Medicare FAQ

What Is the Medicare Donut Hole?

The "donut hole" was a former Part D coverage gap. As of 2025, it no longer exists — it was replaced with a hard $2,100 annual out-of-pocket cap on covered prescription drugs for 2026. Once you hit that cap, covered medications are $0 for the rest of the year.

What Did the Donut Hole Used to Mean?

Historically, Medicare Part D had multiple coverage phases: an initial coverage period, then a "coverage gap" (the donut hole) where beneficiaries temporarily paid a higher percentage of drug costs, followed by catastrophic coverage once spending crossed a threshold. This structure confused a lot of people and could mean a sudden jump in monthly drug costs partway through the year.

What Replaced It?

Under the Inflation Reduction Act, Part D was restructured. As of 2025, the coverage-gap phase was eliminated entirely. For 2026, once your true out-of-pocket spending on covered drugs reaches $2,100 for the year, you pay $0 for the rest of your covered medications through December 31. There's no more "higher-cost gap phase" to plan around.

Does This Cap Apply to Every Drug?

The cap applies to drugs covered under your specific Part D or Medicare Advantage plan's formulary. Costs for medications not on your plan's formulary, or obtained outside your plan's pharmacy network, generally don't count toward the cap. That's part of why choosing a plan whose formulary matches your actual prescriptions matters more than comparing premiums alone.

What Should I Do With This Information?

If you take expensive medications, this cap is genuinely good news — it puts a real ceiling on your annual drug spending. It's still worth confirming your specific drugs are on a plan's formulary and checking each drug's cost tier, since two plans with the same $2,100 cap can differ significantly in premium and how quickly you'd reach that cap.

How Do I Know When I've Reached the $2,100 Cap?

Your Part D plan tracks your true out-of-pocket spending on covered drugs throughout the year and applies the cap automatically — you don't need to file anything. Your Explanation of Benefits and plan account portal typically show your running total, so you can see how close you are to reaching it as the year goes on.

Can I Spread Out High Drug Costs Instead of Paying Upfront?

Yes — as of 2025, Medicare Part D plans must offer the Medicare Prescription Payment Plan, which lets you spread your out-of-pocket drug costs into monthly payments across the plan year instead of paying large amounts at the pharmacy counter. This doesn't lower your total costs, but it can make high-cost months easier to manage if a single prescription would otherwise mean a large one-time bill.