Earlier this year, a group of 38 policy experts and organizations sent a letter to each member of Congress explaining why capping people’s out-of-pocket costs in traditional Medicare is an urgent priority. The letter follows. Since then, Senate Democrats have introduced a bill that would cap people’s costs in traditional Medicare.
Dear members of Congress:
Medicare has guaranteed health security for older adults and people with disabilities for more than 60 years, yet it urgently needs improvements. Health insurance should make high quality care affordable and accessible, shielding people from the fear of financial hardship. For millions of Medicare enrollees, Medicare no longer achieves this goal. Affordability has become a serious barrier to care.
We are a non‑partisan coalition of Medicare policy experts, academic researchers, and advocates from dozens of organizations. We support a broad range of Medicare reforms, including adding dental, vision, and hearing benefits, lowering premiums for low-income enrollees, covering long-term services and supports, and reducing the improper use of prior authorizations. But, fundamental to any program improvements and Medicare’s long-term sustainability are two urgent priorities:
- Establishing an out‑of‑pocket spending cap in Traditional Medicare
- Eliminating systematic overpayments to Medicare Advantage plans
We urge Congress, in its 2026 Medicare agenda, to prioritize these two reforms, which would lower health care costs for everyone with Medicare and strengthen the program’s long‑term solvency. These reforms are necessary to lay the groundwork for other improvements to Medicare.
Below we explain that:
- Traditional Medicare is vital to all Medicare enrollees and Medicare’s future.
- Without an out-of-pocket limit, Traditional Medicare’s costs can be unaffordable.
- Supplemental coverage, including Medigap, which provides protection from financial exposure in Traditional Medicare, is often unavailable or unaffordable.
- Many people enroll in private Medicare Advantage, even when it does not meet their needs, because it protects against unlimited financial exposure.
- Overpayments to Medicare Advantage plans will divert an estimated $76 billion from taxpayers and the Medicare Hospital Insurance Trust Fund in 2026—more than $1 trillion over the next decade—driving up Part B premiums for those in Traditional Medicare, with no measurable improvement to health outcomes.
- An out‑of‑pocket cap in both Traditional Medicare and Medicare Advantage would allow everyone with Medicare a meaningful choice.
Traditional Medicare is vital to all Medicare enrollees and the Medicare program
Traditional Medicare is the only health insurance program that protects the public interest with no profit motive. A robust Traditional Medicare is necessary to guarantee everyone with Medicare the care they need. It also contains Medicare spending, promotes public health, and drives competition between public and private Medicare options.
- Traditional Medicare helps rein in Medicare spending growth, as it costs less than Medicare Advantage and puts competitive downward pressure on costs in Medicare Advantage.
- Through its timely data, Traditional Medicare provides a window into persistent and emerging health care issues.
- Traditional Medicare promotes innovation through the testing of new models of care.
- Traditional Medicare sets the benchmark for all Medicare Advantage payments.
Traditional Medicare is not a meaningful option for all people with Medicare
Traditional Medicare is the only major health coverage in the United States without an annual out‑of‑pocket limit. Therefore, those without Medicaid benefits or employer-sponsored retirement insurance would need to purchase supplemental Medigap coverage to obtain catastrophic protection. Yet, this protection is often unaffordable or unavailable.
One in four people with Medicare lived on incomes below $24,600 in 2024 and half lived on incomes below $43,200. At more than $2,600 a year on average, Medigap premiums can average roughly 6 to 10 percent of income. Together with Part B premiums this can amount to 20 percent or more of a low-income enrollee’s income.
Even people who can afford Medigap premiums often cannot buy coverage. Federal law does not require Medigap insurers to sell policies to people under 65 with disabilities or ESRD. And, insurers can deny Medigap plans to Medicare Advantage enrollees wishing to switch back to Traditional Medicare because of pre-existing conditions. Enrollees who won’t or can’t take the financial risk of being in Traditional Medicare without catastrophic protection are effectively trapped in Medicare Advantage.
Requiring Medigap plans to issue policies regardless of health status, which might seem the logical solution, would give people with pre-existing conditions the option to buy these plans but would also lead to higher premiums. In the four states with guaranteed issue laws, Medigap plans are less affordable because of adverse selection: a less healthy population in Traditional Medicare and a healthier patient pool in Medicare Advantage lead to higher Medigap premiums and lower Medigap enrollment.
Medicare Advantage protects against unlimited financial exposure, making it a viable option for some people with Medicare. But, it fails to meet the needs of millions of others, including, for example:
- People for whom only poor-quality health plans are available.
