Susan Park
Most people I’ve worked with over the years hear “donut hole” and picture some minor inconvenience, like a small co-pay bump they’ll barely notice. Then they open a pharmacy bill in October and nearly fall out of their chair.
I’ve seen it happen dozens of times. A retired teacher from suburban Ohio, managing her rheumatoid arthritis with a brand-name biologic, had her monthly drug costs jump from about $47 to over $400 literally overnight because she’d crossed into what Medicare calls the “coverage gap.” She didn’t see it coming. Her plan hadn’t warned her. And by the time she called me, she’d already skipped two doses trying to make the bottle last.
The donut hole is real, it still matters in 2026, and the rules around it have changed enough in the last couple of years that a lot of the old information floating around the internet is flat-out wrong. Let me tell you what’s actually true right now.
What the Donut Hole Actually Is (and Why It Still Exists)
Medicare Part D is the prescription drug benefit. It’s offered through private insurance companies that contract with the federal government, and it works in phases. You pay a deductible, then you and your plan share costs during the “initial coverage” phase, and then, once your total drug spending hits a certain threshold, you enter the coverage gap, which is what people mean when they say “donut hole.”
The name comes from the original structure under the Medicare Modernization Act of 2003: there was a coverage phase, then a gap where you were mostly on your own, then catastrophic coverage kicked back in once your out-of-pocket costs got high enough. The “hole” in coverage between two layers of protection. That’s the shape of it.
Here’s the thing that trips people up: the Inflation Reduction Act of 2022 fundamentally rewrote Part D’s cost structure, and those changes phased in over a few years. As of 2026, the donut hole looks very different from what it was even three years ago. The most significant change? There’s now a $2,000 annual out-of-pocket cap on what you pay for covered Part D drugs. That’s a hard limit. Once you’ve paid $2,000 in true out-of-pocket costs (what Medicare calls TrOOP, or True Out-of-Pocket costs), you pay nothing for the rest of the year.
I’ll be honest: when I first read about the $2,000 cap before it took effect, I was skeptical. I’d been doing this long enough to see “improvements” that looked good on paper but came with enough asterisks to render them meaningless. This one is real. It’s the single biggest change to Part D since the program started.
The 2026 Phase Structure: Where the Donut Hole Fits Now
| Phase | Maximum Deductible | Total Drug Spending Threshold | Your Out-of-Pocket Status |
|---|---|---|---|
| Deductible | $590 | $0 | You pay 100% |
| Initial Coverage | N/A | Up to $2,000 | You pay co-pays/coinsurance |
| Coverage Gap | N/A | $2,000+ | Increased cost-sharing (brief) |
| Catastrophic | N/A | $2,000+ out-of-pocket reached | You pay $0 |
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Even with the cap, Part D still runs in stages, and knowing them saves money. As of July 2026, here’s how it breaks down:
The deductible phase. Most Part D plans charge a deductible before any coverage kicks in. The maximum allowable deductible in 2026 is $590. Some plans charge less or waive it for certain drug tiers; a few charge nothing. You pay 100% of drug costs until you’ve met your deductible.
Initial coverage phase. Once you’ve cleared your deductible, your plan starts sharing costs with you. You pay your standard co-pays or coinsurance rates (whatever your specific plan charges per drug tier), and this continues until your total covered drug spending (what you pay plus what the plan pays) reaches $2,000.
Wait, actually, I need to correct something I almost got wrong here myself the first time I studied the new structure. The $2,000 cap is on your out-of-pocket spending, not total drug spending. These are not the same number. Total drug spending includes what your plan pays. What counts toward the $2,000 is only what you pay out of pocket. For most people on standard plans, you’ll hit that cap somewhere in the $8,000-$12,000 range of total drug spending, but that depends heavily on your specific drugs and plan.
The coverage gap (the donut hole). This is where it gets a little odd in 2026. The gap technically still exists as a defined phase in the law, but because of the $2,000 cap, you can’t stay in it long. Once you enter the gap (when total drug spending hits $2,000 in the initial coverage period), your cost-sharing actually increases briefly, but you’re also burning through your out-of-pocket maximum quickly. For most people with significant drug costs, the gap phase in 2026 is a speed bump rather than a crater.
Catastrophic coverage. Once you’ve hit $2,000 out of pocket, you owe $0 for covered Part D drugs for the rest of the calendar year. Full stop.
A reader, Barbara from Phoenix, emailed me in January 2026 after her plan year reset. She takes three brand-name specialty drugs for a chronic condition. In prior years she’d hit the old catastrophic threshold and still owed 5% coinsurance, which on $15,000/month in drug spending adds up fast. This year, she hit her $2,000 cap by mid-March and paid nothing from March through December. “I cried,” she wrote. That’s not hyperbole. For some people this is life-changing.
What Counts Toward Your Out-of-Pocket Cap (and What Doesn’t)
Medicare Part D Explained | (And How To Avoid The Donut Hole) · Medicare Specialist - Abt Insurance Agency on YouTube
This is where I see the most confusion, and I want to be direct with you: not everything you spend on prescriptions counts toward your $2,000 TrOOP.
