Medicare Part D Donut Hole: How the Coverage Gap Works in 2026

Thanks to provisions in the Inflation Reduction Act, the Medicare Part D donut hole is finally gone as of January 1, 2025. Unfortunately, there is no donut hole in 2026. With a simplified three-phase structure (deductible, initial coverage, catastrophic), the Part D benefit will help shield all beneficiaries from spiraling prescription drug expenses with the new $2,100 annual out-of-pocket cap (up from $2,000 in 2025). Previously, Medicare Part D had 4 phases: Deductible, Initial coverage, Coverage gap or the "Donut Hole" (where beneficiaries were on the hook to pay 25% of drug costs), and Catastrophic coverage. The yearly pocket costs to the beneficiaries may be thousands of dollars. The donut hole was phased out of Medicare beginning in the Affordable Care Act of 2010, expedited by the Bipartisan Budget Act of 2018, and completely removed by the Inflation Reduction Act. The maximum Part D deductible for 2026 is $615 followed by the first coverage gap. If your spending out of pocket exceeds $2,100, you will drop into the catastrophic coverage stage where Medicare will cover 100% of covered drugs for the remainder of the year.

This guide discusses the Medicare Part D 2026 structure following the removal of the donut hole and what's different, as well as how it functions. Data is provided by Medicare.gov, CMS, and the Inflation Reduction Act. 

The donut hole is gone: what that means

The "donut hole" was hailed as one of the most frustrating parts of Medicare Part D for decades. Once your initial coverage period was over, you would go into a coverage gap where you would cover 25-100% of your drug expenses (depending on the year). In August or September many beneficiaries found their prescription bills, and had hundreds or thousands of dollars in unexpected costs.

The donut hole began to be closed after the Affordable Care Act became law in 2010, and the cost that beneficiaries must pay for the covered medications slowly decreased. The donut hole for brand-name drugs has been closed one year sooner than planned in the Bipartisan Budget Act of 2018. The Inflation Reduction Act was signed in August 2022 and will completely remove the donut hole starting January 1, 2025.

The donut hole isn't a thing in 2026. No gaps in coverage. No limit to spending where you all of a sudden need to start spending more. The Part D benefit has three distinct periods: deductible, initial coverage, and catastrophic coverage.

This is a streamlined design that will help you know what your prescription is going to be for the whole year. Higher costs will not result in August or September.

If you want more Medicare Part D coverage, check out our Medicare Part D guide. 

The new three-phase Part D structure

Medicare Part D in 2026 operates through three phases. Understanding each phase helps you predict your costs throughout the year.

Phase 1: Deductible phase. During this phase, you pay 100% of your drug costs until your deductible is met. The maximum allowable deductible for 2026 is $615 (up from $590 in 2025). Many plans set lower deductibles or have no deductible at all. About half of standalone Part D plans charge the maximum, while the other half use lower amounts or tiered deductibles based on drug tier.

Phase 2: Initial coverage phase. After meeting your deductible, you enter the initial coverage phase. During this phase, you pay either a fixed copay or a percentage coinsurance for each prescription, depending on your specific plan. Typical cost-sharing structures include $0-$20 copays for Tier 1 (preferred generics), $20-$45 copays for Tier 2 (generics), 25-33% coinsurance for Tier 3 (preferred brand), 33-50% coinsurance for Tier 4 (non-preferred drug), and 25-33% coinsurance for Tier 5 (specialty drugs).

Phase 3: Catastrophic coverage phase. This phase begins when your total out-of-pocket spending on covered drugs reaches $2,100 in 2026 (up from $2,000 in 2025). After that threshold, you pay $0 for all covered medications for the rest of the calendar year. This hard cap is created by the Inflation Reduction Act. Before 2024, beneficiaries paid 5% coinsurance even in catastrophic coverage with no upper limit, which sometimes meant thousands of additional dollars annually.

