The donut hole was a coverage gap for prescription drugs in Medicare Part D. In 2025, it was replaced by a new spending cap of $2,000, after which you won’t pay out of pocket for drugs anymore.

You may have heard of the term “donut hole” in reference to Medicare Part D, Medicare’s prescription drug coverage.

The donut hole was a gap in prescription drug coverage during which you could end up paying more for prescription drugs. You entered the donut hole once your Medicare Part D plan had paid a certain amount toward your prescription drugs in one coverage year.

Once you fell into the donut hole, you paid more out of pocket (OOP) for the cost of your prescriptions until you reached the yearly limit. Depending on the type of coverage you had, when you hit this limit, your plan could help pay for your prescriptions again.

In 2024, you entered the donut hole once you spent $5,030 on covered drugs, and you didn’t exit it until you spent at least $8,000.

That said, 2024 was the last year the donut hole was effective. In 2025, a new out-of-pocket spending cap effectively eliminates the donut hole. Learn more about the changes to expect.

In 2025, the Medicare Part D provisions of the Inflation Reduction Act took effect. This law requires all Medicare prescription drug plans to offer a new payment option for enrollees. The goal of the change was to reduce out-of-pocket costs.

Instead of paying the full cost up front at the pharmacy, you’re able to pay in monthly installments that are capped at $2,000 per year.

Payments from the Medicare Extra Help program, which helps people pay for their prescription drug costs, also qualify toward the cap.

Until the end of 2024, what happened once you were in the donut hole varied depending on the Part D plan you chose and how much you spent on prescription medications. Some people paid less for their medications when they entered the donut hole, while others paid more — usually only slightly.

You entered the donut hole after you surpassed the initial coverage limit of your Part D plan. The initial coverage limit included the total (retail) cost of drugs — what both you and your plan paid for your prescriptions.

After surpassing this limit, you had to pay a certain percentage yourself until you reached the OOP threshold.

The initial coverage limit had increased to $5,030 for 2024, which meant you could get more medications before you fell into the donut hole.

For 2024, the OOP threshold also increased to $8,000. This is the amount of OOP money that you had to spend before exiting the donut hole. In effect, it meant you had to spend more OOP than before to get out of the donut hole.

When you entered the donut hole, certain things counted toward your total OOP cost to exit it. These included:

  • OOP costs for generic and brand-name drugs while in the donut hole
  • discounts on brand-name drugs while you’re in the donut hole, which includes a coverage gap discount plus a manufacturer discount
  • your yearly deductible, which was a max of $545 in 2024
  • any copayments or coinsurance

In 2024, if you spent $8,000 out of pocket on your prescription drugs (including any payments made by Extra Help), you qualified for “catastrophic coverage.” This meant all of your covered drugs under Part D were then fully paid for the remainder of the year.

Originally, being in the donut hole meant that you had to pay out of pocket until you reached the threshold for more drug coverage. However, since the introduction of the Affordable Care Act, the donut hole has been closing.

There were several rules in 2024 aimed at limiting your out-of-pocket costs in the coverage gap:

  • You paid no more than 25% of the price for brand-name drugs.
  • The nearly full price of the drug (more than what you paid out of pocket or 95% of its costs) counted toward getting you out of the coverage gap.
  • You were responsible for a dispensing fee for your medication. Your plan paid 75%, while you paid 25%
  • The fees that didn’t count toward your OOP spending included the 5% your plan paid plus the 75% toward the dispensing fee your plan paid.
Choosing Medicare prescription drug coverage

Are you planning on enrolling in a Medicare prescription drug plan? Consider the following before choosing a plan:

  • Use the Medicare website to search for the right plan for you.
  • Compare a Medicare Part D with a Medicare Advantage (Part C) plan. Medicare Advantage plans include healthcare and drug coverage on one plan and sometimes other benefits like dental and vision.
  • Check that the plan covers your medications.
  • If you take generic drugs, look for a plan that charges a low copayment.
  • Make sure that additional coverage includes medications you take.

Medicare Part D plans cover both brand-name and generic drugs. The list of covered medications, called a formulary, includes at least two drugs in commonly prescribed drug categories. However, the specific drugs covered in your Part D plan can vary from year to year.

For those who purchase a basic Medicare Part D plan for 2025, the estimated average total Part D premium is expected to decrease from $53.95 in 2024 to $46.50 in 2025. The average stand-alone Part D plan total premium is also estimated to decrease from $41.63 in 2024 to $40.00 in 2025.

Tips for helping a loved one enroll in Medicare

If you’re too young for Medicare but helping a loved one enroll, here are some considerations:

  • Know whether they’re collecting Social Security benefits: If they are, they’ll automatically be enrolled in parts A and B when eligible. If not, they can sign up for Medicare starting 3 months before the month of their 65th birthday.
  • Be aware of their individual needs: Do they visit the doctor frequently, take several medications, or need additional vision or dental care? Knowing these things can help you select an appropriate plan.
  • Be prepared to provide personal information about yourself: Social Security may ask about you and your relationship to the person you’re helping. Your loved one will need to sign the Medicare application when it’s complete.

Is there anything else that can help reduce the cost of prescription medications? Here are six suggestions:

1. Consider switching to generic drugs.

These are often less expensive than brand-name drugs. If you’re taking a brand-name drug, ask your doctor about generic alternatives.

2. Think about ordering medications online.

In some cases, this may be more cost-effective. The FDA has a list of tips for safely buying medications online.

3. Look into state pharmaceutical assistance programs.

Many states offer programs to help with the cost of prescriptions. Medicare has a search tool to help you find programs in your state.

4. Check for pharmaceutical assistance programs.

Many pharmaceutical companies offer assistance programs for people who need help with the cost of their medication.

5. Apply for Medicare Extra Help.

Individuals with Medicare drug coverage who have limited income and resources may qualify for the Medicare Extra Help program. This program helps to pay for premiums, deductibles, and copayments associated with a Medicare drug plan.

The Medicare donut hole was a coverage gap in Plan D prescription coverage. You entered it after you passed an initial coverage limit. In 2025, your overall OOP drug costs will be capped at $2,000, which means the donut hole is going away.

You can do various things to help bring down the cost of prescriptions. These include switching to generic drugs or using an assistance program.

When selecting a Medicare prescription drug plan, verify that the plan covers your medications. It’s always a good idea to compare multiple plans to find the one that’s right for your individual needs.