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Part D

The Part D out-of-pocket cap and the old coverage gap

Published By Vista Insurance Services 9 min read

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In 2026, once your out-of-pocket spending on covered Part D drugs reaches $2,100, you won't have to pay out of pocket for covered Part D drugs for the rest of the calendar year (Medicare.gov). The cap applies to everyone with Medicare drug coverage, whether it comes from a stand-alone drug plan or a Medicare Advantage Plan with drug coverage. And the coverage gap, known as the donut hole, is gone: it was eliminated as of January 1, 2025.

Table of contents

How does the out-of-pocket cap work in 2026?

Medicare drug plans and Medicare Advantage Plans with drug coverage generally have three stages. What you spend on covered drugs moves you from one stage to the next.

The deductible stage

If your plan has a deductible, you pay all out-of-pocket costs until you reach it. No Medicare drug plan may have a deductible of more than $615 in 2026, and some plans have none (Medicare.gov).

The initial coverage stage

After the deductible, you pay 25% of the cost as coinsurance for your generic and brand-name drugs. This stage lasts until your out-of-pocket spending on covered Part D drugs reaches $2,100 in 2026 (Medicare.gov). Depending on the plan, what you pay at the pharmacy can be a copayment (a fixed amount) or coinsurance (a percentage).

The catastrophic coverage stage

When you reach the cap, you automatically get catastrophic coverage. You won't have to pay out of pocket for covered Part D drugs for the rest of the calendar year. The prescription drug law sets this cap for everyone with Medicare drug coverage, whether or not they use the Medicare Prescription Payment Plan.

Your premium is a separate cost: a monthly amount you pay for coverage, whether you get covered drugs or not. If you owe a Part D late enrollment penalty, it's added to that premium. You can see how that penalty works on the late enrollment penalties page, and What Medicare costs in 2026 covers premiums, including the extra amount higher incomes pay for Part D.

What counts toward the cap?

The cap counts your out-of-pocket spending on covered Part D drugs. Federal rules call these costs "incurred costs" and define them in 42 CFR 423.100. In plain terms, they include:

  • What you pay for covered Part D drugs under your plan's deductible, copayments and coinsurance
  • Payments another person makes for you, when no insurance or other plan pays that person back
  • Payments made for you through Extra Help, a State Pharmaceutical Assistance Program, the Indian Health Service or a tribal or urban Indian health program, or an AIDS Drug Assistance Program
  • Since 2025, payments by other insurance, a group health plan or certain other third parties, but not your Part D plan's own basic coverage

That last change matters if you have other coverage. Beginning in 2025, more payments by third parties count as if they were your out-of-pocket costs, including supplemental Part D coverage and coverage by other health insurers.

Some things don't count:

  • Payments drug makers make under the Manufacturer Discount Program. The rule excludes them.
  • Drugs your plan doesn't cover. The cap is for covered Part D drugs. All plans must cover a wide range of drugs, and each plan has its own list of covered drugs, called a formulary. Part D drug coverage shows how to check a plan's list against the drugs you take.

The month after the pharmacy bills your plan, you get an Explanation of Benefits. It shows the prescriptions you filled, what your plan paid, what you and others paid, your coverage stage, and what counts toward your out-of-pocket costs.

What was the old coverage gap, or donut hole?

Before 2025, the standard Part D benefit had four stages, not three. The third stage was the coverage gap, known as the donut hole. 2024 was the last year with a gap, and CMS laid out that year's benefit in its program instructions for 2025. Here it is beside the 2026 benefit:

Stage 2024 standard benefit 2026 standard benefit
Deductible You paid 100% of drug costs until you met the deductible ($545) You pay 100% of drug costs until you meet the deductible ($615)
Initial coverage You paid 25% coinsurance until total drug spending reached the initial coverage limit ($5,030) You pay 25% coinsurance until your out-of-pocket spending reaches the threshold ($2,100)
Coverage gap You paid 25%; the plan, and for some drugs the drug maker, paid the rest, until you reached the out-of-pocket threshold ($8,000) There is no coverage gap stage
Catastrophic You paid nothing for covered Part D drugs You pay nothing for covered Part D drugs for the rest of the year
Source Final CY 2025 Part D Redesign Program Instructions, CMS Final CY 2026 Part D Redesign Program Instructions, CMS

One caution when you compare them: the two thresholds didn't count the same things. In 2024, a drug maker's discount under the Coverage Gap Discount Program counted toward the threshold as if you had paid it. Since 2025, payments under the new Manufacturer Discount Program don't count, so the old and new figures are not a like-for-like comparison.