The $2,100 cap counts your deductible, copays, coinsurance, and even amounts paid on your behalf through programs like Medicare Extra Help. Your monthly Part D plan premium does not count toward the $2,100 limit.

Why people still ask about the donut hole in 2026

Even though the donut hole was eliminated, people continue searching for "Medicare donut hole 2026" because the term was part of the system for so many years. Beneficiaries are accustomed to the old vocabulary, but the mechanics of your insurance have shifted entirely.

This confusion is understandable. The donut hole was a defining feature of Medicare Part D from 2006 through 2024. Many beneficiaries built their drug budgeting and timing around the gap (taking generics first, switching brand drugs strategically, timing refills around the calendar year). The transition to the new structure takes adjustment.

In 2026, you no longer need to worry about a mid-year cost spike. You no longer need to track whether you've entered the coverage gap. Your costs follow a predictable pattern: deductible → initial coverage → catastrophic coverage (with $0 cost-sharing).

For Medicare prescription coverage details, see our prescriptions guide.

The Medicare Prescription Payment Plan

A new feature accompanying the donut hole's elimination is the Medicare Prescription Payment Plan (also called M3P), which began January 1, 2025 and continues for 2026.

The program lets you spread your out-of-pocket Part D costs across the calendar year through monthly payments to your plan rather than paying high single-month costs at the pharmacy. This is particularly valuable for beneficiaries on expensive specialty drugs who would otherwise pay the entire $2,100 annual out-of-pocket maximum with their January prescription.

The plan calculates your monthly maximum payment by subtracting your year-to-date out-of-pocket spending from the $2,100 annual maximum and dividing by the months remaining in the plan year.

For example, a beneficiary taking a $2,100+ monthly specialty medication would normally pay the entire $2,100 annual out-of-pocket maximum in their January prescription. Through the Prescription Payment Plan, they could pay $175 per month for 12 months instead, smoothing their cash flow significantly.

Enrolling earlier in the year provides more benefit because you have more months to spread costs. A beneficiary who enrolls in November after high spending earlier in the year may face monthly payments as high as $1,050 if they have remaining unpaid amounts and only two months to spread them.

Participation auto-renews for 2026 if you were enrolled in 2025 unless you opt out. New enrollees can join at any time during the year by contacting their Part D plan.

Other 2026 Part D protections

In addition to the donut hole elimination and the $2,100 cap, a number of other 2026 protections remain.

The $35 cap on insulin prices remains in effect through 2026. Only a 30-day supply of each insulin product is shipped, and costs no more than $35 for a 30-day supply. For all insulin in Part B (insulin pumps) and Part D (not insulin pumps). The cap does not include a deductible for insulin.

The ACIP recommended adult vaccines now have $0 cost-sharing for adults. This includes vaccines for shingles (Shingrix), pneumococcal (pneumonia), hepatitis B, RSV and other vaccines recommended for adults. Cost savings may be significant as Shingrix was previously $200-300 out of pocket.

Medicare-negotiated prices take effect in 2026 for 10 drugs: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara and Fiasp/NovoLog insulins. The new negotiated lower prices are paid by the patient and lower their out-of-pocket cost.

Starting in 2027, another 15 drugs will be negotiated and in 2028 and 2029, another 15.

Please note: We have a guide to Extra Help for low-income Medicare beneficiaries. 

What's NOT covered by the $2,100 cap.

Many beneficiaries are not aware of the important limitations on the $2,100 out-of-pocket cap.

The cap is only for covered Part D drugs. Medicare Part B (chemotherapy infusion or some injectable drugs that are administered in a doctor's office) does not count toward the cap. They do pay coinsurance under Part B, but at a different rate (20%) and there is no annual maximum cost.

Drugs that aren't on your plan's formulary aren't covered. You have to pay the full retail price for your medication, unless you switch to a different drug plan or your doctor switches your prescription to a covered medicine.

Drug coverage does not apply to drugs used off-label. May not include off-label use.

Premium costs do not count towards the cap. The cap is only for out-of-pocket expenses for covered drugs.