Medicare’s “donut hole” refers to the coverage gap in your Medicare Part D prescription drug benefit – the point where your prescription drug expenses exceed the initial coverage limit of your plan, but have not yet reached the catastrophic coverage level. When you reach this “donut hole,” you stop making a 25 percent copayment and begin paying 100 percent of your costs. You reach the catastrophic coverage level after you have paid $4,550 out of pocket, including your $310 deductible and copays. At that point, your plan kicks in again, paying most of your prescription drug expenses through the end of the year.

The Patient Protection and Affordable Care Act included a provision that provides relief for those who reach the “donut hole” by sending a tax-free $250 rebate to enrollees when they reach the coverage gap.