The Medicare Part D coverage gap, from 2006 to the 2025 cap

In 2006, the first year of the Medicare drug benefit, a person in the standard plan paid the first $250 of drug costs, then 25 percent until total drug spending reached $2,250. After that, they paid the full price of every prescription until their own spending reached $3,600, according to CMS's table of Part D benefit parameters¹. By then total drug spending had reached $5,100. The stretch in between, $2,850 of drug costs paid entirely by the enrollee, became known as the doughnut hole.

It reached a lot of people. A KFF study of 2007 claims² found that 26 percent of Part D enrollees who filled any prescription that year reached the gap, and estimated that about 3.4 million beneficiaries, 14 percent of all enrollees, reached it and faced the full cost of their drugs. The study excluded people with low-income subsidies, now called Extra Help, who did not face a gap.

Removing it took 19 years. The Affordable Care Act shrank what enrollees paid in it from 2011 to 2020, but the phase itself stayed in the benefit until the Inflation Reduction Act replaced it with an annual cap in 2025. This history follows the thresholds year by year from CMS's own announcements.

How the gap was built

The Medicare Prescription Drug, Improvement, and Modernization Act, signed December 8, 2003³, created Part D starting in 2006. The benefit's shape is still in the statute at 42 U.S.C. 1395w-102⁴. For 2006 it set a deductible "equal to $250," an initial coverage limit "equal to $2,250" and an out-of-pocket threshold "equal to $3,600," each indexed upward in later years to growth in drug spending. Between the deductible and the initial coverage limit, the enrollee paid 25 percent. Above the out-of-pocket threshold, catastrophic coverage began, with cost sharing the statute set at the greater of 5 percent coinsurance or a small copay ($2 for generics and preferred multiple-source drugs, $5 for others, in 2006). Between the limit and the threshold, the standard benefit paid nothing.

Plans could offer enhanced coverage that filled part of the gap, and commenters on CMS's 2011 announcement⁹ credited a Medicare demonstration with encouraging sponsors to do so. The standard design, the one the law defined, still left a hole.

The thresholds, year by year

Because both ends of the gap were indexed to drug spending, the gap moved with them, upward in every year except 2014, when the deductible and initial coverage limit both dipped. The figures for 2006 to 2012 are from the CMS parameter table¹; later years are from the annual rate announcements, such as 2014¹⁰, 2020¹², 2022¹³, 2024¹⁴ and 2027¹⁶.

A jump in the threshold for 2020, from $5,100 to $6,350, came from the statute itself. The 2010 reconciliation law had slowed the threshold's growth from 2014 through 2019, and for 2020 the law reset it to the amount that would have applied without that change. From 2025, the initial coverage limit disappeared and the threshold became a cap on what the enrollee pays.

The Affordable Care Act phase-down

The Affordable Care Act⁵, signed March 23, 2010, included section 3301, the Medicare Coverage Gap Discount Program, and section 3315, an immediate reduction in the gap for 2010. A week later the Health Care and Education Reconciliation Act⁶ rewrote the approach in section 1101, titled "Closing the Medicare Prescription Drug 'Donut Hole.'" For 2010, the law, now at 42 U.S.C. 1395w-152⁷, paid $250 to each eligible enrollee whose costs passed the initial coverage limit that year.

From 2011, brand-name makers had to give a 50 percent discount on their drugs in the gap, defined in 42 U.S.C. 1395w-114a⁸. Generics were handled through plan coverage. The statute set enrollee coinsurance for generics in the gap at 93 percent in 2011, falling seven percentage points a year to 25 percent in 2020.

Brand figures in the table follow the statute's "applicable gap percentage" minus the 50 percent discount used in the formula. The Bipartisan Budget Act of 2018 moved the end date up a year. CMS's 2019 announcement¹¹ said section 53116 of that law accelerated the reduction "by one year, lowering it to 25 percent (after the 70 percent manufacturer discount) beginning in CY 2019 instead of CY 2020."

In January 2017, CMS reported¹⁷ that more than 11.8 million beneficiaries had received discounts totaling over $26.8 billion since the ACA's enactment, an average of $2,272 each, including $5.6 billion for 4.9 million people in 2016 alone.

Closed, with the phase still in place

After 2020 the enrollee paid 25 percent in the gap, the same as in initial coverage, so for most people the gap stopped looking different at the counter. The phase remained in the benefit's accounting through 2024. Under section 1395w-102(b)(4)(E)⁴, from 2011 through 2024 the full negotiated price of a discounted brand drug counted toward the enrollee's out-of-pocket total, including the part the manufacturer paid, and the threshold kept rising, to $8,000 in 2024. The 2024 rate announcement said cost sharing would be "eliminated for beneficiaries in the catastrophic phase of coverage beginning in CY 2024," ending the catastrophic cost sharing that had applied since 2006.

Generics followed their own track throughout. They are not "applicable drugs" under the discount program, which the statute limits to drugs approved under a new drug application and licensed biologics. The smaller enrollee share for generics in the gap came through the plan's coverage, not a manufacturer discount. Our explainer on how Part D pays for generics covers the money flows, and generics' share of Part D covers the volume.

The 2025 redesign

Section 11201 of the Inflation Reduction Act, signed August 16, 2022, rebuilt the standard benefit. CMS's 2025 fact sheet¹⁸ describes three phases (an annual deductible, initial coverage and catastrophic coverage), a $2,000 annual out-of-pocket threshold, and "the sunset of the Coverage Gap Discount Program and establishment of the Manufacturer Discount Program." The 2025 rate announcement¹⁵ lists the initial coverage limit as "Not Applicable."

Like the old thresholds, the cap is indexed. CMS's 2026 instructions¹⁹ set it at $2,100, and Medicare.gov²⁰ gives $2,400 for 2027, with the deductible ceiling rising from $615 to $700. Since 2025, plans have also had to offer the option of paying cost sharing in monthly amounts rather than all at once at the pharmacy, a program covered in our guide to the Medicare Prescription Payment Plan. Current-year details are in Part D changes in 2025, 2026 and 2027 and how deductibles and coinsurance apply to prescriptions. CMS will publish the 2028 deductible and cap in its next annual rate announcement.