As of 2025, the Medicare Part D “donut hole” no longer exists – meaning there is no longer a coverage gap during which Part D enrollees face higher drug costs. The “donut hole” was eliminated thanks to provisions of the Affordable Care Act (ACA) and the Inflation Reduction Act (IRA).
What was the Medicare ‘donut hole’?
Since the Medicare Part D program took effect in 2006, there was a gap in Part D coverage for enrollees – commonly called the “donut hole” – which functioned like this:
- After an enrollee in a standard plan met their Part D deductible, they paid 25% of their drug costs until they reached a certain spending threshold. (This limit was adjusted annually by CMS.)
- At that point, they entered the “donut hole” – during which they paid much more out of pocket – until they reached catastrophic coverage. Initially, enrollees paid 100% of the cost of their drugs while in the donut hole. But the Affordable Care Act gradually closed the donut hole over several years.
- Then, after reaching another spending threshold while in the “donut hole,” the enrollee entered “catastrophic coverage,” at which point their costs dropped again. (The beneficiary would pay 5% of the costs, or a nominal copay, at this point.)
When did the Part D ‘donut hole’ close?
Starting in 2010, the ACA started closing the donut hole, and through 2019, the percentage that beneficiaries paid out of pocket for medications while in the donut hole gradually decreased.
The ACA had called for the donut hole to close by 2020, but it closed a year early, in 2019, for brand-name drugs, as a result of the Bipartisan Budget Act of 2018.)
How does Part D coverage work now that the ‘donut hole’ has been eliminated?
In 2025 and future years, the coverage gap phase (the “donut hole”) no longer exists. Instead there are these three phases:
The deductible phase: During this phase, you pay 100% of the cost of your prescriptions until your deductible is met. In 2026, the maximum deductible allowed is $615.
The initial coverage phase: You remain in this phase until your total out-of-pocket spending reaches the maximum out-of-pocket – $2,100 in 2026. Your out-of-pocket costs will depend on the specific drugs you take, and whether you have a Part D plan that follows the standard plan design. Plans can offer coverage that’s more robust than the standard design, so there is some plan-to-plan variation.
The catastrophic phase: At this point, you’ll pay nothing for covered prescriptions for the rest of the year. Your Part D plan pays the full cost of covered drugs.
Enrollees who need expensive medications should also be aware of the new option, which became available starting in 2025, to spread out their drug costs in equal payments throughout the year, instead of having to meet the $2,100 out-of-pocket maximum in the first few months of the year. (This program can be used regardless of the cost of your drugs, but it’s most beneficial to those who fill high-cost prescriptions early in the year.)
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written hundreds of opinions and educational pieces about the Affordable Care Act and Medicare for healthinsurance.org and medicareresources.org.
