Change the Cost-Sharing Rules for Medicare and Restrict Medigap Insurance

In the traditional fee-for-service (FFS) portion of the Medicare program, cost sharing—the payments for which enrollees are responsible when they receive health care—varies significantly depending on the type of service provided. Cost sharing in FFS Medicare can take the following forms: deductibles, coinsurance, or copayments. Deductibles are the amount of spending an enrollee incurs before coverage begins, and coinsurance (a specified percentage) and copayments (a specified dollar amount) represent the portion of spending an enrollee pays at the time of service.

Under Medicare Part A, which primarily covers services provided by hospitals and other facilities, enrollees are liable for an initial copayment (sometimes called the Part A deductible) of $1,556 (in 2022) for each "spell of illness" that requires hospitalization and substantial daily copayments for extended stays. Under Medicare Part B, which mainly covers outpatient services, enrollees pay an annual deductible of $233 (in 2022) and generally pay 20 percent of allowable costs in excess of that deductible. There is no catastrophic cap on Medicare cost sharing. Therefore, most people enrolled in FFS Medicare have some form of supplemental insurance that reduces or eliminates their cost-sharing obligations and protects them from high medical costs. Most commonly, people either purchase an individual medigap policy directly from an insurer, or they retain coverage from a former employer as retirees. Medicaid also covers Medicare's cost sharing for most people who enroll in both Medicare and Medicaid.

This option consists of three alternatives. The first alternative would replace Medicare's current cost-sharing requirement with a single annual deductible of $850 for all Part A and Part B services, a uniform coinsurance rate of 20 percent for all spending above that deductible, and an annual out-of-pocket cap of $8,500. The second alternative would leave Medicare's cost-sharing rules unchanged but would restrict existing and new medigap policies. Specifically, it would bar those policies from paying any of the first $850 of an enrollee's cost-sharing obligations for Part A and Part B services in calendar year 2026 and would limit coverage to 50 percent of the next $7,650 of an enrollee's cost sharing. Medigap policies would cover all further cost-sharing obligations, so policyholders would not pay more than $4,675 in cost sharing in 2026. The third alternative would combine the changes from the first and second alternatives. After 2026, dollar amounts in all three alternatives, such as the combined deductible and cap (the first and third alternatives) and the medigap thresholds (the second and third alternatives), would be indexed to the rate of growth of average FFS Medicare spending per enrollee.