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Donut Hole (Coverage Gap)

A phase in Medicare Part D where patients historically paid a higher share of drug costs after exceeding initial coverage but before reaching catastrophic coverage.

How It Works

The donut hole was the most criticized feature of the original 2006 Part D design, an accounting artifact of the Medicare Modernization Act's spending targets where beneficiaries paid 100% of drug costs once total spending (plan + patient) exceeded the initial coverage limit until they spent enough out of pocket to reach catastrophic coverage. For a 2011 Part D patient, the donut hole spanned roughly $2,840 to $6,447 in total drug spending, creating a genuine coverage black hole for patients on multiple brand-name drugs. The Affordable Care Act (2010) gradually closed the donut hole by requiring manufacturers to provide a 50% discount on brand-name drugs in the gap starting 2011, phasing to 70% manufacturer discount by 2019, with the patient share dropping to 25% by 2020. This closure reduced but did not eliminate the donut hole's existence on paper. The IRA-mandated 2025 Part D redesign eliminates the coverage gap entirely: there is now a single initial coverage phase running from the deductible ($590 in 2025) to the $2,000 annual OOP cap, and then Medicare pays 100%. The "donut hole" as a distinct benefit phase ceased to exist on January 1, 2025. The term persists colloquially and in older Medicare.gov documentation. Manufacturer discount program liability in the gap was replaced by the Manufacturer Discount Program under IRA, which applies a 10% discount in the initial phase and 20% in the catastrophic phase.

Related Terms

  • Medicare Part D, The prescription drug benefit within Medicare, covering outpatient medications for 50+ million Americans aged 65+ and those with disabilities.
  • Medicare Part D Redesign (2025), The IRA-mandated restructuring of Medicare Part D, effective January 1, 2025, that caps annual out-of-pocket drug spending at $2,000 and shifts cost-sharing liability among plans, manufacturers, and government.
  • Out-of-Pocket Cost, The amount a patient pays directly for a prescription drug, including copays, coinsurance, and deductible payments.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.