Medicare Part D helps cover the cost of prescription medications. As useful as Part D is, it’s not always easy to understand.
Complicating matters a bit further, a major component of Part D changed in 2025. To understand what’s changed, it’s good to know what Medicare Part D looked like before 2025.
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Pre-2025
Before changes were made, Medicare Part D included a “donut hole.” Here’s how it worked:
- You’d pay a monthly premium for Part D.
- When you picked up a prescription, you’d be responsible for paying a portion of the cost through co-payments or coinsurance until the amount you paid out of pocket reached a specific limit.
- There was an initial coverage limit, meaning Medicare would only pay that amount toward prescriptions. Once the coverage limit was reached, you would enter the donut hole.
- While you were stuck in the donut hole, you were expected to cover a larger portion of your medication cost until you reached a higher out-of-pocket threshold. The portion you had to pay could have been as much as 100%. While it’s no secret that healthcare in retirement can be expensive, the donut hole added a layer of uncertainty to your medical expenses.
- If you reached the next out-of-pocket threshold, you’d enter what was called “catastrophic coverage.” With catastrophic coverage, you’d go back to paying a small co-payment or coinsurance for medications, significantly reducing your costs for the rest of the year.
A co-pay is the fixed, flat fee you pay at the time of service. For example, it may be $20 per prescription. Coinsurance is the percentage of the total cost you pay after meeting your annual deductible.
A frustrating period
As you might imagine, Medicare recipients dreaded hitting the donut hole because it meant that drug costs might be out of financial reach. And even if they could afford their prescriptions, the cost could quickly deplete their savings.
What’s changed?
When the Affordable Care Act (also known as Obamacare) was passed in 2010, it included a gradual closing of the donut hole, and by the beginning of 2025, the Part D donut hole had been eliminated entirely.
In 2026, once you’ve spent $2,100 out of pocket on prescription drugs, you automatically enter the catastrophic coverage phase, meaning you pay nothing for covered medications for the remainder of the year. There is no longer a potentially expensive donut hole to navigate.
What does it mean for you?
As a Medicare beneficiary, the elimination of the donut hole may usher in several positive changes, including:
- Improved access to the medications you need: Since you no longer have to worry about how much you’d be forced to pay during the donut hole period, you’re more likely to stick with your prescribed medication schedule rather than cut back to save money.
- Financial options: Without the donut hole, you’re likely to see significant savings on prescription drug costs, leaving you with more money to allocate to other expenses, like saving and putting money into inflation-proof investments.
- Predictability: The high cost of medications adds an extra layer of unpredictability to planning for retirement. Avoiding the donut hole period means having a better sense of how much to budget for those prescriptions you need to remain healthy.
Perhaps the biggest advantage of closing the donut hole is the extent to which it may reduce anxiety about unexpected medical expenses.
