Modernizing Medicare Cost Sharing

• Health Care

• Answering Challenges to Advanced Economies

Traditional Medicare's cost-sharing structure has not changed since 1965. Beneficiaries face separate Part A and Part B deductibles, per-day hospital copays, no coinsurance on certain services, and no annual out-of-pocket cap. This brief lays out reform templates proposed by the Simpson-Bowles Commission, the Congressional Budget Office, and others, compares a decade of budget scores, and analyzes a pending Senate bill that would add a spending cap without the offsetting cost-saving reforms.

Key Takeaways

• The basic reform template adopted by the Congressional Budget Office (CBO) and numerous other proposals has three parts: Merge the Part A and Part B deductibles into one; set uniform 20% coinsurance across services; and add an annual out-of-pocket cap to Traditional Medicare.
• Further savings depend on restricting Medigap-private insurance that can help cover beneficiaries' out-of-pocket costs. The CBO estimates $20 billion in savings from the basic reform template alone; adding Medigap restrictions raises that to $129 billion. More ambitious proposals that have included restricting Medicap coverage, like Lieberman-Coburn, projected savings of $371 billion.
• A cap on out-of-pocket spending without the offsetting reforms costs taxpayers. The Urban Institute estimated that a $5,900 cap resulted in $15 billion in added spending. A new Senate proposal, S. 4886, proposes a $5,000 cap with no offsetting changes and has not yet been scored on its projected budget impact.
• A Traditional Medicare cap changes the Medicare Advantage (MA) comparison. The out-of-pocket cap is a central marketing advantage for MA. A statutory cap on the basic benefit would erode that edge and could prompt the Centers for Medicare & Medicaid Services to revisit MA cost-sharing standards.
• The potential effects of cost-sharing reform on the financial health of the Part A trust fund are uncertain. A unified $850 deductible for Parts A & B is far below the current $1,736 hospital deductible, which decreases revenue for Part A. New coinsurance on skilled nursing, home health, and hospice may not fully offset the loss.

Cite this essay:

Lisa M. Grabert, "Modernizing Medicare Cost Sharing," Healthcare Policy Working Group, Hoover Institution, October 2026.