For nearly twenty years, the Medicare "donut hole" was the most dreaded phrase in Part D — a coverage gap where your drug costs suddenly spiked. Here's the good news: as of 2025, the donut hole was eliminated. But here's the part most people miss — getting rid of the donut hole did not get rid of every gap. There are still places where the wrong plan can quietly cost you real money. This page explains what changed, and just as importantly, what you still need to watch for.
What the Donut Hole Was
When Part D launched back in 2006, it had four coverage phases — and the third one was the problem. After your drug spending passed a certain point, you fell into the "coverage gap," where you suddenly paid a much larger share of your drug costs until you spent your way out the other side into catastrophic coverage.
What Changed: 4 Phases Became 3
The Inflation Reduction Act phased out the donut hole and, starting in 2025, replaced the old four-phase design with a simpler three-phase structure — and, for the first time ever, a hard yearly limit on what you pay out of pocket.
The Old 4-Phase System
- Deductible
- Initial coverage
- Coverage gap ("donut hole") — costs spiked
- Catastrophic coverage
The New 3-Phase System
- Deductible
- Initial coverage
- Catastrophic — $0 after the cap
How Part D Works Now (2026)
Here's how the three phases play out today. One important note as you read: these are general figures, and your actual costs depend entirely on the specific plan you choose.
Deductible
Depending on your plan, you may be subject to a deductible before coverage begins. Many plans charge less than the maximum, and some waive it on certain drug tiers.
Initial Coverage
You pay a share of the cost — often around 25% — but your copays depend on your plan and each drug's tier.
Catastrophic
Once your out-of-pocket on covered drugs reaches the yearly cap, you generally pay nothing more for them.
Looking Ahead to 2027
These figures are indexed to rise over time, and 2027 is expected to be no different. Based on the latest guidance:
- The out-of-pocket cap is expected to increase — by roughly $300, to around $2,400 for 2027.
- The maximum deductible is also expected to rise from its 2026 level.
The Gaps That Still Exist
This is the part almost nobody talks about — and it's the most important. Getting rid of the donut hole did not get rid of every way a Part D plan can cost you. Here's what to watch for:
Premiums don't count toward the cap
Your monthly premium is separate — it does not count toward that yearly out-of-pocket limit. Only your covered-drug costs do.
Non-covered drugs don't count either
If a medication isn't on your plan's formulary, what you pay for it may not count toward your cap at all — and could cost you far more.
Drugs can jump tiers
A medication that's affordable on your plan this year can be moved to a higher, pricier tier next year. Formularies change annually.
Plans are reacting to the cap
To balance the new limit, some plans have raised premiums or tightened their drug lists. The "same" plan can look very different year to year.
The deductible still comes first
Before any cost-sharing kicks in, you may owe the deductible up front — a real early-year cost depending on your plan.
Restrictions can apply
Some drugs require prior authorization or "step therapy" — trying a lower-cost drug first — before the plan will cover them.
One More Tool: Spreading Out Your Costs
There's also a newer option worth knowing about. The Medicare Prescription Payment Plan lets you spread your out-of-pocket drug costs into smooth monthly payments across the year, instead of a big hit at the pharmacy counter — especially helpful if an expensive prescription lands early in January.
How to Avoid the Gaps
- Check the formulary every year. Confirm each of your drugs is still covered — and on a reasonable tier.
- Compare on total cost, not premium. The cheapest premium can be the most expensive plan for your specific drugs.
- Review during the fall each year. Plans change; the best fit this year may not be next year.
- Ask about the payment plan if a big early-year cost would strain your budget.
Common Questions
Is the Medicare donut hole gone?
What replaced the donut hole?
What is the Part D out-of-pocket cap in 2027?
If the donut hole is gone, do I still need to compare plans?
Do premiums count toward the out-of-pocket cap?
Your Next Step
The donut hole is history — but the smart move is understanding the gaps that remain. Here's how to stay ahead of them:
- Watch the video above — we break down what changed and what to watch for.
- See how Part D works — the full Part D Prescriptions Blueprint and the new cap.
- Book a Blueprint consultation — bring your drug list and we'll check every gap for you, free.
Your blueprint is waiting. Let's build it together.