The Medicare Part D Donut Hole in 2026: What It Is and How the Coverage Gap Works

If you have Medicare Part D prescription drug coverage, you have probably heard the term "donut hole" or "coverage gap." For years, the donut hole was the most dreaded phase of Part D — a stretch where beneficiaries were left paying the vast majority of their drug costs out of pocket, sometimes forcing people to skip medications they needed to survive.

The Inflation Reduction Act has fundamentally changed how the donut hole works, and the $2,000 annual out-of-pocket cap that took effect in 2025 means no Medicare beneficiary will face unlimited drug costs ever again. But understanding how the coverage gap fits into the larger Part D benefit structure is still essential for managing your prescription expenses and choosing the right plan.

This guide explains what the donut hole is, how the four phases of Part D coverage work in 2026, what the Inflation Reduction Act changed, and what you can do to keep your prescription costs as low as possible.

What Is the Medicare Part D Donut Hole?

The donut hole — officially called the coverage gap — is the third of four phases in Medicare Part D's benefit structure. When Part D launched in 2006, the coverage gap was a period where beneficiaries received no help from their plan after their total drug costs reached a certain threshold. You paid 100% of your drug costs out of pocket until your spending was high enough to trigger catastrophic coverage.

The name "donut hole" comes from the shape of the benefit. There is coverage at the beginning (the inner ring), a gap in the middle (the hole), and coverage again at the end when catastrophic protection kicks in. For beneficiaries taking expensive medications, falling into the donut hole once meant facing thousands of dollars in unexpected costs.

Over the past decade, legislation has gradually closed the donut hole. The Affordable Care Act began shrinking it in 2011 by requiring drug manufacturers to provide discounts on brand-name drugs in the gap. The Inflation Reduction Act completed the process by restructuring Part D so that your cost-sharing stays the same in the coverage gap as it is during initial coverage — and by capping total out-of-pocket spending at $2,000 per year.

The Four Phases of Part D Coverage in 2026

Medicare Part D does not work like a simple insurance plan where you pay the same copay every time you fill a prescription. Your costs change as you move through four distinct phases during each calendar year. Understanding these phases is the key to understanding the donut hole.

Phase 1: The Deductible

When the calendar year begins, you start in the deductible phase. During this phase, you pay the full cost of your prescription drugs until you reach your plan's annual deductible. For 2026, the maximum Part D deductible is $590. Some plans set a lower deductible, and many plans waive the deductible entirely for drugs on lower tiers such as preferred generics.

Everything you pay during the deductible phase counts toward your $2,000 annual out-of-pocket cap. Once you have met the deductible, you advance to the initial coverage phase.

Phase 2: Initial Coverage

After you meet the deductible, you enter the initial coverage phase. During this phase, you pay a copay or coinsurance for each prescription, and your plan pays the rest. How much you pay depends on the drug's tier — generic drugs typically have low flat copays, while brand-name and specialty drugs often require percentage-based coinsurance.

The initial coverage phase continues until your total drug costs — what you and your plan have paid combined — reach $5,030 in 2026. Most Medicare beneficiaries with moderate prescription needs spend the entire year in this phase and never reach the coverage gap at all.

Phase 3: The Coverage Gap (Donut Hole)

Once your total drug costs exceed $5,030, you enter the coverage gap — the donut hole. Historically, this was the most expensive phase for beneficiaries. Before the Inflation Reduction Act, you could face steep cost-sharing in this phase, paying 25% or more of drug costs out of pocket.

Starting in 2025, the Inflation Reduction Act effectively eliminated the financial impact of the donut hole. You now pay the same copays and coinsurance in the coverage gap that you paid during the initial coverage phase. Your plan and the drug manufacturers absorb the additional costs behind the scenes. For most beneficiaries, the transition into the coverage gap is now invisible — you will not notice any change in what you pay at the pharmacy counter.

Phase 4: Catastrophic Coverage

Once your true out-of-pocket spending on covered Part D drugs reaches $2,000 in 2026, you enter the catastrophic coverage phase. At this point, you pay $0 for all covered Part D drugs for the remainder of the calendar year. Before the Inflation Reduction Act, beneficiaries in catastrophic coverage still owed 5% coinsurance on every prescription — which meant people taking expensive specialty medications could still face thousands of dollars in additional costs. That 5% coinsurance was eliminated entirely starting in 2025.

2026 Part D Coverage Thresholds at a Glance

Here are the key dollar amounts that define each phase of Part D coverage for 2026:

• Maximum annual deductible: $590. Your plan may set a lower deductible or waive it for certain drug tiers.
• Initial coverage limit: $5,030 in total drug costs (what you and your plan pay combined). Once exceeded, you enter the coverage gap.
• Annual out-of-pocket cap: $2,000. Once your true out-of-pocket spending reaches this amount, you pay $0 for covered drugs the rest of the year.
• National base beneficiary premium: Approximately $36.78 per month. Your actual premium varies by plan.

