Coverage Gap (Donut Hole)
A phase in older Medicare Part D plans where members pay more for drugs after hitting an initial spending limit.
The 'donut hole' was a coverage gap in Medicare Part D where members had to pay a larger share of drug costs after they and their plan together spent a set initial amount but before catastrophic coverage kicked in. Thanks to the Inflation Reduction Act, the donut hole is essentially closed for plan year 2025 and beyond. In 2025, Medicare Part D introduced a $2,000 annual out-of-pocket cap on covered drugs, after which Part D pays 100% of covered drug costs for the rest of the year. Members can also choose the new Medicare Prescription Payment Plan to spread that out-of-pocket spending across monthly installments. The familiar phases — deductible, initial coverage, coverage gap, and catastrophic — have been simplified into three phases (deductible, initial coverage, catastrophic) for 2025. Anyone confused by an old plan's donut hole language should compare current plans during AEP using Medicare.gov's Plan Finder.
In real life
- A retiree on expensive insulin hits the $2,000 cap in mid-summer and pays $0 for covered drugs the rest of the year.
- A member chooses the Medicare Prescription Payment Plan to spread out-of-pocket drug costs into monthly installments.
- A retiree who used to fall into the donut hole every September benefits from the closed gap in 2025.
Also known as
Frequently asked questions about Coverage Gap (Donut Hole)
Does the donut hole still exist?+
For practical purposes, no. In 2025 Medicare Part D added a $2,000 out-of-pocket cap and simplified phases.
What is the new out-of-pocket cap?+
$2,000 per year on covered Part D drugs in 2025, after which Part D pays the full cost of covered drugs.
Can I spread payments out?+
Yes — the Medicare Prescription Payment Plan lets you pay monthly instead of at the pharmacy counter.
Where can I compare plans?+
Medicare.gov Plan Finder or call 1-800-MEDICARE.
Source: medicare.gov