The Inflation Reduction Act of 2022 made these changes. The law capped enrollees' yearly out-of-pocket costs, eliminated the coverage gap stage, and ended cost sharing in the catastrophic stage, a change that began in 2024. The cap was $2,000 in 2025, its first year. CMS set the 2026 cap at $2,100 by adjusting the 2025 figure for the yearly increase in average spending on covered Part D drugs (CMS 2026 fact sheet).

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How does the Medicare Prescription Payment Plan work with the cap?

The cap limits what you pay in a year. The Medicare Prescription Payment Plan changes when you pay it. It is a payment option that spreads your out-of-pocket costs for covered drugs across the calendar year, January to December. Anyone with a Medicare drug plan, or a Medicare Advantage Plan with drug coverage, can use it. All plans offer it, and joining is voluntary.

Here's how it works (Medicare.gov):

  • You don't pay the pharmacy for a covered Part D prescription. Your plan sends you a bill each month instead.
  • Your monthly bill is what you would have paid for your prescriptions, plus last month's balance, divided by the months left in the year. All plans use the same formula.
  • Your payments can change from month to month.
  • In a calendar year, you never pay more than you would have paid the pharmacy, or more than the out-of-pocket maximum for covered drugs, $2,100 in 2026 (Medicare.gov).
  • It doesn't save you money or lower your drug costs.

You're most likely to benefit if you have high drug costs earlier in the calendar year. It may not suit you if your yearly drug costs are low, if your drug costs are the same each month, if you would sign up after September, if you don't want to change how you pay for your drugs, if you get or are eligible for Extra Help or a Medicare Savings Program, or if you get help paying for your drugs from other organizations, like a State Pharmaceutical Assistance Program, a coupon program or other health coverage.

To sign up or to leave, you contact your plan, and if you leave you still owe any balance. If you miss a payment and don't pay by the date in your plan's reminder, you are removed from the payment option but stay in your drug coverage. You still owe the amount due, but you won't pay interest or fees. Changing plans ends your participation.

What changes in 2027?

The cap goes up to $2,400 in 2027, and no Medicare drug plan may have a deductible of more than $700 in 2027 (Medicare.gov).

If you use the Medicare Prescription Payment Plan and stay in the same Part D plan, your participation renews automatically for 2027 (Medicare & You 2027). Each plan also sends an Annual Notice of Change. It lists changes in coverage, costs, provider networks, service area and more that take effect in January. If you don't get it in early fall, contact your plan.

Want to see how the cap and the payment option would work with the drugs you take? Bring me your list and I'll walk through it with you: Ask Jeannie to reach out. Jeannie Pond is a Licensed Insurance Agent in Florida.

We do not offer every plan available in your area. Currently we represent 14 organizations which offer 52 products in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.

1-800-MEDICARE (1-800-633-4227), TTY 1-877-486-2048, 24 hours a day/7 days a week

Frequently asked questions

Do my premiums count toward the Part D out-of-pocket cap?

No. Federal rules count the costs you pay for covered Part D drugs under your plan's deductible and cost-sharing. The premium is separate: a monthly amount you pay for coverage whether you get covered drugs or not. A late enrollment penalty, if you owe one, is added to that premium.

Does the coverage gap still exist?

No. The Inflation Reduction Act eliminated the coverage gap stage as of January 1, 2025. Since then, the standard Part D benefit has had three stages: the deductible, initial coverage and catastrophic coverage.

Does the cap start over each year?

Yes. The cap is a calendar-year limit, January to December. Once you reach it, you won't pay out of pocket for covered Part D drugs for the rest of that calendar year. Medicare.gov lists a higher cap for 2027 than for 2026.

Does the Medicare Prescription Payment Plan lower my drug costs?

No. It spreads your out-of-pocket costs for covered drugs across the calendar year, in monthly bills from your plan. It might help you manage monthly expenses, but it doesn't save you money or lower your drug costs.

Sources

About the author

Vista Insurance Services is a Florida fictitious name registered to Vista Consultants LLC, a Florida insurance agency (agency license L135539) with Jeannie Pond as agent in charge. Jeannie Pond is a Licensed Insurance Agent, NPN 8940178, licensed since 2009.

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