The Medicare Donut Hole Is Closing: What the $2,100 Cap Means for 2026

What Was the Medicare Donut Hole?

The "donut hole" was a coverage gap built into Medicare Part D when the program launched in 2006. It sat between the initial coverage phase and catastrophic coverage. The Medicare Part D "donut hole" existed from 2006 (when Medicare Part D began) through 2024, referring to the coverage gap in the Part D prescription drug benefit. This gap existed after an enrollee's prescription drug costs exceeded the initial coverage limit.

In the original design, once a beneficiary passed the initial coverage limit, they entered a phase where many Medicare beneficiaries with Part D prescription drug coverage paid 100 percent of their drug costs while in the coverage gap or "donut hole." The coverage gap occurs between the initial and catastrophic coverage periods, during which Medicare payments reduce beneficiaries' costs. For seniors on expensive brand-name medications, this often meant thousands of dollars in unexpected out-of-pocket costs mid-year.

A Brief Timeline

• 2006: Part D launches with a 4-phase benefit including a full-cost donut hole
• 2010: The Affordable Care Act begins phasing the gap out with a $250 rebate and manufacturer discounts
• 2019: The Affordable Care Act included a provision to phase out the coverage gap by gradually reducing beneficiary cost sharing, and the Bipartisan Budget Act of 2018 accelerated closure of brand-drug costs
• 2020: Beneficiary coinsurance in the gap drops to 25%, matching the initial coverage phase
• 2024: The 5% catastrophic coinsurance is eliminated under the Inflation Reduction Act
• 2025: The donut hole is structurally eliminated as a separate phase

How the Inflation Reduction Act Reshaped Part D

The Inflation Reduction Act (IRA) of 2022 finished what the ACA started. Since 2025, the Medicare Part D "donut hole" has no longer existed, 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).

The IRA did three important things:

1. Removed the coverage gap phase entirely
2. Set a hard annual cap on out-of-pocket spending
3. Eliminated cost-sharing in catastrophic coverage (you now pay $0 once you hit the cap)

The 2026 Part D Structure: Three Phases, One Cap

Part D now has a simple three-phase structure. Here's how it works for 2026:

Phase 1: Deductible

If your Medicare plan has a deductible, you pay all out-of-pocket costs until you reach the full deductible. No Medicare drug plan may have a deductible more than $615 in 2026. Some plans still offer $0 or reduced deductibles, especially on generics.

Phase 2: Initial Coverage

Once the deductible is met, you pay standard cost-sharing on covered drugs. After you reach your full deductible, you'll pay 25% of the cost as coinsurance for your generic and brand-name drugs until your out-of-pocket spending on covered Part D drugs reaches $2,100 in 2026. Many plans use tiered copays instead of flat 25% coinsurance, but the total cost-sharing structure works out similarly.

Phase 3: Catastrophic Coverage

In 2026, once you spend $2,100 on covered drugs, you pay $0 for the rest of the year. The coverage gap ("donut hole") that existed before the IRA no longer functions as a separate phase with higher cost-sharing.

Manufacturer Discounts Under the IRA

The old Coverage Gap Discount Program has been replaced with the new Manufacturer Discount Program. The IRA replaces the Coverage Gap Discount Program with a new Manufacturer Discount Program starting in 2025. Beginning in 2025 (and continuing in 2026 and later), Part D coverage is available only for applicable drugs if the manufacturer has a Manufacturer Discount Program agreement with CMS.

For 2026, most participating manufacturers must provide:

• 10% discount on applicable brand drugs during the initial coverage phase
• 20% discount on applicable brand drugs in the catastrophic phase

These discounts are baked into the price at the pharmacy counter, so you don't have to do anything to receive them. On top of that, the first 10 drugs subject to Medicare's price negotiation program (including Eliquis, Xarelto, Januvia, Jardiance, Farxiga, Entresto, Enbrel, Stelara, Imbruvica, and NovoLog) will have negotiated "Maximum Fair Prices" taking effect January 1, 2026.

The Medicare Prescription Payment Plan (M3P)

Even with the $2,100 cap, someone on a very expensive drug could still face a large bill at the pharmacy in January. That's where the Medicare Prescription Payment Plan (M3P) comes in.

The Medicare Prescription Payment Plan lets you pay $0 at the pharmacy for covered Part D drugs and then repay your normal out-of-pocket costs in capped monthly bills to your Part D plan over the remaining months of the year, up to the $2,100 annual out-of-pocket maximum.

Here's how it works:

1. You opt in with your Part D or Medicare Advantage drug plan
2. When you fill a prescription, you pay $0 at the pharmacy
3. Your plan sends you a monthly bill for your share
4. The bill uses a "remaining months" formula: (previous balance + new out-of-pocket costs) ÷ months remaining in the year

For a beneficiary who hits the full $2,100 cap in January, M3P could spread that into roughly $175 per month across 12 months. If you enroll mid-year, monthly bills will be higher because the same balance is squeezed into fewer months.

You can learn more about how M3P interacts with your standalone drug plan or Medicare Advantage plan in our guide on pairing Medigap and Part D.

