How to Use the Medicare Donut Hole to Your Advantage

The coverage gap hits millions of seniors every year. Here's how to plan for it, reduce your costs inside it, and get through it faster.

If you're on Medicare Part D, the "donut hole" — officially called the coverage gap — is the phase where your out-of-pocket drug costs spike after you and your plan have spent a combined amount on covered medications. It catches millions of seniors by surprise every year, and navigating it well can save hundreds or even thousands of dollars.

How the Coverage Gap Works

Medicare Part D has four cost phases. In the deductible phase, you pay the full cost of your drugs until you meet your plan's annual deductible (up to $590 in 2026). In the initial coverage phase, you pay a copay or coinsurance and your plan pays the rest — this is the "normal" phase most people are used to. Then comes the coverage gap: once the total drug costs (what you and your plan paid combined) reach a certain threshold, you enter the donut hole. In 2026, thanks to the Inflation Reduction Act, the gap has been restructured so that Medicare beneficiaries pay significantly less than they used to during this phase.

The final phase is catastrophic coverage. Once your total out-of-pocket spending reaches the annual cap (which the IRA set at $2,000 starting in 2025), you pay $0 for covered drugs for the rest of the year.

Strategies to Reduce Costs in the Gap

Ask your doctor about generic alternatives. If you're taking a brand-name drug that's pushing you into the donut hole faster, there may be a generic equivalent or a therapeutic alternative in a lower cost tier. Even switching one expensive brand-name drug to a generic can slow your progression through the coverage phases.

Use manufacturer savings programs. Many brand-name drug manufacturers offer copay cards or patient assistance programs. Eli Lilly, for example, offers savings cards for Jardiance and other diabetes medications. These manufacturer contributions can reduce what you pay — though the rules around how they count toward your out-of-pocket total vary.

Compare your Part D plan annually. During Medicare Open Enrollment (October 15 – December 7), use Medicare.gov's Plan Finder to compare plans based on the specific medications you take. A plan that costs $5 more per month in premiums but puts your expensive drug on a lower tier could save you hundreds over the year.

Consider Extra Help (Low-Income Subsidy). If your income and resources are below certain limits, you may qualify for Extra Help, which pays most Part D costs including premiums, deductibles, and copays. About 2 million eligible people don't apply — check Medicare.gov or call 1-800-MEDICARE.

Using Discount Programs Alongside Medicare

Here's something many seniors don't realize: you can use programs like Amazon RxPass, Cost Plus Drugs, or Walmart's $4 list for medications outside your Part D coverage. You're not required to run every prescription through Medicare. For cheap generics where the Part D copay is higher than the cash price, paying out of pocket through these programs can actually save money and slow your progression toward the donut hole.

The tradeoff: purchases made outside your Part D plan don't count toward your deductible or the $2,000 out-of-pocket cap. For inexpensive generics this usually doesn't matter, but for expensive medications, you'll want those costs counting toward the cap.

Plan Ahead

The best time to plan for the donut hole is before you enter it. In January, sit down with your medication list and your plan's formulary. Add up the estimated annual cost. If you'll likely enter the gap, front-load your planning: explore generics, apply for manufacturer programs, and compare Part D plans before the next enrollment period. A pharmacist or a State Health Insurance Assistance Program (SHIP) counselor can help — both services are free.