Medicare Part D Coverage Gap (Donut Hole) Explained

The Medicare Part D "donut hole," also called the coverage gap, no longer exists. As of January 1, 2025, the Inflation Reduction Act replaced the old multi-phase drug cost structure with a simpler system built around a single $2,000 annual cap on what you pay out of pocket for covered prescription drugs. If you're researching the donut hole in 2026 because you saw the term online or heard it from a friend, the short version is: it's a piece of Medicare history now, and what replaced it is generally better for your wallet.

This guide explains what the donut hole used to be, what changed, and how the current Medicare Part D plans cost structure works so you know what to expect from your drug coverage this year.

What the donut hole used to be

Before 2025, Medicare Part D had four cost phases each year: a deductible, an initial coverage period, the coverage gap (donut hole), and catastrophic coverage. The donut hole was the phase where, after you and your plan had spent a certain combined amount on drugs, you temporarily paid a larger share of your prescription costs until you reached the catastrophic coverage threshold.

In 2024, the last full year the gap existed, beneficiaries generally paid 25% of the cost for both brand-name and generic drugs while in the gap, with manufacturer discounts and plan contributions covering the rest. Reaching the gap and climbing out of it could take months for people on expensive medications, and the total dollar amounts involved could add up quickly for anyone managing chronic conditions.

What replaced it in 2025 and 2026

The Inflation Reduction Act restructured Part D into three simpler phases. Here's how the current system works, according to the Centers for Medicare & Medicaid Services (CMS):

• Deductible phase: You pay 100% of drug costs up to your plan's deductible (some plans have no deductible or a lower one; the standard maximum is set annually).
• Initial coverage phase: You typically pay 25% coinsurance for covered drugs, and your plan covers the rest, until your total out-of-pocket spending for the year reaches $2,000.
• Catastrophic phase: Once you hit the $2,000 out-of-pocket cap, you pay $0 for covered Part D drugs for the remainder of the calendar year.

There is no longer a separate coverage-gap phase with its own coinsurance rules. Your spending simply moves from the deductible, through the 25% coinsurance phase, to $0 once the cap is reached. You can review current cost details on Medicare.gov's Part D costs page.

Why this matters for your 2026 budget

The $2,000 cap applies to what you personally pay for covered drugs at retail cost-sharing, deductibles, and coinsurance combined. It does not include your monthly Part D premium, which you still pay separately. The exact deductible and cap amounts are adjusted annually, so check your plan's Annual Notice of Change or Medicare.gov's cost page for the current-year figures before you assume last year's numbers still apply.

Because the cap is now predictable, comparing plans has gotten a bit more straightforward: instead of estimating gap coinsurance and manufacturer discounts, you mainly need to compare premiums, deductibles, and formulary coverage for your specific medications. The Medicare star ratings for each plan can also help you gauge overall plan quality and member satisfaction alongside cost.

The Medicare Prescription Payment Plan

Alongside the $2,000 cap, CMS also introduced the Medicare Prescription Payment Plan (sometimes called M3P) starting in 2025. It lets you spread your out-of-pocket Part D costs into monthly payments across the plan year instead of paying larger amounts at the pharmacy counter. Participation is optional and doesn't reduce your total costs, but it can make cash flow easier if you take expensive medications early in the year. Ask your plan directly whether you're enrolled and how the monthly amount is calculated.

How this fits with your broader Medicare coverage

Part D changes affect anyone with a standalone drug plan or a Medicare Advantage plan that includes drug coverage. If you're weighing Medicare Advantage vs Supplement options, the $2,000 drug cap applies either way as long as the plan includes Part D coverage. It's separate from the medical Medicare out-of-pocket maximum that applies to Medicare Advantage plans for Part A and Part B services.

If you have limited income, you may also qualify for the Extra Help program, which can lower your premiums, deductible, and coinsurance beyond the standard structure described here. And if you're new to Medicare or reviewing whether your current drug coverage still counts as creditable coverage, confirming that now can help you avoid a Medicare late enrollment penalty down the road. People managing multiple chronic conditions may also want to look at Medicare Special Needs Plans, which sometimes pair targeted benefits with drug coverage.