- People facing inappropriate delays and denials of care as a result of prior authorization requirements and failure to follow Medicare coverage policies.
- People living in rural communities who must travel long distances to receive critical care in-network.
- People with acute and chronic conditions, who need continuity of care but who lose providers that leave Medicare Advantage networks.
- People in geographically limited networks who are away from home for significant periods, including those receiving eldercare from a family member.
- People with serious cancers, who lack coverage at a Comprehensive Cancer Center or face harmful care delays.
Enrollees in Traditional Medicare do not face these challenges accessing care. But, those who cannot afford supplemental coverage or for whom it is unavailable are faced with an impossible choice between a Medicare Advantage plan that does not meet their health care needs and Traditional Medicare without a limit to out-of-pocket spending. Nearly 13 percent of Traditional Medicare enrollees—about 3.5 million people—choose to enroll in Traditional Medicare without supplemental coverage, leaving them vulnerable to financial devastation from a single serious illness, adding to rampant medical debt, and forcing some into bankruptcy.
The Urgent Need for an Out‑of‑Pocket Cap in Traditional Medicare
People who enroll in Traditional Medicare face the possibility of catastrophic out-of-pocket costs. More than 4.5 million Medicare enrollees (about 12%) were estimated to incur over $5,000 in Medicare cost‑sharing in 2023 and more than one‑quarter of all people with Medicare—about 15 million enrollees—spend at least 21% of their income on out‑of‑pocket health costs in 2022. The share is even higher among those with low incomes. People with serious cognitive or physical impairments spend more than three times as much out of pocket as those without chronic disease or disability.
A well‑designed out‑of‑pocket cap would make Traditional Medicare an affordable and meaningful option for everyone with Medicare, providing access to high quality care anywhere in the United States. It would:
- Make Medicare more affordable for individuals, freeing up resources for care Medicare does not cover; modeling of a $5,000 out‑of‑pocket cap shows $6 billion in annual savings on out‑of‑pocket spending for the 4.5 million people who would exceed the annual cap.
- Promote continuity of care, ensuring that people can stay with their health care providers after those providers leave Medicare Advantage networks, even if they can’t afford supplemental coverage.
- Save Medicaid approximately $7 billion annually by reducing state payments for Medicare cost-sharing on behalf of dual-eligible beneficiaries.
- Reducing Medigap spending by $12 billion annually, lowering premiums for those who choose to keep their plans.
- Provide peace of mind by giving Traditional Medicare enrollees a clear, predictable ceiling on annual medical costs.
To ensure Traditional Medicare’s continued vitality, an out-of-pocket cap is fundamental to any program improvements
Prioritizing an out-of-pocket cap in Traditional Medicare strengthens the program and protects its long-term viability. It provides everyone the choice between Medicare Advantage and Traditional Medicare and permits the addition of other important benefits such as dental, vision, hearing; long-term care; and lower premiums, without undermining that choice.
Adding new benefits to Traditional Medicare without first establishing an out-of-pocket cap would further weaken Traditional Medicare. Traditional Medicare would be an even costlier and less affordable option for millions of enrollees. Supplemental coverage would be more expensive because of the additional cost-sharing for the new benefits. An out-of-pocket cap is the fundamental change needed to make Traditional Medicare a viable option for everyone with Medicare and to lay the groundwork for other improvements.
Addressing Medicare Advantage Overpayments
Medicare Advantage plans receive systematic overpayments that divert billions from taxpayers and the Medicare Trust Funds. Medicare Advantage will be overpaid by an estimated $76 billion in 2026 alone—and $1.2 trillion by 2034—driven by coding intensity, favorable selection, and the Quality Bonus Program. These overpayments accelerate Trust Fund depletion, distort the market against Traditional Medicare, and reward Medicare Advantage plans for aggressive coding and enrollee selection rather than better care.
Today, according to MedPAC, the average Medicare Advantage enrollee costs the Medicare program 14 percent more than that same enrollee would cost in Traditional Medicare even though Medicare Advantage was intended to be a less costly way of delivering Medicare benefits, not a more expensive one.
Eliminating Medicare Advantage overpayments would align Medicare Advantage spending per enrollee with Traditional Medicare benchmarks, end financial rewards for upcoding and favorable selection, and ensure that taxpayers are protected from paying more for people in Medicare Advantage than they would for the same people in Traditional Medicare. It would also reduce Medicare premiums and extend the life of the Medicare Trust Fund.
