If you have heard horror stories about the Medicare donut hole, the gap in Part D drug coverage where seniors used to pay full price for medications, here is the good news. The donut hole as people knew it is effectively gone in 2026. A new $2,100 out-of-pocket cap protects every Part D member from runaway drug costs.
What was the donut hole?
The Medicare donut hole, officially called the coverage gap, was a stage of Part D where seniors had to pay a much larger share of their prescription drug costs. It started after the plan and the member had spent a set amount together, and it lasted until catastrophic coverage kicked in.
For years, the donut hole meant some seniors paid full price (or close to it) for their medications during a long stretch of the year. People on expensive drugs felt this the hardest, sometimes paying thousands out of pocket in a few months.
Why is the donut hole going away?
In 2022, Congress passed the Inflation Reduction Act. It made several changes to Medicare Part D, all designed to lower costs for seniors. The changes rolled in over a few years:
- 2023: Insulin copays capped at $35 per month per type
- 2024: Eliminated the 5% coinsurance in the catastrophic phase
- 2025: New $2,000 yearly out-of-pocket cap took effect
- 2026: Cap increased to $2,100 for inflation
The 2025 change is the big one. Once you spend $2,000 (now $2,100 in 2026) out of pocket on covered prescriptions in a calendar year, Part D pays 100% of the cost for the rest of the year. No matter how expensive your drugs are.
How does the new structure work in 2026?
Part D in 2026 has three phases instead of the old four. They are:
- Deductible phase: You pay 100% of your drug costs until you meet your plan's deductible (up to $590 for 2026, but many plans have lower or zero deductibles)
- Initial coverage phase: You pay your plan's copay or coinsurance. Most generics are $0 to $10, brand names are $40 to $100, and specialty drugs are 25% to 33% coinsurance
- Catastrophic phase: Once your total out-of-pocket spending hits $2,100, the plan pays 100% of your drug costs for the rest of the year
That third phase is the key. There is no more donut hole sitting between initial coverage and catastrophic coverage. You go straight from copays to $0.
Who benefits the most?
The new cap helps anyone on Part D, but the people who feel it the most are those on expensive medications. A senior on a cancer drug that costs $4,000 a month used to easily spend $7,000 or more out of pocket in a year. In 2026, the same senior pays $2,100, then $0 for the rest of the year. That is a savings of thousands per year for the people who need help the most.
The Medicare Prescription Payment Plan
One more change worth knowing about. Starting in 2025, Medicare added an option called the Medicare Prescription Payment Plan, sometimes called M3P or smoothing. It lets you spread your out-of-pocket drug costs across the rest of the year in monthly payments, instead of paying a big bill at the pharmacy when you fill an expensive prescription.
It does not lower your total cost. It just spreads it out. The total you pay each year is still capped at $2,100 in 2026. If you take expensive specialty drugs and the pharmacy bill in January would be hard to manage, ask your Part D plan about enrolling.
Does this affect Medicare Advantage too?
Yes. Most Medicare Advantage plans include Part D drug coverage. The same $2,100 cap applies to the drug portion of those plans. The cap does not apply to the medical side of Medicare Advantage, which has its own separate Maximum Out-of-Pocket limit for in-network and out-of-network services.
What you should still do every year
The new cap is great news, but it does not mean every Part D plan is the same. Plans still vary in:
- Monthly premium
- Yearly deductible
- Which drugs they cover (the formulary)
- Which tier each drug is in
- Which pharmacies are preferred
Two plans can both cap you at $2,100, but one may charge you $500 less in copays and premium before you hit the cap. Always run your full medication list through the plans available in your zip code during the Annual Enrollment Period. The right plan can save you several hundred dollars a year, even with the new cap.
The bottom line
The Medicare donut hole is functionally gone in 2026. A $2,100 yearly cap protects every Part D member from runaway drug costs. People on expensive medications are the biggest winners. Picking the right Part D plan still matters, since the cap is a ceiling, not a floor.