Understanding Medicare Part D and the Coverage Gap

How Part D Is Structured

Under the redesigned benefit, Medicare Part D operates in three phases that reset each calendar year (the former "coverage gap" phase has been removed). The figures below reflect the CMS-finalized 2026 standard benefit; individual plans may set lower deductibles or use fixed copays. Understanding these phases helps you anticipate how your drug costs may change throughout the year:

• Deductible phase: You pay the full cost of your drugs until you meet the annual deductible. For 2026, the maximum standard deductible is $615, though some plans set a lower or $0 deductible for certain drug tiers.
• Initial coverage phase: After the deductible, you typically pay 25% of the cost of covered drugs (some plans use fixed copays by tier). The plan pays the rest. This continues until your out-of-pocket spending reaches the annual cap.
• Catastrophic coverage phase: Once your out-of-pocket spending on covered drugs reaches the annual cap ($2,100 for 2026), you pay $0 for covered drugs for the rest of the calendar year. Notably, the old 5% coinsurance that beneficiaries used to owe in this phase has been eliminated — cost-sharing after the cap is now zero.

The Coverage Gap Explained (and Why It No Longer Exists)

For years, Part D included a middle phase known as the coverage gap. It began after you and your plan had spent a combined amount on covered drugs that reached the initial coverage limit. Originally, beneficiaries paid 100% of their drug costs during this gap — hence the nickname "donut hole." Over time, legislation progressively narrowed it.

The Inflation Reduction Act completed that process. As of January 1, 2025, the coverage gap phase was eliminated entirely and replaced with a hard annual out-of-pocket cap. That cap was $2,000 in 2025 and has been adjusted to $2,100 for 2026, based on the growth in average Part D drug spending. Once your out-of-pocket spending on covered drugs reaches the cap, you pay nothing more for covered drugs for the remainder of the year — the previous 5% catastrophic coinsurance no longer applies. Premiums and the cost of drugs not on your plan's formulary do not count toward the cap. Because these figures are updated annually, check Medicare.gov for the current-year deductible and cap.

Drug Tiers and Formularies

Each Part D plan has a formulary — a list of drugs the plan covers — organized into tiers. Lower tiers (typically generic drugs) have lower copays. Higher tiers (brand-name and specialty drugs) have higher copays or coinsurance. Not every drug is on every plan's formulary.

Before enrolling in a Part D plan, check whether your specific medications are on the plan's formulary and note which tier they fall under. A plan with a low monthly premium but high-tier placement for your medications may cost more overall than a higher-premium plan with better tier placement.

Part D and Medicare Advantage

Many Medicare Advantage plans (MA-PD plans) include Part D drug coverage as part of their bundled benefits. If you are enrolled in a Medicare Advantage plan with drug coverage, you generally cannot also have a standalone Part D plan.

If you are on Original Medicare with a Medigap supplement, you typically need a separate standalone Part D plan for drug coverage. Medigap plans do not cover prescription drugs.

Strategies for Managing Drug Costs

Several practical approaches can help manage prescription costs under Part D:

• Ask your doctor about generic alternatives when available
• Use the Medicare Plan Finder at Medicare.gov to compare plans based on your specific medications
• Check whether you qualify for Extra Help (Low-Income Subsidy), which reduces premiums, deductibles, and copays
• Review your plan annually during Open Enrollment — formularies and pricing change each year

"The cheapest Part D plan is not always the one with the lowest premium. It is the one that costs you the least for the drugs you actually take."