These thresholds are adjusted annually by CMS. Because the $2,000 out-of-pocket cap is now the binding constraint for most beneficiaries, many people will reach catastrophic coverage well before their total drug costs reach levels that would have placed them deep into the old donut hole.

How the Inflation Reduction Act Changed the Donut Hole

The Inflation Reduction Act, signed into law in August 2022, is the most significant overhaul of Medicare Part D since the program began. Its changes to the donut hole and overall Part D benefit structure took effect in stages, with the most impactful provisions starting January 1, 2025. Here is what changed and why it matters.

• $2,000 hard cap on out-of-pocket costs: Before the IRA, there was no true maximum on what you could spend out of pocket for Part D drugs. Even in catastrophic coverage, you owed 5% coinsurance indefinitely. Now, once you spend $2,000, you owe nothing more for covered drugs for the rest of the year.
• Consistent cost-sharing in the gap: Your copays and coinsurance remain the same when you enter the coverage gap. Drug manufacturers and your plan absorb the difference, so you experience no spike in costs at the pharmacy.
• Elimination of 5% catastrophic coinsurance: The old rule that required 5% coinsurance even after reaching catastrophic coverage has been eliminated. Catastrophic coverage now means $0 cost-sharing.
• Insulin capped at $35 per month: All Part D plans must limit insulin copays to no more than $35 for a 30-day supply, regardless of the coverage phase. This applies to all insulin products including pens and vials.
• Medicare drug price negotiation: For the first time, Medicare can negotiate prices directly with drug manufacturers for certain high-cost medications. The first ten negotiated drug prices took effect in 2026, and the list will expand in subsequent years.
• Medicare Prescription Payment Plan: You can opt into a program that spreads your out-of-pocket drug costs into equal monthly payments throughout the year, with no interest and no credit check.

Taken together, these changes mean the donut hole is no longer the financial cliff it once was. The coverage gap phase still exists in the Part D structure, but it has been defanged. The $2,000 cap is the single most important protection — it guarantees that no matter how expensive your medications are, your annual out-of-pocket drug spending has a hard ceiling.

How Generic and Brand-Name Drugs Work in the Coverage Gap

While the donut hole no longer affects what you pay at the pharmacy, the behind-the-scenes mechanics still differ for generic and brand-name drugs. Understanding these differences can help you see why choosing generics remains one of the best strategies for managing prescription costs.

Brand-Name Drugs in the Gap

When you fill a brand-name prescription in the coverage gap, the drug manufacturer provides a significant discount on the medication's cost. This manufacturer discount counts toward your true out-of-pocket spending, helping you reach the $2,000 catastrophic threshold faster. Your plan covers additional costs to ensure your copay or coinsurance stays the same as during initial coverage. The net effect is that brand-name drugs accelerate your progress toward the out-of-pocket cap.

Generic Drugs in the Gap

Generic drugs do not come with manufacturer discounts in the coverage gap. Instead, your Part D plan covers the additional costs directly. Your cost-sharing stays the same as during initial coverage, but because there is no manufacturer discount counting toward your out-of-pocket total, generics alone may not push you toward the $2,000 cap as quickly as brand-name drugs would.

However, generics almost always cost significantly less than their brand-name counterparts. Choosing generics whenever possible keeps your out-of-pocket spending lower overall, even if it takes longer to reach the catastrophic phase. For most beneficiaries, the lower total cost of generics far outweighs the benefit of reaching the cap faster through brand-name drugs.

Extra Help: The Low Income Subsidy for Part D Costs

If you have limited income and resources, you may qualify for Extra Help — also known as the Low Income Subsidy, or LIS. Extra Help is a federal program that pays for most or all of your Part D costs, including premiums, deductibles, and copayments. It is one of the most valuable and underutilized benefits in Medicare, and it can make the donut hole and coverage phases largely irrelevant to your finances.

To qualify for Extra Help in 2026, your income must be below approximately $22,590 for an individual or $30,660 for a married couple, and your countable resources must be below $17,220 individually or $34,360 for a couple. Resources such as your home, vehicle, personal belongings, burial plots, up to $1,500 in burial funds, and life insurance policies are excluded from the calculation.

With full Extra Help, you receive:

• No monthly premium for Part D plans at or below the regional benchmark
• No annual deductible
• Reduced copays — typically $0 to $4.50 for generics and $0 to $11.20 for brand-name drugs
• No coverage gap — Extra Help effectively eliminates the donut hole for qualifying beneficiaries

People who receive full Medicaid benefits, Supplemental Security Income (SSI), or participate in a Medicare Savings Program are automatically enrolled in Extra Help. If you think you might qualify but are not sure, apply — there is no penalty for applying and being denied. You can apply online at ssa.gov, by calling Social Security at 1-800-772-1213, or through your local State Health Insurance Assistance Program (SHIP).

