Medicare Glossary

prescription drug donut hole

DEFINITION: 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’ll no longer have a 25 percent copayment and will instead begin paying more of your costs. In 2016, you enter the donut hole when your out-of-pocket expenses reach $3,310, and you reach the catastrophic coverage level (ie, get out of the donut hole) after you have paid $4,850 out of pocket, including your deductible (which can be no more than $360 in 2016), copays, and the manufacturer discount that you receive while in the donut hole.  At that point, your plan pays most of your prescription drug expenses through the end of the year.

The Patient Protection and Affordable Care Act included a provision to close the donut hole by 2020.  In 2016, while in the donut hole, enrollees pay 45 percent of the cost of brand name drugs and 58 percent of the cost of generic drugs.  By 2020, there will be no donut hole – enrollees will pay 25 percent of all drug costs until they reach the catastrophic coverage level.