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. For nearly two decades, once a beneficiary passed the initial coverage limit, they entered a phase where they paid a much larger share (originally 100%) of their drug costs until they reached catastrophic coverage.

For seniors on expensive brand-name medications, this often meant thousands of dollars in unexpected out-of-pocket costs mid-year. The Affordable Care Act began phasing the gap out in 2010, and the Inflation Reduction Act finished the job.

A Brief Timeline

• 2006: Part D launches with a 4-phase benefit including a full-cost donut hole
• 2010: The ACA begins phasing the gap out with a $250 rebate and manufacturer discounts
• 2019: The Bipartisan Budget Act of 2018 accelerates 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, with a $2,000 hard cap
• 2026: The out-of-pocket cap rises to $2,100, adjusted based on the annual percentage increase in average expenditures for covered Part D drugs

How the Inflation Reduction Act Reshaped Part D

The Inflation Reduction Act (IRA) of 2022 finished what the ACA started. Since January 1, 2025, the Medicare Part D "donut hole" no longer exists as a separate benefit phase, and that remains true in 2026.

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 is how it works for 2026:

Phase 1: Deductible

No Medicare drug plan may have a deductible more than $615 in 2026, and some plans have no deductible. That $615 maximum is a $25 increase from the $590 cap in 2025. Some plans still offer $0 or reduced deductibles, especially on generics. According to KFF, 25% of MA-PD enrollees are in a plan that charges the standard $615 deductible in 2026, up from just 12% in 2025.

Phase 2: Initial Coverage

Once the deductible is met, you pay standard cost-sharing on covered drugs. After meeting the yearly deductible (or if you do not have one), you are responsible for 25% of the cost of your covered prescription drugs until your true out-of-pocket spending reaches $2,100 for the year. Many plans use tiered copays instead of flat 25% coinsurance, but the total cost-sharing structure works out similarly.

Phase 3: Catastrophic Coverage

Once your true out-of-pocket spending reaches the cap, you pay $0 for all covered prescription drugs 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.

For more on how the benefit works alongside a supplement plan, see our overview of Medigap and Part D coordination.

Manufacturer Discounts and Part D Premiums in 2026

The old Coverage Gap Discount Program has been replaced with the new Manufacturer Discount Program (MDP). Under the 2026 rules, drug manufacturers pay a 10% discount on applicable brand drugs in the Initial Coverage phase and a 20% discount in the Catastrophic phase. Plan sponsors typically pay 65% of the cost of applicable drugs and 75% of the cost of all other covered Part D drugs during initial coverage.

These discounts are baked into the price at the pharmacy counter, so you do not have to do anything to receive them.

On the premium side, for 2026, the national base beneficiary premium is $38.99, up from $36.78 in 2025. Annual growth in the base beneficiary premium is capped at 6% due to a provision in the Inflation Reduction Act. This is the national benchmark Medicare uses for the late enrollment penalty calculation. Actual plan premiums vary by carrier, and per KFF the average monthly premium for standalone PDPs actually dropped from about $39 in 2025 to $36 in 2026 thanks to CMS's Part D Premium Stabilization Demonstration.

The First 10 Negotiated Drug Prices

On top of the MDP, the first 10 drugs subject to Medicare's price negotiation program now have negotiated "Maximum Fair Prices" (MFPs) that took effect January 1, 2026. The negotiated prices are a minimum of 38% off the 2023 list price. These 30-day supply prices apply to Part D and Medicare Advantage drug plans:

If you take any of these drugs, your 2026 out-of-pocket costs could drop dramatically even before you hit the $2,100 cap. Learn more about how to shop Part D plans so you get full credit for these lower prices.

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 is where the Medicare Prescription Payment Plan (M3P) comes in.

M3P lets you pay $0 at the pharmacy for covered Part D drugs and 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 maximum.

Here is 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.

What Is New for M3P in 2026

Three important updates make M3P easier to use in 2026:

• Automatic renewal for same-plan enrollees. The CY 2026 Medicare Advantage and Part D Final Rule requires an automatic election renewal process that extends a Part D enrollee's participation in the program for the next calendar year, unless the enrollee opts out. If you changed plans during AEP, you must opt in again with the new carrier.
• Renewal notice requirement. The renewal notice must be sent after the end of the annual coordinated election period but before the end of the plan year, so you get advance warning of next year's terms.
• Higher cap. The maximum you can owe over the year is $2,100, up from $2,000 in 2025.

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, and with the negotiated price dropping the 30-day supply from $521 to $231, she may actually pay far less before ever hitting the cap.

Scenario B: Cancer Patient on Oral Chemotherapy

Robert, age 68, takes Imbruvica, which listed for nearly $15,000 per month in 2023. 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 do not affect her much because she never comes close to the $2,100 cap. But the simpler benefit structure makes her plan easier to understand. She may want to focus on choosing the right Part D plan based on formulary and premium.

Common Misconceptions About the Donut Hole

"Is the donut hole really gone?"

Yes. The coverage gap ended on December 31, 2024. Once you meet your deductible (if any) 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 redesign only affects 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 does not count toward the cap). Non-formulary drugs and drugs covered by Part B rather than Part D also do not count toward the cap. Learn more about the gaps that Medigap and Part D together can fill.

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. The Medicare Plan Finder at Medicare.gov typically refreshes with next-year plan data on October 1, so you can shop a few weeks ahead.

Here is your action checklist:

1. Run the Medicare Plan Finder at Medicare.gov. Enter your 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/Fiasp, the new Maximum Fair Prices could dramatically reduce your out-of-pocket costs in 2026.
4. Consider opting into M3P. If you expect to hit the cap early in the year, opting in can turn one big January bill into 12 predictable monthly payments. For 2026, if you were enrolled in M3P during 2025 and stay with the same plan, you are automatically re-enrolled.
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, using the $38.99 national base beneficiary premium as your reference point. See the full breakdown of average Medicare costs to benchmark your budget.

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 in 2026?

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 as: (previous balance + new out-of-pocket costs) divided by months remaining in the year. New for 2026, plans must auto-renew M3P participants who stay with the same plan, and must send a renewal notice with next year's terms before the plan year ends.

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 are 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. Someone on Imbruvica or Stelara who previously paid $8,000 or more annually is now capped at $2,100. The 10 drugs with newly negotiated Maximum Fair Prices, including Eliquis, Jardiance, and Januvia, deliver additional savings that took effect January 1, 2026. Beneficiaries on inexpensive generics rarely reach the cap but still benefit from the simpler benefit structure.