The Medicare donut hole no longer exists in 2026. The Inflation Reduction Act eliminated the coverage gap and replaced it with a $2,000 annual out-of-pocket cap on covered Part D drugs — the most significant Medicare drug benefit improvement in two decades.
The Old Donut Hole Structure (Before 2025)
From 2006 through 2024, Part D had four distinct phases. The “donut hole” was phase 2 — a coverage gap where beneficiaries paid significantly more:
| Phase | When It Applied | What You Paid |
|---|---|---|
| Deductible | Before coverage starts | Up to $545 (2023) in drug costs |
| Initial coverage | After deductible through $4,660 combined spend (2023) | Copays per tier |
| Coverage gap (donut hole) | $4,660 to $7,400 in combined spend | 25% of brand-name drug costs |
| Catastrophic | After $7,400 combined spend | Small copays or 5% coinsurance |
People taking expensive brand-name or specialty drugs often spent months stuck in the donut hole — paying hundreds per month until reaching catastrophic coverage.
The New Structure in 2026 (No Donut Hole)
The Inflation Reduction Act removed the coverage gap entirely. In 2026, Part D has only three phases:
| Phase | Trigger | What You Pay |
|---|---|---|
| Deductible | First $590 of drug costs | 100% (up to $590) |
| Initial coverage | After deductible until $2,000 in OOP spending | Copays or coinsurance per tier |
| Catastrophic | After $2,000 in out-of-pocket costs | $0 for rest of year |
The donut hole (coverage gap) is gone. There is no phase where you suddenly pay more than your standard copays.
How Much the Cap Saves Beneficiaries
Under the old system, someone spending $1,000/month on a specialty drug could face dramatically higher costs during the donut hole phase. The 2026 $2,000 cap changes the math entirely:
Example: Specialty Drug Costing $8,000/Year Retail
| Scenario | Out-of-Pocket Cost |
|---|---|
| 2023 (with donut hole) | $3,500–$5,500 |
| 2026 (with $2,000 cap) | $2,000 max |
| Annual savings | $1,500–$3,500 |
Example: Generic Drug User, $100/Month in Prescriptions
| Scenario | Out-of-Pocket Cost |
|---|---|
| 2023 | ~$500–$800 (copays only, rarely reached donut hole) |
| 2026 | ~$300–$600 (copays, unlikely to reach $2,000 cap) |
| Impact | Modest — generic users rarely hit the old donut hole anyway |
The cap matters most to beneficiaries taking brand-name or specialty medications.
Medicare Prescription Payment Plan (Smoothing Option)
Starting in 2025, beneficiaries can elect the Medicare Prescription Payment Plan, which lets you spread out-of-pocket drug costs evenly across all 12 months rather than paying them concentrated in the first part of the year.
| Without Smoothing | With Smoothing |
|---|---|
| Pay full OOP early in year, hit cap, then $0 | Spread costs evenly over 12 months |
| Great if cash flow isn’t a concern | Helps those on fixed incomes manage monthly budgets |
| No enrollment required | Opt-in during plan enrollment or mid-year |
Extra Help (Low-Income Subsidy) in 2026
Beneficiaries with limited income and assets can get Extra Help, which provides:
| Extra Help Benefit | 2026 Amounts |
|---|---|
| Part D premium | Fully or partially subsidized |
| Annual deductible | $0 or reduced |
| Copays per drug | $4.50 generics / $11.20 brand-name (full LIS) |
| OOP cap | N/A — low copays mean you rarely approach it |
Apply through Social Security Administration (ssa.gov) or your State Medical Assistance office.
What This Means for Your Part D Strategy
- Donut hole strategies are obsolete — Prior advice about timing prescriptions or switching to generics mid-year to avoid the donut hole no longer applies.
- Specialty drug users benefit most — If you take expensive medications, you now have a hard $2,000 floor on annual drug costs.
- Still shop annually — While the cap helps, plan premiums, formularies, and pharmacy networks still vary significantly. Compare plans every October.
- Medigap doesn’t cover Part D — Medigap plans fill gaps in Original Medicare Parts A and B but do not cover drug costs. Part D is separate.
The Medicare Part D donut hole affects prescription drug costs — see Medicare Part D cost for the full Part D premium and coverage breakdown. For Medigap plans that help cover out-of-pocket gaps, see Medigap cost. For the health insurance hub, see health insurance hub.
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