The Medicare Part D donut hole, or coverage gap, is essentially gone. A major redesign of the Part D drug benefit took effect on January 1, 2025, replacing the old coverage gap structure with a hard $2,000 annual cap on out-of-pocket prescription drug spending. If you’re on Medicare, you will never pay more than $2,000 per year for covered medications.
What the Donut Hole Used to Look Like
For years, Medicare Part D had a frustrating quirk. After you and your plan spent a certain amount on drugs (the initial coverage limit), you entered the “donut hole,” a phase where you were responsible for a much larger share of your drug costs. During this gap, you paid 25% of the cost of both brand-name and generic drugs. For people taking expensive medications, that 25% could add up to thousands of dollars before catastrophic coverage kicked in.
Once you hit the catastrophic threshold, you still weren’t off the hook. You owed 5% of drug costs for the rest of the year, with no upper limit. Someone on a $10,000-per-month cancer drug could face staggering bills even in the catastrophic phase.
What Changed in 2024 and 2025
The Inflation Reduction Act of 2022 overhauled Part D in two stages. The first change arrived in 2024: the 5% coinsurance in the catastrophic phase was eliminated. Once you reached catastrophic coverage, you paid nothing for covered Part D drugs for the rest of the year.
The bigger change landed in 2025. The entire benefit structure was simplified around a single principle: your total out-of-pocket spending on covered prescriptions is capped at $2,000 per calendar year. Once you hit that number, you’re done paying. There’s no gap phase where your costs suddenly spike, and no lingering coinsurance after that. The old Coverage Gap Discount Program, which required brand-name drug manufacturers to give you discounts during the donut hole, officially ended on December 31, 2024. It was replaced by a new Manufacturer Discount Program that works differently across all coverage phases.
How the New Benefit Structure Works
Part D still has coverage phases, but they function differently now. You pay your deductible first (if your plan has one), then enter the initial coverage phase where you and your plan share costs. After your out-of-pocket spending reaches $2,000, you enter the catastrophic phase and owe nothing more for covered drugs that year.
The key difference is that $2,000 ceiling. Under the old system, a person on expensive medications could pay well over $3,000 or even $5,000 before reaching catastrophic coverage, and then still owe 5% indefinitely. Now, $2,000 is the hard stop.
This cap will adjust slightly over time. For 2026, the out-of-pocket threshold rises to $2,100, reflecting increases in per-person Part D spending. Expect small annual adjustments going forward.
How Drug Manufacturers Now Contribute
Under the new Manufacturer Discount Program, drugmakers are required to provide discounts on their medications during both the initial coverage phase and the catastrophic phase. This is a shift from the old system, where manufacturer discounts applied only during the coverage gap. The discounts phase in over six years for smaller manufacturers, but the program is already active. As of 2025, Part D coverage is only available for drugs whose manufacturers have signed a discount agreement with Medicare.
Spreading Costs With Monthly Payments
Even with the $2,000 cap, a large upfront pharmacy bill in January or February can be hard to absorb. A new option called the Medicare Prescription Payment Plan lets you spread your out-of-pocket drug costs across the calendar year in monthly installments. Instead of paying at the pharmacy counter, you get a monthly bill from your plan.
Every Part D plan and Medicare Advantage plan with drug coverage is required to offer this option, and joining is voluntary and free. It doesn’t reduce your total costs or lower drug prices. It simply breaks that $2,000 (or less) into predictable monthly payments so you’re not hit with a large bill all at once. You’ll still pay your regular plan premium separately.
Who Benefits Most
The people who see the biggest savings are those who were spending the most under the old system: anyone taking specialty drugs, multiple brand-name medications, or high-cost treatments for conditions like cancer, rheumatoid arthritis, or hepatitis C. Under the previous structure, these individuals could easily spend $5,000 to $10,000 or more per year on prescriptions. The $2,000 cap cuts those costs dramatically.
If you typically spend under $2,000 a year on medications, the redesign may not change your costs much. Your deductible, copays, and coinsurance during the initial coverage phase still apply as before. But you now have the security of knowing your annual exposure has a firm limit, something Medicare Part D never offered until now.