What is the Medicare Donut Hole?

The Medicare donut hole, also called the Medicare Part D coverage gap, is a phase of prescription drug coverage that changes how much beneficiaries pay for medications during the year. While the donut hole is being eliminated in 2025, understanding how it works is still essential for managing drug costs.

The donut hole has long been one of the most confusing parts of Medicare Part D. It is not a separate plan or penalty, but a cost-sharing phase built into prescription drug coverage. To understand how recent changes affect you, it helps to first understand how the donut hole works step by step.

NOTE: Since 2020, the Medicare donut hole has effectively been “closed,” meaning beneficiaries pay a capped percentage rather than full drug costs.

How the Medicare Donut Hole Works

Medicare Part D prescription coverage is divided into phases that determine how drug costs are shared between you and your plan. The donut hole is one of these phases.

During the year, you move through Medicare Part D coverage in this general order:

• Initial coverage phase
• Coverage gap (the donut hole)
• Catastrophic coverage

The donut hole occurs after your total drug costs reach a certain limit. At that point, your share of prescription costs changes until you reach the next phase.

When You Enter the Donut Hole

You enter the Medicare donut hole when the combined amount spent on your covered prescription drugs reaches the annual Part D coverage limit. This total includes what you pay and what your plan pays.

Once that threshold is reached, you move out of the initial coverage phase and into the coverage gap, where different cost-sharing rules apply.

What You Pay While in the Donut Hole

While you are in the donut hole, you generally pay a larger share of the cost for covered prescription drugs than you did during initial coverage.

For many beneficiaries, this means paying a percentage of the drug’s cost rather than a fixed copayment. These payments continue to count toward your annual out-of-pocket spending.

How You Get Out of the Donut Hole

You exit the Medicare donut hole when your out-of-pocket spending for covered Part D drugs reaches the catastrophic coverage threshold.

After leaving the donut hole, catastrophic coverage begins. At this stage, Medicare Part D significantly reduces your share of prescription drug costs for the rest of the year.

Does the Medicare Donut Hole Still Exist in 2025?

Beginning January 1, 2025, the Medicare donut hole is eliminated as part of changes to Medicare Part D. Instead of moving through a coverage gap, beneficiaries will have a $2,000 annual cap on out-of-pocket costs for covered prescription drugs.

Once that cap is reached, you will pay nothing for covered medications for the remainder of the year. While the donut hole no longer functions as a separate phase, understanding it remains helpful when reviewing older plan materials or comparing past and future coverage.

Important Limits and Exceptions

The new out-of-pocket cap applies only to covered Medicare Part D drugs. Plans may still use formularies, prior authorization, and other coverage rules that affect which medications are covered and how they are accessed.

Who Is Affected by the Donut Hole Changes

Anyone enrolled in a Medicare Part D prescription drug plan or a Medicare Advantage plan that includes drug coverage is affected by these changes. The elimination of the donut hole primarily benefits beneficiaries with higher prescription drug costs.

Why Understanding the Donut Hole Still Matters

Even with the donut hole eliminated, understanding how Medicare Part D cost phases work can help you better evaluate plan options, estimate annual drug costs, and avoid surprises when coverage rules change.