The Big Update: The Donut Hole No Longer Exists
If you searched for the Medicare Part D donut hole hoping to understand how much it will cost you this year, here is the most important fact first: the donut hole is gone. The coverage gap that gave the “donut hole” its name was eliminated effective January 1, 2025, under the Inflation Reduction Act, and it remains gone in 2026. There is no longer a phase where your cost-sharing suddenly jumps after you and your plan spend a certain amount. If you have read older guides that describe paying more in a middle “gap,” that information is out of date.
This guide does two things. First, it explains what the donut hole was, because millions of beneficiaries lived through it for years and the term is still everywhere. Second, and more importantly, it explains the structure that replaced it: three benefit phases, a hard annual out-of-pocket cap, and a new option to spread your costs across the year. Understanding the current rules helps you choose the right plan and budget with confidence. For the broader policy picture, see our healthcare policy guide.
What the Donut Hole Was (Historical Explanation)
For most of Part D’s history, the benefit had a strange middle stage. Officially called the coverage gap, the “donut hole” was a phase you entered after you and your plan had spent a combined amount on drugs during the year. Inside the gap, your share of drug costs rose sharply. In the program’s early years, beneficiaries in the gap paid the full or near-full price of their medications until their spending was high enough to reach catastrophic coverage on the other side.
The image people used was a donut: coverage on the outer ring at the start of the year, a hole of reduced coverage in the middle, then coverage again once you spent your way through. Congress began closing the gap gradually after 2010, adding manufacturer discounts and shrinking the beneficiary’s share to 25 percent. Even after that, the gap was a real budgeting problem, because there was no ceiling on total spending. People taking expensive brand-name or specialty drugs could face thousands of dollars in out-of-pocket costs with no guaranteed stopping point.
That is the history. It matters because the word “donut hole” still appears on old plan documents, forums, and articles. But as a phase you actually pass through, it no longer exists.
What Changed and When
The Inflation Reduction Act restructured the Part D benefit in stages. Two changes matter most for the donut hole:
- 2024: The 5 percent coinsurance that beneficiaries used to owe in catastrophic coverage was eliminated, so reaching catastrophic coverage meant paying $0 for covered drugs.
- 2025: The coverage gap phase itself was eliminated and a hard annual out-of-pocket cap took effect. This is the change that ended the donut hole.
As of 2026, these changes are fully in place. The benefit is simpler than it has been in two decades, and the financial risk to beneficiaries is capped for the first time.
How Part D Works Now: The Three Phases
Medicare drug plans in 2026 move through three stages, not four. The confusing middle gap is gone.
Phase 1: Deductible
Many Part D plans have an annual deductible, and you pay the full negotiated price of your drugs until you meet it. By law, no Part D plan can set a deductible higher than $615 in 2026, and some plans charge less or apply a $0 deductible to preferred generic drugs. Once you meet the deductible, you move to the next phase.
Phase 2: Initial Coverage
In this phase your plan shares costs with you. You typically pay copays or coinsurance based on the drug’s formulary tier, up to a standard 25 percent coinsurance. You stay in this phase — paying your share as you fill prescriptions — until your out-of-pocket spending reaches the annual cap. Notably, there is no longer a point during this stretch where your cost-sharing spikes into a “gap.” The old dividing line simply does not exist.
Phase 3: Catastrophic Coverage
When your out-of-pocket spending for the year reaches the cap, you enter catastrophic coverage and pay $0 for covered Part D drugs for the rest of the calendar year. This is the safety net the old benefit lacked. It resets on January 1, when you begin again at the deductible phase.
The Annual Out-of-Pocket Cap
The single most important number in the new Part D benefit is the out-of-pocket cap. It is the maximum you will pay out of pocket for covered Part D drugs in a calendar year. For 2026, that cap is about $2,100. The figure is indexed and adjusts each year, so confirm the exact current amount at Medicare.gov or by calling 1-800-MEDICARE before you make plan decisions.
Under the old structure there was no ceiling. Someone on an expensive specialty medication could spend many thousands of dollars in a single year. The cap changes that math completely. Once you reach it, your covered drug costs stop for the year. For people with high drug costs, this is the difference between an open-ended bill and a predictable one.
A few details worth knowing:
- What counts toward the cap: your deductible payments, copays, and coinsurance for covered Part D drugs, plus certain payments made on your behalf, such as through the Extra Help program.
- What does not count: your monthly Part D premium. Premiums are separate and do not move you toward the cap.
- It is per calendar year: your out-of-pocket total resets to $0 every January 1.
The Medicare Prescription Payment Plan
Reaching the cap is good news, but a person with high drug costs early in the year could still face a large bill at the pharmacy in January or February before they get there. To address that, Medicare introduced the Medicare Prescription Payment Plan.
