The Medicare “donut hole” is a gap in prescription drug coverage under Medicare Part D where you temporarily pay more for your medications. For years, it was one of the most frustrating features of Medicare: after your drug spending hit a certain threshold, your coverage dropped significantly until you spent enough out of pocket to qualify for catastrophic coverage. The good news is that this coverage gap has been shrinking for over a decade and was officially eliminated starting in 2025.
How the Coverage Gap Worked
Medicare Part D prescription drug coverage has always been structured in phases. First, you pay a deductible. Then you enter the initial coverage period, where you and your plan split drug costs (typically you pay 25%). Once your total drug spending reached a set limit, you fell into the donut hole, a phase where you were responsible for a much larger share of your costs.
The name “donut hole” captures the shape of the benefit: coverage on the outside (before and after), but a gap in the middle. When the program launched in 2006, people in the gap paid 100% of their drug costs. Over time, manufacturer discounts and plan contributions gradually closed this gap. By 2024, brand-name drug manufacturers covered 70% of the negotiated price for their medications during the gap phase, leaving you to pay roughly 25% of the cost for both brand-name and generic drugs.
The Dollar Thresholds That Triggered It
The exact dollar amounts that pushed you into the donut hole changed every year. In 2024, the last year the coverage gap existed as a distinct phase, you entered the gap after your total drug costs (what both you and your plan paid combined) reached a set initial coverage limit. The catastrophic threshold was set at $8,000 in total drug costs. For someone taking only brand-name drugs, that translated to roughly $3,300 in actual out-of-pocket spending before reaching catastrophic coverage, where you paid nothing more for the rest of the year.
One important detail: not just your personal payments counted toward escaping the donut hole. Manufacturer discounts on brand-name drugs also counted toward your “true out-of-pocket” (TrOOP) total. So did payments made on your behalf by family members, state pharmacy assistance programs, and Medicare’s Extra Help program. This meant you could move through the gap faster than your wallet alone would suggest.
What Changed in 2025
The Inflation Reduction Act eliminated the coverage gap entirely starting in 2025. Medicare Part D now has just three phases instead of four: the annual deductible, initial coverage, and catastrophic coverage. There is no longer a donut hole in between.
During the initial coverage phase in 2025, you pay 25% coinsurance for covered drugs. Your plan covers 65% of the cost for brand-name drugs and 75% for generics, while manufacturers contribute 10% for brand-name medications through a new discount program. This phase continues until you hit $2,000 in out-of-pocket spending for the year.
That $2,000 cap is the other major change. Before 2025, there was no hard cap on what you could spend out of pocket. People on expensive medications could face thousands of dollars in costs even after passing through the donut hole, because they still owed 5% coinsurance in the catastrophic phase. Now, once you reach $2,000 in out-of-pocket costs, you pay nothing more for covered prescriptions for the rest of the year. Medicare also offers the option to spread that $2,000 across monthly payments rather than paying it all at once when you fill expensive prescriptions early in the year.
Who Was Hit Hardest by the Donut Hole
The coverage gap disproportionately affected people with chronic conditions requiring multiple medications or anyone on a single expensive specialty drug. Someone taking insulin, cancer medications, or drugs for rheumatoid arthritis could blow through the initial coverage period within the first few months of the year and then face steep costs in the gap. Some people rationed medications, split pills, or skipped doses entirely to manage costs during this phase.
People with limited income had a safety net. Medicare’s Extra Help program (also called the Low-Income Subsidy) effectively eliminated the donut hole for qualifying beneficiaries by covering most of their cost-sharing throughout the year. Under Extra Help, copayments are capped at modest amounts: roughly $5 for generics and about $13 for brand-name drugs, with costs dropping to $0 after total drug spending reaches a set threshold.
What This Means for You Now
If you’re enrolling in Medicare Part D in 2025 or later, the donut hole no longer applies to you. Your out-of-pocket drug spending is capped at $2,000 per year, period. You still pay a deductible (if your plan has one) and coinsurance during the initial coverage phase, but there is no gap where your coverage drops off.
If you avoided filling prescriptions or switched to less effective alternatives because of donut hole costs in past years, it’s worth revisiting your medication plan. The financial landscape for Part D has changed substantially. You can compare plans during open enrollment each fall to find one that covers your specific medications at the lowest total cost, keeping in mind that the $2,000 annual cap applies across all standard Part D plans.