A Fiscally Responsible Package
The cost of an out-of-pocket limit in Traditional Medicare Parts A and B would depend on the level of the cap and whether it is inclusive of the existing Part D cap; a lower cap would directly benefit more people with Medicare. A 2022 study estimated that a $5,000 out-of-pocket cap—inclusive of the $2,000 Part D cap—would increase Medicare spending by approximately $41 billion per year ($44 billion in 2026 dollars)—only 58 percent of the $76 billion in overpayments MedPAC has projected for Medicare Advantage plans in 2026. The remaining savings could be directed toward addressing other Medicare reforms.
Using Medicare Advantage overpayments to cover the cost of an out-of-pocket cap in Traditional Medicare represents a fiscally responsible rebalancing of the Medicare program. It would make Medicare more affordable for older and disabled Americans, give everyone a meaningful choice between Traditional Medicare and Medicare Advantage, promote greater program equity, reduce waste, and extend Medicare’s long‑term solvency.
We respectfully urge you to make establishing an out‑of‑pocket spending cap in Traditional Medicare and eliminating systematic overpayments to Medicare Advantage plans the centerpiece of Medicare legislation in 2026. Our coalition stands ready to assist with technical analysis, educational sessions, policy design, legislative language, and stakeholder engagement.
Thank you for your leadership on behalf of older Americans and Americans with disabilities. We look forward to working with you to achieve these critical reforms. Please contact [email protected] for any questions regarding this letter.
Sincerely,
- Center for Economic and Policy Research
- Center for Health and Democracy
- Just Care USA
- People’s Action Institute
- Physicians for a National Health Program
- Public Citizen
- Social Security Works
- Gerard Anderson, PhD, Professor of Medicine, Professor of Public Health, Johns Hopkins University
- Eileen Appelbaum, PhD, Co-Director, Center for Economic and Policy Research
- Diane Archer, Founder, Just Care USA
- Scott Armstrong, former President & CEO, Group Health Cooperative, Former Commissioner. Medicare Payment Advisory Commission (MedPAC)
- Neda Ashtari, MD, MPP. Associate Director. Center for American Progress
- Richard Baron, MD. Former President. American Board of Internal Medicine
- Robert Berenson, MD. Institute Fellow. Urban Institute
- Donald Berwick, MD. President Emeritus and Senior Fellow. Institute for Healthcare Improvement. Former Administrator. CMS
- Christopher Cai, MD. Resident Physician. Brigham and Women’s Hospital
- Tina Castanares, MD. Principal. Castanares Consulting
- Joseph F. Damore, LFACHE. President. Damore Health Solutions. Former VP Population Health. Premier Inc.. Former CEO. Sparrow Health and Mission Health Systems
- Megan Essaheb. Director of Federal Affairs. People’s Action Institute
- Judith Feder, PhD. Professor and former Dean. McCourt School of Public Policy. Georgetown University
- Elliott Fisher, MD, MPH. Professor of Medicine and Health Policy. The Dartmouth Institute. Senior Fellow. Institute for Healthcare Improvement
- Richard Frank, Director of the Center on Health Policy, The Brookings Institution
- Alison Galvani, Founding Director, Yale Center for Infectious Disease Modeling and Analysis
- Clifton Gaus, Board Chair, Institute for Accountable Care
- Rick Gilfillan, MD, Independent Consultant, Former Deputy Administrator, CMS, Former Director, CMMI, Former CEO, Trinity Health
- Merrill Goozner, Editor & Publisher, GoozNews.substack.com, Former Editor, Modern Healthcare
- Micah Johnson, MD. Instructor, Harvard Medical School
- Brian Keyser, MS, Board Member, Primary Care for All Americans
- Alex Lawson, Executive Director, Social Security Works
- Angela Liu, PhD, MPH, Assistant Research Professor, Johns Hopkins Bloomberg School of Public Health
- Rachel Madley, PhD, Executive Director, Center for Health and Democracy
- Michael R. McGarvey, MD, Chair, Board of Directors, New York County Health Services Review Organization
- Wendell Potter, President, Center for Health and Democracy
- Bruce Pyenson, FSA, MAAA, Principal, Pyenson Healthcare Analytics, Former Commissioner, Medicare Payment Advisory Commission
- Cary Sennett, MD, PhD. Principal, The Sennett Consulting Group, Former Executive Vice President, National Committee for Quality Assurance
- Jackson Richard Thein
- Bruce Vladeck, PhDFormer Administrator, Healthcare Financing Administration, U.S. Department of Health and Human Services
- Paul Van de Water, PhD, Former Assistant Deputy Commissioner for Policy, Social Security Administration
- Ed Weisbart, MD, CPE, FAAFP, National Board Secretary, Physicians for a National Health Program
