Financial Effects of an Out-of-Pocket Cap in Traditional Medicare.

Importance: Traditional Medicare (TM) exposes beneficiaries to substantial financial risk because, unlike Medicare Advantage (MA), there is no out-of-pocket (OOP) maximum for medical spending. Policymakers have proposed introducing an OOP cap, but its fiscal and behavioral effects are uncertain. Objective: To estimate the financial impacts of introducing OOP spending caps of $3000, $5000, or $10 000 annually in TM on beneficiary costs, enrollment patterns, and Centers for Medicare & Medicaid Services expenditures between 2026 and 2034. Design, Setting, and Participants: This economic evaluation using principles of microsimulation analysis projected enrollment, spending, and health care use outcomes under baseline (no OOP cap) and 3 alternative cap scenarios using publicly available national Medicare and insurance data from 2020 to 2024 with projections through 2034. The model incorporated elasticity-based behavioral responses, including beneficiary switching between TM and MA, changes in service use, and increases to MA benchmarks and spending. Sensitivity analyses varied model assumptions probabilistically. Exposure: Introduction of annual OOP caps for Parts A and B in TM at $3000, $5000, or $10 000. Main Outcomes and Measures: Projected changes in beneficiary enrollment by coverage type, mean annual beneficiary OOP and premium spending, and annual Medicare expenditures. Results: Between 2026 and 2034, a $3000 OOP cap was projected to reduce mean annual beneficiary expenditures by $1568, compared with $1138 under a $5000 cap and $707 under a $10 000 cap. Corresponding increases in annual Medicare spending were estimated at $96 billion (90% simulation uncertainty interval [SUI], $80-$114 billion), $70 billion (90% SUI, $55-$85 billion), and $39 billion (90% SUI, $29-$50 billion), respectively. OOP caps, especially at lower thresholds, would substantially shift beneficiaries from MA to TM. Conclusions and Relevance: Results of this study suggest that implementing an OOP spending cap in TM would provide meaningful financial protection for beneficiaries but impose substantial fiscal costs on Medicare.