Donut hole insurance is shorthand for the old coverage gap in Medicare Part D prescription drug plans, a stretch in the middle of the year when your plan stopped sharing costs and you paid much more out of pocket. That gap no longer exists. The Inflation Reduction Act eliminated it starting in 2025 and replaced it with a hard annual cap on what you can spend out of pocket for covered drugs. For 2026, that cap is $2,100.1Centers for Medicare & Medicaid Services. Final CY 2026 Part D Redesign Program Instructions Once you hit that number, covered prescriptions cost you nothing for the rest of the calendar year.
What the Donut Hole Was
From Part D’s launch in 2006 through 2024, the benefit ran in four phases: a deductible, an initial coverage period, the coverage gap, and catastrophic coverage. The gap is the phase people called the donut hole. Once your total drug spending crossed a threshold — $5,030 in 2024 — your plan effectively stepped back and left you covering a much larger share of each prescription until you spent enough to reach catastrophic coverage.
Legislation softened the gap over the years. By 2024, enrollees in the gap paid 25% of the cost of brand-name drugs, with manufacturers absorbing most of the remaining discount. But the gap was still where people taking expensive medications felt the sharpest financial pressure, because reaching catastrophic coverage in 2024 required $8,000 in out-of-pocket spending, and even then costs only dropped, they didn’t disappear.
What Replaced the Donut Hole
The Inflation Reduction Act of 2022 phased in several Part D changes, and the biggest arrived in 2025: the coverage gap was removed entirely. Part D now has three phases instead of four.1Centers for Medicare & Medicaid Services. Final CY 2026 Part D Redesign Program Instructions There is no longer a middle stretch of the year where your cost-sharing spikes.
The law also set a firm annual ceiling on out-of-pocket spending for covered drugs. That cap was $2,000 in 2025 and $2,100 in 2026, and it will grow each year at the rate of per capita Part D costs.2Centers for Medicare & Medicaid Services. 2026 Medicare Advantage and Part D Rate Announcement Compared to the old $8,000 figure that only reduced your cost-sharing, this is a genuine ceiling.
How the Three Phases Work in 2026
- Deductible. You pay 100% of your covered drug costs until you’ve spent $615. Some plans set a lower deductible or waive it for certain drug tiers.3Medicare.gov. How Much Does Medicare Drug Coverage Cost?
- Initial coverage. After the deductible, you pay 25% of each prescription. Your plan and, for brand-name drugs, the manufacturer cover the rest. This phase continues until your out-of-pocket spending reaches $2,100.1Centers for Medicare & Medicaid Services. Final CY 2026 Part D Redesign Program Instructions
- Catastrophic coverage. Once you cross $2,100, you pay $0 for covered Part D drugs for the rest of the calendar year. Your plan, the manufacturer, and the federal government share the remaining costs.1Centers for Medicare & Medicaid Services. Final CY 2026 Part D Redesign Program Instructions
For someone taking expensive specialty medications, the practical effect is large. Costs that used to run into the thousands after the coverage gap opened now stop at $2,100.
Spreading the Cost Across the Year
Even a $2,100 cap can be hard to handle if most of it lands in January when you fill costly prescriptions early in the year. The Medicare Prescription Payment Plan, which began in 2025, lets you spread your out-of-pocket drug costs across the calendar year in monthly installments instead of paying the full cost-sharing amount at the pharmacy counter.4Medicare.gov. What’s the Medicare Prescription Payment Plan?
The plan is voluntary and free to join. You still pay your regular plan premium separately, and instead of paying cost-sharing at the pharmacy, you get a monthly bill from your drug plan. All Part D plans and Medicare Advantage plans with drug coverage must offer it. You can opt in at any point during the year, which matters if you unexpectedly start a costly medication mid-year. To sign up, contact your plan directly or visit its website.
If the Cap Is Still More Than You Can Pay
Medicare’s Extra Help program, also called the Low-Income Subsidy, pays part or all of your Part D premiums, deductibles, and cost-sharing if your income and assets fall below set limits. For 2026, you may qualify for the full subsidy with annual income at or below 150% of the federal poverty level, which is $23,940 for a single person.5U.S. Department of Health and Human Services. 2026 Poverty Guidelines
Asset limits apply too. In 2026, countable resources — savings, stocks, and bonds, but not your home or car — cannot exceed $16,590 if you’re single or $33,100 if you’re married.6Centers for Medicare & Medicaid Services. CY 2026 Resource and Cost-Sharing Limits for Low-Income Subsidy If you’ve set money aside for burial expenses and reported it to the Social Security Administration, those limits rise to $18,090 and $36,100.
Qualifying for Extra Help also exempts you from the Part D late enrollment penalty, and payments made on your behalf count toward the $2,100 out-of-pocket cap. Some states run additional pharmaceutical assistance programs that work alongside Extra Help, often with higher income limits. Your local State Health Insurance Assistance Program can tell you what you qualify for.
The short version: if someone told you to watch out for the donut hole, that advice is out of date. The gap phase is gone, your annual out-of-pocket exposure for covered Part D drugs is capped, and if that cap is still too much to absorb, both a monthly payment option and an income-based subsidy exist to bring it within reach.