The Medicare Part D coverage gap (donut hole) has been effectively eliminated thanks to the Inflation Reduction Act. Starting in 2025, Medicare beneficiaries pay no more than a fixed amount out of pocket for prescription drugs in a calendar year. That cap was $2,000 in 2025 and is indexed upward each year after. This guide explains the current benefit structure, how the cap works, and what has changed from the old donut hole system.

Key Facts

The traditional Medicare donut hole has been eliminated as of 2025 (continuing in 2026)
The annual out-of-pocket cap applies to all Medicare Part D beneficiaries. It was $2,000 in 2025 and is indexed upward each year after
After reaching the cap, you pay $0 for covered drugs for the rest of the calendar year
The Medicare Prescription Payment Plan lets you spread the capped amount in equal monthly installments
Drug manufacturers now pay 20% of brand-name drug costs in the coverage gap phase
The Part D benefit phases are now: deductible, initial coverage, and catastrophic coverage ($0 once you reach the annual cap)

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Frequently Asked Questions

Is the Medicare donut hole gone in 2026?

Effectively, yes. While the coverage phases technically still exist, the annual out-of-pocket cap means your total spending on covered drugs is limited. That cap was $2,000 in 2025 and is indexed upward each year after. The old donut hole could cost thousands in the gap. Now, once you reach the cap, your plan covers everything at 100% for the rest of the year.

How does the Medicare Part D out-of-pocket cap work?

All your out-of-pocket spending on covered Part D drugs (copays, coinsurance, deductible payments) counts toward the annual cap, which was $2,000 in 2025 and is indexed upward each year after. Once your true out-of-pocket costs reach it, you enter catastrophic coverage where your plan pays 100%. The Medicare Prescription Payment Plan lets you pay that amount in equal monthly installments instead of all at once.

What is the Medicare Prescription Payment Plan?

This optional program lets you spread your Part D out-of-pocket drug costs across the year in predictable monthly payments, similar to a payment plan. Instead of paying large copays at the pharmacy, you make equal monthly payments to your Part D plan. You can opt in at any time by contacting your plan.

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