Who Benefits Most From the Changes?

The $2,100 cap is a game-changer for anyone taking high-cost specialty medications. Consider these before-and-after scenarios:

Scenario A: Retiree on a Blood Thinner

Barbara, age 72, takes Eliquis. Under the old design (pre-2025), she could pay $2,500 to $3,500 per year in out-of-pocket costs. In 2026, her annual cost is capped at $2,100. With negotiated pricing on Eliquis kicking in January 2026, she may actually pay much less.

Scenario B: Cancer Patient on an Oral Chemotherapy

Robert, age 68, takes a specialty oral cancer drug priced at $12,000 per month. Before the IRA, Robert could face $8,000 or more in annual out-of-pocket costs (with 5% coinsurance in the catastrophic phase adding up quickly). In 2026, he pays $2,100 total, and can spread it via M3P to roughly $175 per month.

Scenario C: Healthy Senior on Two Generics

Linda, age 66, takes only low-cost generics. Her annual drug spend is $180. The IRA changes don't affect her much because she never comes close to the $2,100 cap. But the simpler benefit structure makes her plan easier to understand.

Common Misconceptions About the Donut Hole

"Is the donut hole really gone?"

Yes. The coverage gap known as the "donut hole" ended on December 31, 2024. That means once you meet your deductible (if you have one) and spend $2,100 out of pocket in 2026, you enter the catastrophic coverage phase.

"I still owe 5% in catastrophic coverage, right?"

No. That rule was eliminated in 2024. In 2026, catastrophic coverage means $0 for covered Part D drugs.

"The donut hole is only gone for standalone Part D plans."

Wrong. The redesign applies equally to standalone Part D plans and Medicare Advantage plans with drug coverage. Both must honor the $2,100 cap.

"No donut hole means no big drug bills."

Not exactly. You can still owe up to $2,100 in a year before the cap kicks in, plus your monthly premium (which doesn't count toward the cap). If you take non-formulary drugs or drugs covered by Part B rather than Part D, those don't count toward the cap either.

What to Do at AEP to Take Advantage of the Changes

The Annual Enrollment Period (AEP) runs from October 15 through December 7 each year. This is when you can review and change your Part D or Medicare Advantage plan for the following year.

Here's your action checklist:

1. Run the Medicare Plan Finder at Medicare.gov. Enter your current prescriptions and pharmacy. It will estimate your total annual cost under each available plan, including the cap.
2. Verify formulary coverage. Only covered Part D drugs count toward the $2,100 cap. If your medication is dropped or moved to a higher tier, switch plans.
3. Check the first 10 negotiated-price drugs. If you take Eliquis, Xarelto, Januvia, Jardiance, Farxiga, Entresto, Enbrel, Stelara, Imbruvica, or NovoLog, the new Maximum Fair Prices could dramatically reduce your out-of-pocket costs starting January 2026.
4. Consider opting into M3P. If you expect to hit the cap early in the year, opting into the Medicare Prescription Payment Plan can turn one big January bill into 12 predictable monthly payments.
5. Compare premiums, not just cost-sharing. A plan with a $0 premium may still be more expensive if it has a high deductible or excludes your drugs. Balance premium against total annual costs.

For a broader look at how prescription coverage fits with your other Medicare choices, read our overview of gaps in Original Medicare that Medigap can fill.

Frequently Asked Questions

Is the Medicare donut hole gone in 2026?

Yes. The coverage gap was structurally eliminated on January 1, 2025 under the Inflation Reduction Act and remains gone in 2026. There is no longer a mid-year phase where your cost-sharing suddenly spikes. Instead, you pay standard cost-sharing until your out-of-pocket spending hits $2,100, then you pay $0 for covered drugs the rest of the year.

What is the Medicare Part D out-of-pocket cap for 2026?

The 2026 out-of-pocket cap is $2,100 for covered Part D prescription drugs. This is a $100 increase from the $2,000 cap in 2025, adjusted for inflation as required by CMS. The cap does not include your monthly Part D premium, non-formulary drugs, or drugs covered under Medicare Part B.

How does the Medicare Prescription Payment Plan (M3P) work?

M3P lets you pay $0 at the pharmacy counter and receive a monthly bill from your Part D plan instead. Each month, the plan calculates your bill using this formula: (previous balance + new out-of-pocket costs) ÷ months remaining in the year. You still owe the same total amount for the year, but it's spread into more manageable monthly installments.

Do I need to do anything to get the $2,100 cap?

No. The cap is automatic for every Medicare Part D plan and every Medicare Advantage plan with drug coverage. As long as you're enrolled in a Part D-compliant plan and filling prescriptions for covered drugs, your out-of-pocket spending is automatically tracked and capped at $2,100 in 2026.

Who benefits most from the elimination of the donut hole?

People taking high-cost brand-name or specialty medications benefit most. Before the IRA, someone on a $5,000-per-month cancer drug could pay $8,000 or more annually. In 2026, that same person pays no more than $2,100. Beneficiaries on inexpensive generics see modest benefit from the simplified structure but rarely reach the cap.