What Is the Medicare Part D "Donut Hole" Coverage Gap?

Many Medicare beneficiaries may have heard the term “donut hole coverage gap” or “donut hole trap” referenced as it relates to gaps in Medicare Part D (prescription drug) coverage; though the “donut hole” once caused financial strain for seniors, what many don’t know is that it’s a thing of the past!

Recent reforms have effectively closed the “donut hole” creating more comprehensive coverage and lessening financial burdens on Medicare enrollees. Let’s review what the “donut hole” coverage gap was, when and how it was closed, and what you need to know now.

What Was the Medicare “Donut Hole” Coverage Gap? The Medicare “donut hole” coverage gap was a temporary lapse of coverage in Medicare Part D (prescription drug) plans between initial and catastrophic coverage. As a result of this lapse, many Medicare beneficiaries were forced to pay a larger portion of their prescription drug costs until catastrophic coverage began.

To aid understanding, let’s review a couple of definitions:

During the initial coverage phase for Medicare Part D plans, enrollees pay a portion of their prescription drug costs, typically through coinsurance or copayments. Once the out-of-pocket amount reaches its limit, enrollees are transitioned into catastrophic coverage. Catastrophic coverage for Medicare Part D plans means enrollees who have reached the out-of-pocket maximum for their initial coverage pay little or nothing for their covered prescription drugs. Why Was It Called a “Trap”? Understandably, this lapse in coverage caused much strain on seniors who were not expecting or accounting for the payment of non-insured prices for their prescriptions, for several reasons apart from the obvious:

Seniors often thought their coverage simply ran out , causing undue emotional and financial stresses. When switching between initial and catastrophic coverage, there are slightly different cost-sharing structures for generics vs brand-name drugs; many seniors who were unaware of this were hit with another set of bad news. The “donut hole” coverage gap (or “trap”) created added hardship for those with chronic conditions needing ongoing medication. When Did the “Donut Hole” Coverage Gap Close? The “donut hole” coverage gap existed from 2006 up until 2024; though it’s completely gone as of 2025, it was actually closed in phases.

This began with the Affordable Care Act, which phased in discounts from 2010-2020. In 2020, the out-of-pocket share for name-brand and generic drugs was capped at 25%. As of 2025, the “donut hole” no longer exists; it was closed with the passing of the Inflation Reduction Act. When combined with the provisions from the Affordable Care Act, the “donut hole” is officially closed. Medicare Part D Costs Today Without the need to worry about any potential lapses in coverage, Medicare beneficiaries can now have more peace of mind knowing exactly what their prescription drug costs will be. Medicare Part D has three phases:

Phase 1 is the deductible phase ; here, enrollees pay 100% of their prescription drug costs until they hit their plan’s deductible. Once that occurs, enrollees move into the initial coverage or cost-sharing phase ; here, the beneficiary pays up to 25% of the drug costs, with Medicare covering the rest. Another thing to note: as of 2025, the annual out-of-pocket cap for the initial coverage phase is $2,000. Once the annual out-of-pocket cap is met, enrollees are phased into the catastrophic coverage phase ; they will not pay anything towards their prescription drugs throughout the end of the year. Common Misconceptions About the “Donut Hole” & Medicare Coverage Despite the confirmation that the Medicare “donut hole” coverage gap has closed, there are still plenty of misconceptions associated with it (and with Medicare in general). Let’s review some of them to ensure that you have the most up-to-date information possible:

Myth 1: The “Donut Hole” Still Exists The biggest misconception is that the donut hole is still part of Medicare drug coverage; however, as we’ve discussed, it began closing around five years ago due to the Affordable Care Act. As of 2025, however, it has closed permanently, and beneficiaries no longer experience a sudden spike in costs after reaching a coverage threshold.

Instead, you’ll pay no more than 25% of the cost of your prescription drugs until you hit the catastrophic phase; plus, with the provisions of the Inflation Reduction Act of 2025, out-of-pocket spending is also being capped at $2,000 per year.

Myth 2: “Coverage Gap” Means No Coverage at All We’ve thus far referred to the “donut hole” as a lapse or a gap in coverage; though this naming is commonly used, it’s not quite 100% accurate. Even when the “donut hole” coverage gap existed, beneficiaries didn’t pay the entirety of their drug costs—they simply paid more than they were paying in their initial coverage phase.

Myth 3: Getting Out of the “Donut Hole” Cost Thousands This used to be true. In the past, once your out-of-pocket spending reached a certain level, you’d exit the donut hole and enter catastrophic coverage, where costs dropped dramatically. But with the donut hole gone, this process no longer applies.

Medicare “Donut Hole” Coverage Gap FAQs What is the “donut hole" in Medicare? In simple terms, the Medicare “donut hole” refers to a coverage gap between initial prescription drug coverage and catastrophic prescription drug coverage . When beneficiaries found themselves in the “donut hole” coverage gap, they saw a spike in prices for their prescription drugs until catastrophic coverage went into effect.

Is the “donut hole” going away in 2025 Medicare? The “donut hole” coverage gap, in its original form, went out of effect in 2020. The Inflation Reduction Act, however, added a $2,000 out-of-pocket cap to further close the gap.

How do you get out of a Medicare “donut hole”? In the past, beneficiaries would have to reach catastrophic coverage in order to get out of the Medicare Part D “donut hole”. Now that the coverage gap is gone, however, that concern is a thing of the past!

The Part D “Donut Hole” Coverage Gap: Conclusion The Medicare Part D “donut hole” was once a major source of confusion and financial stress for millions of beneficiaries. Today, Medicare Part D provides more predictable coverage, and starting the $2,000 annual out-of-pocket cap added in 2025 offers even greater protection for enrollees.

If you’re enrolling in Medicare or reviewing your drug coverage, the key is to understand how your Part D plan works, compare available options, and take advantage of new cost protections. Healthpilot can help you find the right plan and coverage for you; get started today .

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