Medicare Part D explained-How To Avoid Donut Hole?

Most Medicare beneficiaries are often confused about their Medicare Part D coverage and how it actually works. You may have heard the expression “donut hole” but be unsure what it really means — or whether it still exists.

The short answer: the donut hole was permanently eliminated on January 1, 2025. Part D now has a simpler three-phase structure with a hard annual out-of-pocket cap. Below is how the program works in 2026.

How Do I Get Medicare Part D?

Medicare Part D is the prescription drug coverage program. You can enroll in it either through a stand-alone Medicare Part D Prescription Drug Plan or a Medicare Advantage Plan (Part C) that includes prescription drug benefits. Regardless of which path you choose, the underlying cost structure described below applies.

Medicare Part D Coverage Phases in 2026

Part D plans renew every calendar year on January 1, and the coverage phases reset along with the plan year. As of 2025, the old four-phase structure (with the donut hole as phase 3) was replaced with a simpler three-phase model.

Phase 1: Deductible

This is the amount you’ll have to pay out of pocket before the insurance kicks in. You’ll be responsible for the full cost of your medications until you’ve met the plan’s deductible. For 2026, the maximum Part D deductible is $615 per year. Some plans have a lower deductible, and some have a zero-dollar deductible. In many cases, if you only use Tier 1 and Tier 2 medications, the deductible may not affect you at all.

If you take Tier 3 or higher medications, you’ll likely be responsible for the full cost of that medication at the pharmacy until your deductible is met.

Phase 2: Initial Coverage

After you meet your deductible, you enter the initial coverage phase. You pay a copay or coinsurance for each prescription — typically 25% of the cost — and the plan pays the rest. Tier structure varies plan-to-plan, which is why comparing plans based on your specific medication list every year is so important.

You stay in the initial coverage phase until your total out-of-pocket spending reaches $2,100 in 2026.

Phase 3 (Eliminated): The Coverage Gap or “Donut Hole”

Before 2025, Part D had a middle “coverage gap” phase — commonly called the “donut hole” — where beneficiaries paid a higher share of their drug costs (25% by 2024) until they reached the catastrophic coverage threshold. The Inflation Reduction Act eliminated this phase entirely as of January 1, 2025. There is no longer a donut hole to avoid.

Phase 3 (Current): Catastrophic Coverage

In 2026, once your out-of-pocket spending reaches $2,100, you enter catastrophic coverage and pay $0 for covered Part D drugs for the rest of the calendar year. This is a substantial change from the pre-2025 structure, where catastrophic coverage still required a small coinsurance payment.

Spending that counts toward the $2,100 cap (your TrOOP — “True Out-of-Pocket” costs) generally includes:

• Any amount you paid toward your deductible
• Copays or coinsurance you paid during the initial coverage phase
• Payments made through the Medicare Prescription Payment Plan (see below)

Monthly Part D plan premiums and the cost of drugs not covered by your plan do not count toward the $2,100 cap.

The Medicare Prescription Payment Plan

Also new as of 2025: Medicare offers a voluntary, free Medicare Prescription Payment Plan that lets you spread your out-of-pocket Part D costs into predictable monthly installments rather than paying large amounts at the pharmacy counter. This is especially useful for beneficiaries taking expensive medications who would otherwise hit the $2,100 cap early in the year.

Tips for Lowering Your Part D Costs in 2026

Even without a donut hole, $2,100 is still meaningful out-of-pocket exposure. Here’s how to minimize it:

• Compare Part D plans every year during Medicare Open Enrollment (October 15 – December 7) — plans change formularies, tiers, and pricing annually.
• Ask your doctor or pharmacist about generic or therapeutically similar lower-cost alternatives.
• Apply for Extra Help (Low-Income Subsidy) and check whether you qualify for a state Medicare Savings Program.
• Look into manufacturer assistance programs for specific brand-name drugs.
• Consider mail-order pharmacy for 90-day supplies of maintenance medications.

Part D prescription drug plans can still be confusing. If you’re not sure which plan is right for you or have questions about how the 2026 structure applies to your medications, our licensed Medicare agents can help.

You don’t need to do this alone. Our agents at Evergreen Insurance Advisors have extensive experience with Medicare. Call us or text us today and we will help you choose the best prescription drug plan that fits your specific medication needs and budget.