Strategies to Manage Your Prescription Drug Costs

Even with the $2,000 out-of-pocket cap, $2,000 is still a significant expense for many people on a fixed income. Here are practical strategies to keep your prescription drug costs as low as possible.

• Ask your doctor about generic alternatives: Generic drugs contain the same active ingredients as brand-name drugs and are FDA-approved to work the same way. They can cost 80% to 85% less. If you are taking a brand-name medication, ask your doctor or pharmacist whether a generic equivalent is available.
• Use your plan's preferred pharmacy: Part D plans have tiered pharmacy networks. Filling prescriptions at a preferred pharmacy can save you money on every fill compared to using a standard or out-of-network pharmacy.
• Consider mail-order for maintenance medications: Many plans offer 90-day supplies through mail-order pharmacies at a lower cost per day than filling 30-day prescriptions at a retail pharmacy. This is ideal for medications you take on an ongoing basis.
• Review your Part D plan every year: Plan formularies, copay structures, and pharmacy networks change annually. The best plan for your medications last year may not be the best this year. Use the Medicare Plan Finder at Medicare.gov during the Annual Enrollment Period (October 15 through December 7) to compare plans based on your specific drugs and pharmacy.
• Opt into the Medicare Prescription Payment Plan: If you take expensive medications that front-load your costs early in the year, the Prescription Payment Plan lets you spread those costs into predictable monthly installments. There is no interest, no credit check, and you can opt in at any time through your Part D plan.
• Apply for Extra Help if you have limited income: Even partial Extra Help can significantly reduce your premiums, deductible, and copays. Many people who qualify never apply because they do not realize they are eligible.
• Ask about manufacturer assistance programs: Many pharmaceutical companies offer patient assistance programs that provide free or discounted medications to people who meet certain income criteria. Your doctor's office or pharmacist can often help you identify these programs.
• Request a formulary exception if your drug is not covered: If your plan does not cover a medication you need, your doctor can submit a formulary exception request explaining why that specific drug is medically necessary. The plan must respond within 72 hours (24 hours for urgent requests), and you can appeal if denied.

A Brief History: How the Donut Hole Has Changed Over Time

The coverage gap has undergone dramatic changes since Part D launched. Understanding its history puts the current protections in perspective.

• 2006 to 2010: When Part D began, beneficiaries who entered the donut hole paid 100% of their drug costs out of pocket. There was zero coverage in the gap. Many seniors were forced to choose between paying for medications and paying for food or rent.
• 2011 to 2019: The Affordable Care Act began closing the donut hole by requiring drug manufacturers to provide a 50% discount on brand-name drugs in the gap, with the plan covering an increasing share of generic drug costs. Beneficiary cost-sharing in the gap gradually decreased each year.
• 2020 to 2024: By 2020, beneficiaries paid 25% of drug costs for both generics and brand-name drugs in the gap — the same percentage as during initial coverage. The donut hole was considered "closed" in terms of what you paid, though the gap phase still existed structurally. However, there was still no hard cap on out-of-pocket spending — beneficiaries on expensive specialty drugs could spend thousands beyond the gap.
• 2025 onward: The Inflation Reduction Act introduced the $2,000 out-of-pocket cap, eliminated the 5% catastrophic coinsurance, and restructured plan and manufacturer responsibilities in the coverage gap. For the first time, Part D has a true maximum out-of-pocket limit, giving beneficiaries the financial certainty they have needed since the program's inception.

The Bottom Line

The Medicare Part D donut hole was once the most feared aspect of prescription drug coverage for seniors. For years, it left millions of beneficiaries exposed to crushing out-of-pocket costs during the coverage gap — costs that forced some people to ration or skip the medications they needed.

That era is over. The Inflation Reduction Act's $2,000 annual out-of-pocket cap, combined with consistent cost-sharing across all coverage phases and the elimination of the 5% catastrophic coinsurance, means the donut hole is no longer a financial threat. The coverage gap phase still exists in the Part D benefit structure, but it no longer represents a spike in your costs.

Even so, managing your Part D costs wisely remains important. Review your plan every year during the Annual Enrollment Period. Choose generic drugs when available. Use your plan's preferred pharmacy. If your income is limited, apply for Extra Help — it can eliminate most or all of your drug costs. And if you take expensive medications that front-load your spending, consider the Medicare Prescription Payment Plan to smooth those costs into manageable monthly installments.

The donut hole may no longer bite, but Part D is still a complex benefit with real money at stake. Understanding how the four coverage phases work — and taking advantage of every protection the Inflation Reduction Act provides — is the best way to ensure you never pay more than you have to for the prescriptions you depend on.