This is a voluntary option that works alongside your existing Part D or Medicare Advantage drug coverage. Instead of paying your share at the pharmacy counter each time you fill a prescription, you pay $0 at the pharmacy and your plan bills you monthly, spreading your out-of-pocket costs across the remaining months of the year. All Part D plans are required to offer it, and there is no fee to participate.
One thing to understand clearly: the payment plan does not lower your total drug costs or save you money. It only changes the timing, smoothing a large upfront cost into predictable monthly installments. It tends to help most if you have high drug costs concentrated early in the year. If your costs are low and steady, it may not offer much benefit, and you would still owe the same total. You can ask your plan or call 1-800-MEDICARE to learn how to enroll.
How the New Rules Affect Brand-Name and Generic Drugs
The financial impact still depends on whether you take brand-name or generic medications, but the cap now limits your exposure either way.
Brand-Name Drugs
Brand-name and specialty medications are where the cap matters most. Under the old benefit, these drugs drove people deep into out-of-pocket spending with no ceiling. Now, no matter how expensive your brand-name drugs are, your covered Part D out-of-pocket spending stops once you reach the annual cap.
Generic Drugs
Generics are already far cheaper, so many people who take only generics never reach the cap at all. Switching from a brand-name drug to a therapeutically equivalent generic, when your doctor agrees it is appropriate, remains one of the most reliable ways to lower what you pay. See our guide on generic vs. brand-name drugs for how to have that conversation with your prescriber and pharmacist.
Strategies to Keep Prescription Costs Down
Even with the cap, smart planning can lower what you pay before you reach it.
Ask about generics and lower tiers. Ask your doctor whether a generic or a lower formulary tier could treat your condition. The savings compound over a full year.
Apply for Extra Help. The Medicare Part D Extra Help program (also called the Low-Income Subsidy) lowers premiums, deductibles, and drug copays to small flat amounts for people who qualify. Because eligibility and copay amounts are updated each year, confirm the current figures when you apply through Social Security or call 1-800-MEDICARE.
Compare plans every year. During the Annual Enrollment Period, October 15 through December 7, use the official Plan Finder at Medicare.gov to compare total estimated annual costs across plans, including premiums, deductibles, and your specific drugs. A plan that looks cheap on premium can cost more overall depending on how it covers your medications.
Consider the Prescription Payment Plan if costs hit early. If you expect large pharmacy bills at the start of the year, spreading them into monthly installments can prevent a cash-flow crunch, even though it does not reduce your total.
Look into manufacturer and nonprofit assistance. Some manufacturers and independent charities offer help for eligible patients. Rules vary, so verify any program directly before relying on it.
Frequently Asked Questions
Is the Medicare Part D donut hole gone?
Yes. The coverage gap, commonly called the donut hole, was eliminated effective January 1, 2025, and there is no donut hole in 2026. Part D now has three phases — deductible, initial coverage, and catastrophic — with a hard annual out-of-pocket cap and no middle gap phase.
What replaced the donut hole?
A hard annual out-of-pocket cap (about $2,100 in 2026, indexed each year) and the Medicare Prescription Payment Plan. Once your out-of-pocket spending reaches the cap, you pay $0 for covered Part D drugs for the rest of the year.
Does the out-of-pocket cap include my premium?
No. Monthly Part D premiums do not count toward the cap. Only your deductible, copays, and coinsurance for covered Part D drugs count. Evaluate premium and drug cost-sharing together when comparing plans.
When does the cap reset?
On January 1 of each year. Your out-of-pocket total starts over at $0, and you begin again at the deductible phase.
Does the Prescription Payment Plan save me money?
No. It only spreads your out-of-pocket costs into monthly installments so you avoid large upfront bills at the pharmacy. Your total for the year is the same. It helps most when your drug costs land heavily early in the year.
Why do I still see the “donut hole” mentioned everywhere?
The term was part of Medicare for nearly 20 years, so it lingers in older articles, plan documents, and everyday conversation. As a phase you pass through, it no longer exists. Treat any source that still describes paying more in a middle “gap” as out of date.
The Bottom Line
The Medicare Part D donut hole was eliminated on January 1, 2025, and there is no donut hole in 2026. Part D now runs through three phases — deductible, initial coverage, and catastrophic — protected by a hard annual out-of-pocket cap of about $2,100 (indexed; verify the current figure). Once you reach the cap, covered Part D drugs cost you $0 for the rest of the year, and the Medicare Prescription Payment Plan can spread your costs into monthly installments. This article is for general education, not medical, financial, or insurance advice. Plan rules and dollar figures change every year, so confirm the current numbers and your specific plan’s details at Medicare.gov or by calling 1-800-MEDICARE before making decisions.