What does count: your deductible payments, your co-pays and coinsurance during the initial coverage phase, and manufacturer discount payments on brand-name drugs in the coverage gap (this is a quirk of how the law works, and it actually helps you).
What does not count: your monthly Part D premium (that’s separate from drug costs), costs for drugs that aren’t on your plan’s formulary (the list of covered drugs), costs for drugs you buy outside your plan at non-network pharmacies, and the portion your plan pays toward your drugs.
The formulary point is one that catches people off guard constantly. If your drug isn’t covered by your plan, every dollar you spend on it is essentially invisible to Medicare’s accounting. It doesn’t count. This is a strong argument for reviewing your plan’s formulary every single Open Enrollment period. I can’t say that firmly enough.
A worked example: Margaret, 71, takes Eliquis (apixaban) for atrial fibrillation and two generic medications. Her plan has a $590 deductible. She uses a preferred network pharmacy.
Scenario: Eliquis is on her formulary at Tier 3 coinsurance. Action: She hits her deductible by late January, enters initial coverage, and her out-of-pocket spending on all three drugs accumulates month by month. Result: She reaches $2,000 in true out-of-pocket costs by mid-April. From mid-April through December 31, she pays nothing for all three covered drugs. Estimated savings versus the old catastrophic structure: roughly $1,800-$2,200 for the year depending on Eliquis pricing at her pharmacy.
The Medicare Extra Help Program: If You’re Struggling, Please Read This
I cannot write about Part D costs without mentioning Extra Help (also called the Low Income Subsidy, or LIS). It’s a federal program that covers most or all of your Part D costs, including premiums, deductibles, and co-pays, if your income and resources fall below certain thresholds.
What most people don’t realize is how many people qualify and don’t know it. The Centers for Medicare & Medicaid Services estimates that hundreds of thousands of eligible people aren’t enrolled. If your income is below about 150% of the federal poverty level (the exact threshold adjusts annually), you should absolutely check. The application is through the Social Security Administration, and you can start at Medicare.gov. For 2026, people who receive Extra Help are fully exempt from the coverage gap as it previously existed, and the $2,000 cap combines with Extra Help’s benefits to make drug costs genuinely manageable for lower-income beneficiaries.
If you’re helping a parent or spouse figure this out and they’ve been quietly skipping doses because of cost: please look into Extra Help this week. Not next month.
How to Protect Yourself at Open Enrollment
Open Enrollment runs every year from October 15 through December 7, and changes take effect January 1. The plan you’re in right now might not be the best one for your drugs next year, because formularies change, tier placements change, and new plans enter your market.
Here’s what I tell everyone:
Run a comparison using the Medicare Plan Finder tool on Medicare.gov. Plug in every drug you take, the exact doses, and your preferred pharmacy. The tool will show you estimated total annual costs including premiums, deductibles, and expected out-of-pocket drug costs. Use that number, not just the monthly premium, to make your decision. I’ve watched people save $1,500-$3,000 a year by switching plans, just because they did this one exercise.
A worked example: Tom, 68, diabetes and high cholesterol, on three generics and one brand-name drug. He’s been on the same Part D plan for five years because “it’s fine.” Action: His daughter runs the Medicare Plan Finder comparison in October 2025 during Open Enrollment. Result: She finds a different plan, same network pharmacy, that places his brand-name drug at a lower tier. Estimated annual out-of-pocket cost drops from $1,840 to $1,210. He switches. Saves roughly $630 that year just from the tier difference.
He told me at a senior center presentation in March 2026, “I figured it wasn’t worth the hassle.” It almost always is.
Sources
- Medicare.gov Part D Coverage: Official CMS resource on Part D benefits, coverage phases, and Extra Help enrollment
- Centers for Medicare & Medicaid Services, 2026 Part D Benefit Parameters: Annually updated official figures for deductible limits, TrOOP thresholds, and plan bid data
- Inflation Reduction Act of 2022, Medicare Drug Price Reform Provisions: The federal legislation that introduced the $2,000 out-of-pocket cap, phased in through 2025-2026
- Kaiser Family Foundation, Medicare Part D in 2026: Independent policy analysis of Part D enrollment, costs, and structural changes under the IRA
- Social Security Administration, Extra Help Program: Application and eligibility information for the Low Income Subsidy
This article is for informational purposes only. Medicare rules change annually. Always verify current plan details at Medicare.gov or by calling 1-800-MEDICARE (1-800-633-4227). This site does not sell insurance or recommend specific plans.
Recommended Resources
Disclosure: As an Amazon Associate, we earn a small commission from qualifying purchases at no extra cost to you. We only recommend products that genuinely support the topics covered in this article.
- Medicare For Dummies (~$22), The definitive consumer guide to Medicare, enrollment windows, Part A/B/C/D, and supplement plans.
- Get What’s Yours for Medicare (~$17), Maximize your Medicare benefits and minimize out-of-pocket costs. Covers Part D drug coverage gaps and Medigap in depth.
