What Is the Medicare Donut Hole? (And Does It Still Exist in 2026?)
Reviewed by Galit Sacajiu MD, MPH
If you have been on Medicare for a few years, you have probably heard the term "donut hole." It referred to a coverage gap in Medicare Part D where you temporarily paid a higher share of your drug costs after spending a certain amount. For many people on expensive medications, it meant a sudden jump in their drug bills mid-year.
The good news: the donut hole effectively ended.
What the Donut Hole Was
When Part D launched in 2006, the coverage structure had four phases. You paid your deductible, then entered an initial coverage phase where the plan covered most of your drug costs. After you and your plan together spent a certain combined amount, you fell into the coverage gap, or donut hole. In that gap, you paid a much higher percentage of drug costs on your own. Once your out-of-pocket spending reached the catastrophic threshold, coverage resumed with low cost-sharing.
At its worst, the donut hole meant beneficiaries were suddenly paying 100% of their drug costs mid-year, with no warning other than a notice from their plan.
How the Donut Hole Closed
The Affordable Care Act started closing the donut hole in 2010 by requiring drug manufacturers to provide discounts on brand-name drugs while beneficiaries were in the gap. Over the following years, those discounts increased annually. By 2020, beneficiaries in the gap paid 25% for both brand-name and generic drugs.
The Inflation Reduction Act completed the job. Starting in 2025, Medicare added a hard $2,000 annual out-of-pocket cap on covered drugs. Once you spend $2,000 out of pocket on covered Part D drugs in a calendar year, Medicare catastrophic coverage kicks in and you pay $0 for the rest of the year. The donut hole no longer functions as it once did.
How Part D Works in 2026
In 2026, Part D has three main phases rather than four. You pay a deductible of up to $590 for standard plans. Then you enter the initial coverage phase, paying your plan's copays or coinsurance. Once your out-of-pocket costs reach $2,000, you pay nothing for covered drugs for the rest of the year.
The $2,000 cap applies to your out-of-pocket costs only, not the total drug spending. If your plan covers most of the cost, it may take longer to reach the cap.
Who Benefits Most From the Cap
People who benefit most are those taking high-cost specialty medications, such as cancer drugs, biologics for rheumatoid arthritis or multiple sclerosis, and expensive brand-name diabetes drugs. Before 2025, someone on a $12,000-per-year specialty drug could owe thousands in cost-sharing. Now their exposure is capped at $2,000.
The Medicare Prescription Payment Plan
Also available in 2026: you can spread your Part D costs evenly across the year in monthly installments rather than paying large amounts upfront when you hit the deductible or early coverage phase. This is called the Medicare Prescription Payment Plan (M3P). Enroll through your Part D plan before February 1 to participate for the full year.
For more on how Part D works and how to choose a plan, see our [Medicare Part D guide](/medicare-part-d).