Medicare Part D Changes: The $2,100 Cap & End of the Donut Hole Explained

What was the donut hole, and why did it matter?

For over a decade, Medicare Part D had a notorious four-phase structure: a deductible phase, an initial coverage phase, a coverage gap (the "donut hole") where beneficiaries temporarily paid a higher share of drug costs, and finally a catastrophic coverage phase. Many seniors on expensive medications would hit the donut hole partway through the year and face a sudden, unwelcome spike in their out-of-pocket costs, sometimes right when they could least afford it.

The Inflation Reduction Act of 2022 directed Medicare to phase this structure out entirely. As of the 2025 plan year, the donut hole is gone for good, replaced by a simpler three-phase model that caps your total exposure for the year.

The new three-phase Part D structure

Part D coverage for covered drugs now moves through three distinct phases each plan year:

This structure applies whether you have a standalone Part D plan or a Medicare Advantage plan that includes prescription drug coverage (an MAPD plan).

Understanding the 2026 out-of-pocket cap

The annual out-of-pocket cap for covered Part D drugs is $2,100 for 2026, an increase from the $2,000 cap that took effect in 2025. This cap is now indexed for inflation, meaning it will likely continue rising modestly each year going forward, similar to how other Medicare cost figures are adjusted annually.

It's important to understand exactly what counts toward this cap: your deductible payments, copayments, and coinsurance for covered drugs all count, as do payments made on your behalf by certain other parties, such as through the Extra Help program. Premiums you pay to maintain your Part D coverage do not count toward the cap. Once your qualifying spending reaches the $2,100 threshold, you pay nothing further for covered drugs for the rest of that plan year.

It's worth running a realistic estimate of your annual prescription spending before assuming you'll hit the cap at all. Many beneficiaries with moderate prescription needs never reach $2,100 in a given year, in which case the cap is a safety net rather than something they'll actually experience firsthand. For those on one or more genuinely expensive medications, however, the cap represents real, predictable protection against what used to be an open-ended financial risk that could previously run into the thousands of dollars with no ceiling in sight.

The Medicare Prescription Payment Plan

Alongside the new cap, the Inflation Reduction Act also created the Medicare Prescription Payment Plan, sometimes called M3P. This program is entirely optional and allows you to spread your out-of-pocket prescription costs into capped monthly installments across the plan year, rather than paying the full cost at the pharmacy counter each time you fill a prescription.

This can be especially helpful if you're prescribed an expensive medication early in the year and would otherwise face a large upfront bill before your deductible is met, rather than having that cost spread out more manageably over the months that follow. If you enrolled in the program for 2025, you're generally automatically re-enrolled for 2026 and subsequent years unless you actively opt out, making it easier to stay enrolled without needing to re-apply annually.

Insulin cost caps and dual-eligible flexibility

As part of the same broader set of reforms, Medicare Part D beneficiaries now pay no more than $35 for a month's supply of each covered insulin product, regardless of which phase of the benefit they're currently in. This cap applies consistently throughout the year, removing the previous risk of insulin costs spiking during certain phases of the old benefit structure.

Beneficiaries who are enrolled in both Medicare and full Medicaid benefits, or who qualify for the Extra Help program (which assists with Part D premiums and cost-sharing for those with limited income and resources), gained additional flexibility starting in 2026. Rather than being limited to switching their Medicare Advantage or standalone Part D plan on a quarterly basis, eligible beneficiaries can now change plans monthly, making it easier to move to a plan that better fits a change in medication needs without waiting for the next quarter.

This flexibility matters in practice: a new diagnosis or a change in prescribed treatment can shift which plan actually offers the best formulary fit for a specific beneficiary, and previously, someone in this situation might have been stuck paying higher costs on a less suitable plan for months until the next quarterly window opened. The move to monthly switching closes that gap for the beneficiaries who need it most, without requiring them to wait out an entire quarter on a plan that no longer serves their current needs.

Drug price negotiation

Separately from the out-of-pocket cap, the Inflation Reduction Act also empowered Medicare, for the first time, to directly negotiate prices for a select group of high-cost drugs with manufacturers. This negotiation authority is being phased in over several years, with negotiated prices applying to the specific drugs selected for each negotiation cycle.

The goal is to gradually lower costs for some of the most expensive medications used by Medicare beneficiaries, though the negotiated prices don't apply uniformly to every drug on the market, only to those selected for negotiation in a given cycle.

This marks a genuine shift in how Medicare interacts with drug manufacturers, since the program previously had no direct authority to negotiate prices at all. Because the list of negotiated drugs expands over successive cycles rather than all at once, it's worth periodically checking whether any of your specific medications have been added to the negotiated list, since that can meaningfully affect what you pay even within the structure of your existing plan's formulary tier.

What this means for your plan choice

With the coverage gap eliminated and a hard annual cap in place, comparing Part D plans now comes down less to worrying about a sudden mid-year cost spike and more to comparing each plan's specific premium, deductible, and formulary (the list of drugs it covers and at what cost-sharing tier). Two plans with the same $2,100 out-of-pocket cap can still differ significantly in their monthly premium and how quickly you reach that cap, depending on your specific medications and their placement on each plan's formulary.

It's also worth noting that Medicare's annual Open Enrollment period, which runs each fall, remains the primary window for switching Part D or Medicare Advantage plans for most beneficiaries, so reviewing your options before that window closes is still the most reliable way to make a change for the upcoming plan year. Waiting until a problem arises mid-year, outside of a qualifying special circumstance, generally isn't an option for most people, which is exactly why an annual review, even for beneficiaries who feel satisfied with their current plan, remains worthwhile.

A quick checklist

• Confirm your current and anticipated medications are on your plan's formulary, and check which cost-sharing tier each one falls into.
• Compare your plan's specific deductible and typical copay or coinsurance structure during the initial coverage phase, not just the premium.
• Consider enrolling in the Medicare Prescription Payment Plan if you expect a large upfront drug cost early in the year and would prefer to spread it out.
• If you're on Medicaid or receive Extra Help, take advantage of the new monthly plan-switching flexibility if your current plan no longer fits your needs.
• Ask a licensed Medicare advisor to compare your specific medications across available plans, rather than assuming your current plan is still the best fit.
• If you're also comparing a Medicare Supplement plan alongside your Part D coverage, review both together with an advisor rather than separately.

For the authoritative, non-commercial sources on this topic, Medicare.gov explains the current Part D benefit structure and out-of-pocket cap directly, and the Centers for Medicare & Medicaid Services (CMS) publishes the official annual Part D redesign program instructions.

Frequently asked questions about Medicare Part D changes

Have a question that isn't answered below? Our full health insurance FAQ page covers more, and our Medicare resources page has deeper guides on specific coverage topics.