the cost of private Medigap insurance is too much for fixed income budgets.

In his post, Potter goes on to say, “According to an analysis by Brown University’s Center for Advancing Health Policy through research shared with Senate Finance Committee staff, 3.2 million beneficiaries would benefit from the cap in 2028 alone. Over the next decade, more than half of beneficiaries are expected to exceed the $5,000 threshold at least once. On average, the cap is projected to save enrollees $1,024 per year.”

PSARA and the PSARA Education Fund have promoted the goal of leveling the playing field between MA and TM. S4886 is an important step in that direction. While we would have preferred a lower cap (e.g. $3,000), short of Medicare for All, this legislation represents an important step forward in providing Medicare beneficiaries with a genuine choice between MA and TM.

Potter writes: “The average Social Security retirement benefit in 2026 is about $1,900 a month, or roughly $22,800 a year. An uncapped medical event that generates $15,000 or $20,000 in Parts A and B cost-sharing — entirely possible with a serious hospitalization or cancer diagnosis — would be financially catastrophic for the median beneficiary in traditional Medicare. A $5,000 cap doesn’t make that event painless, but it makes it survivable without financial ruin.

“For beneficiaries currently being pushed toward Medicare Advantage – not because they prefer it but because they cannot afford Medigap – this cap would change the calculus. Traditional Medicare with a $5,000 OOP limit is a meaningfully different product from traditional Medicare without one. For the first time, it would be a product that most seniors could choose on its merits rather than on the basis of financial fear.”

In addition, the cost of Medigap insurance for those who choose to purchase Medigap, should decrease as the risk of loss to the insurer is less than it was with no cap. Those who purchase Medigap have experienced Medigap policy premiums increasing steadily. Sponsors of the Medicare Cost Cap Act made clear that one goal of the legislation is lowering the increasing Medigap premiums.

S4886 is a stake in the ground for future sessions of Congress. It is not likely to be considered, much less passed, under the present leadership in Congress and in the White House. But we will do all that we can, working with our national partners and Washington’s congressional delegation, to have it reintroduced in the 2027 Congress.

The idea of a reasonable out-of-pocket cap in Traditional Medicare has sprung to life as a necessary step in leveling the playing field between TM and MA. Medicare beneficiaries need to have a genuine choice and not be forced into MA because they cannot afford TM.