The Medicare Part D "Donut Hole" Is Gone — Here's What Replaced It

For years, the Medicare Part D "donut hole" was one of the most confusing and expensive parts of prescription drug coverage. That coverage gap is gone now, replaced by something much simpler: a hard annual cap on what you pay out of pocket.

What used to happen (the old donut hole)

Under the old structure, once your combined drug spending hit a certain amount, you'd fall into a "coverage gap" where you paid a much larger share of your drug costs — sometimes thousands of dollars — before catastrophic coverage finally kicked in. It was a genuine source of financial strain, especially for anyone on expensive specialty medications.

What replaced it: the annual out-of-pocket cap

Thanks to the Inflation Reduction Act, Part D now works in three simpler phases:

1. Deductible phase — you pay the full negotiated price until you meet your plan's deductible (if it has one).
2. Initial coverage phase — you pay a copay or coinsurance, and your plan covers the rest.
3. Catastrophic phase — once your out-of-pocket spending on covered drugs hits the annual cap, you pay $0 for covered drugs for the rest of the calendar year.

This cap applies whether you have a stand-alone Part D plan or drug coverage bundled into a Medicare Advantage plan, and it resets each January 1. The exact dollar amount is set annually and has increased slightly each year since the cap was introduced — it's worth confirming the current year's figure directly with your plan or on Medicare.gov, since it does change.

The Medicare Prescription Payment Plan (MPPP)

A newer option lets you spread your out-of-pocket drug costs into monthly installments across the year instead of paying large amounts upfront at the pharmacy — at no interest. This is especially useful if you fill expensive prescriptions early in the year and would otherwise face a big bill in January or February. Enrollment is optional and available through your Part D plan at any point during the year, though enrolling earlier in the year generally means smaller monthly payments.

Who benefits most

The cap matters most to anyone taking one or more expensive, ongoing medications — specialty drugs for conditions like cancer, rheumatoid arthritis, or certain chronic diseases previously had no real ceiling on annual cost exposure. For people on lower-cost, generic medications, the practical impact may be smaller since their spending was unlikely to reach the cap in the first place.