If you have Medicare Part D and take brand-name prescriptions, you may have heard scary stories about the “donut hole” where costs suddenly jump. Here is the key update: beginning in 2025 (and continuing in 2026), beneficiaries no longer move through a separate Part D coverage-gap cost-sharing phase. This change comes from the Inflation Reduction Act (IRA) redesign.
What replaced it is simpler and, for many people, much better: you pay plan cost sharing for covered Part D drugs until you reach a yearly out-of-pocket maximum (CMS sets this cap each year). After you reach that maximum, you enter catastrophic coverage and pay $0 for covered Part D drugs for the rest of the year when fills meet plan rules (for example, on-formulary or covered by an approved exception, at a network pharmacy, and with any required prior authorization or step therapy satisfied).
Below is a plain-English walkthrough of how Part D works for 2026, what “counts” toward the cap (TrOOP), and a checklist of practical ways to lower your costs.
Quick definitions
Part D drug coverage is still described in “phases,” but the old coverage-gap cost-sharing phase is no longer something beneficiaries move through. Your costs now change mainly based on your out-of-pocket spending tracked by Part D toward the annual cap.
- Deductible: What you pay before your plan starts sharing costs (not all plans have one).
- Initial coverage: The main phase where you and the plan share costs (often tiered copays or coinsurance).
- Out-of-pocket maximum (annual cap): A yearly limit on what you pay out of pocket for covered Part D drugs, measured using Part D’s TrOOP rules. CMS publishes the official cap for 2026 in the annual Part D parameters and your plan documents.
- Catastrophic coverage: After you hit the out-of-pocket maximum, you pay $0 for covered Part D drugs for the rest of the year when you follow plan rules (network pharmacy, formulary or approved exception, and any required utilization management).
- Network pharmacy: A pharmacy that contracts with your plan. Out-of-network fills can cost more and may not be covered or processed the same way, which can affect whether they count toward TrOOP.
- Preferred pharmacy: A network pharmacy with lower cost sharing in many plans. Same plan, different price.
Important: In 2026, beneficiaries do not move through a separate “donut hole” cost-sharing phase. If a source still describes a midyear coverage-gap phase for what you pay, it is using outdated cost-sharing rules.
2026 Part D phases
For 2026, the practical question is not “When does the donut hole start?” The question is: When will I reach the annual out-of-pocket maximum?
Your exact path depends on your plan design (deductible, tiers, copays versus coinsurance, preferred pharmacies, utilization management) and the plan’s negotiated retail prices for your medications. But the phases are now straightforward:
1) Deductible (if your plan has one)
If your plan has a deductible, you generally pay the plan-negotiated retail price (and any dispensing fee) for covered drugs until you meet it. Some plans waive the deductible for certain tiers (often generics), so you might not feel it for every prescription.
2) Initial coverage
After the deductible (or immediately, if there is no deductible), you pay your plan’s copay or coinsurance for covered drugs. You will sometimes see the standard benefit described as “about 25%,” but plans frequently use tiered copays and coinsurance instead of one simple percentage. Your actual cost varies by plan, drug tier, pharmacy (preferred versus standard), and whether requirements like prior authorization or step therapy are met.
You remain in this phase until your tracked out-of-pocket spending reaches the annual maximum for 2026.
3) Catastrophic coverage
Once you hit the annual out-of-pocket maximum, you enter catastrophic coverage and pay $0 for covered Part D drugs for the rest of the calendar year as long as the fill is covered and compliant (network pharmacy, on-formulary or approved exception, and utilization management requirements satisfied).
Where to confirm the 2026 maximum: The cap amount is set by CMS and is indexed year to year. Confirm the final 2026 figure in the official CMS Part D parameters for 2026 and your plan’s Evidence of Coverage (EOC). Medicare Plan Finder will also reflect your plan’s details for the year.
What counts toward the cap (TrOOP)
This is the part most people get tripped up on. The cap is based on Part D’s tracked out-of-pocket spending, often called TrOOP (true out-of-pocket costs). It is not always identical to “every dollar you personally spent.” What counts is governed by TrOOP rules and can depend on whether the claim is processed under Part D and who paid.
Commonly counts (TrOOP generally includes)
- Your cost sharing for covered Part D drugs (deductible, copays, coinsurance) when the claim is processed by your plan at a network pharmacy
- Payments on your behalf that Part D allows to count (often including amounts paid by you, certain family members, and certain qualifying third parties, depending on the arrangement)
- Covered drugs approved through an exception, once the exception is in place and the claim is processed as covered
Commonly does not count
- Your monthly plan premium
- What you pay for non-covered drugs (including drugs not on your formulary unless an exception is approved)
- Many types of assistance that Part D does not allow to count toward TrOOP (for example, some coupon, charity, or other third-party payment arrangements may not count under Part D rules)
- Most “cash pay” purchases that are not processed as a covered Part D claim
Tip from someone who has read way too many EOBs: If you are trying to figure out how close you are to the cap, look at your plan’s monthly Explanation of Benefits (EOB). It usually shows your year-to-date out-of-pocket total and your progress toward the annual maximum (as your plan tracks it).
Denied or not covered claim: If a claim is denied (for example, prior authorization not approved yet, step therapy not met, non-formulary without an approved exception, or out-of-network issues), what you pay may not count toward TrOOP until the issue is resolved and the claim is processed as covered. If this happens, ask your plan about a coverage determination, exception, or appeal and ask the pharmacy to reprocess the claim once approved.
Cash price note: If you paid cash because it was cheaper, do not assume it is a dead end. Some plans allow you to submit receipts using a Direct Member Reimbursement (DMR) form. Whether it will be credited toward your totals depends on whether the drug is covered and how the plan processes the claim. If you think a purchase should count, call the plan and ask how to submit it.
Manufacturer discounts
Under the old coverage-gap rules, brand-name manufacturer discounts were a big part of how people moved through the donut hole and toward catastrophic coverage.
In 2026, the benefit design is different and the behind-the-scenes split of who pays (plan, manufacturer, Medicare) is redesigned. That matters for the system, but for most consumers the most useful takeaway is still simple: track your progress toward the out-of-pocket maximum using your EOB, and make sure your fills are processed as covered Part D claims.
If you are comparing plans or trying to predict your annual spend, your plan’s drug pricing, formularies, and pharmacy network choices will matter more to your wallet than trying to reverse-engineer the discount mechanics.
Ways to lower your costs in 2026
You cannot always avoid high drug costs, especially with specialty medications. But you can often reduce what you pay on the way to the annual maximum. These are the highest-impact moves.
1) Check your formulary before the year starts
During Open Enrollment (October 15 to December 7), use Medicare Plan Finder to compare plans based on your actual prescriptions. You are looking for:
- Your drugs being on the formulary
- Lower tiers for your meds (tier changes can be huge)
- Utilization management rules like prior authorization, step therapy, or quantity limits
- Preferred pharmacies (the same plan can cost more at a non-preferred pharmacy)
Also: plans can change formularies and cost sharing during the year with notice. Your Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) are the two documents to read when something shifts.
2) Ask about generics or alternatives
This is not about cutting corners. It is about finding options that are clinically appropriate and less expensive. A few questions to ask:
- “Is there a generic for this?”
- “Is there a different drug in the same class that is on my plan’s preferred tier?”
- “Can we switch to a 90-day supply through mail order for a lower cost?”
3) Use preferred pharmacies and mail order when it truly saves money
Many plans have lower copays at preferred network pharmacies. Some also offer lower costs for 90-day fills. Check your plan’s cost tool or call customer service and ask for a price quote at:
- Your current pharmacy
- A preferred retail pharmacy
- Mail order
4) Consider the Medicare Prescription Payment Plan (smoothing)
Starting in 2025, Part D plans must offer the option to spread out-of-pocket costs across the year, often called the Medicare Prescription Payment Plan. This does not necessarily lower your total cost, but it can make costs more manageable by avoiding a big spike early in the year. If you take expensive medications, ask your plan how to enroll and how monthly bills work.
5) Look into Extra Help (Low-Income Subsidy)
Extra Help can reduce premiums and prescription costs. If your income and resources are within limits, it is worth applying even if you are not sure you qualify.
6) Check for an SPAP
Some states offer State Pharmaceutical Assistance Programs (SPAPs) that can work with Part D. If your state has one and you qualify, it can reduce your out-of-pocket costs.
7) Request an exception or appeal when needed
If a drug is medically necessary and your plan does not cover it, your doctor may be able to help you request a formulary exception. If coverage is denied, you can also ask about the plan’s appeals process. Until an exception or coverage determination is approved and the claim is processed as covered Part D, what you pay may not count toward your out-of-pocket maximum.
8) Know when a drug is Part B, not Part D
Some medications are typically covered under Medicare Part B (for example, many infusion drugs given in a clinic). Part B has different cost rules than Part D. If you are surprised by coverage or pricing, ask whether the drug is billed to Part B or Part D and what that means for your costs.
Common questions
Is the donut hole still a thing in 2026?
For beneficiaries, you do not move through a separate coverage-gap cost-sharing phase in 2026. That shift began in 2025 under the IRA redesign.
What happens after I hit the out-of-pocket maximum?
You enter catastrophic coverage and pay $0 for covered Part D drugs for the rest of the year when fills meet plan rules (network pharmacy, formulary or approved exception, and any required prior authorization or step therapy satisfied).
Does paying cash for a cheaper price help me hit the maximum faster?
Often, no. If the purchase is not processed as a covered Part D claim, it typically will not count toward the out-of-pocket maximum. Before paying cash, ask the pharmacy to run the claim through your plan and compare the price. If you already paid cash, call your plan and ask whether you can submit a Direct Member Reimbursement (DMR) form and whether it can be credited toward your totals.
Where do I find the official 2026 maximum?
CMS publishes Part D parameters each year, including the indexed out-of-pocket maximum amount. You can also verify it in your plan’s Evidence of Coverage and by using Medicare Plan Finder for the 2026 plan year.
2026 action checklist
- List your medications (name, dose, frequency).
- Check formulary, tier, and rules (prior auth, step therapy, quantity limits).
- Confirm pharmacy status (network versus preferred) and price your meds at each.
- Price 90-day options (preferred retail and mail order).
- Ask about alternatives (generic or different preferred brand).
- Consider smoothing (Medicare Prescription Payment Plan) if costs spike early in the year.
- Apply for Extra Help if there is any chance you qualify.
- Look up SPAP options in your state.
- Track your EOB so you know where you stand toward the out-of-pocket maximum.
- Escalate denials (coverage determination, exception, appeal) so covered claims are processed correctly.
If you want, tell me which meds you take and whether you are on a stand-alone Part D plan or a Medicare Advantage plan with drug coverage, and I can help you build a quick “what to check” list for Open Enrollment.