The donut hole fills the gap in Medicare Part D prescription drug coverage. The donut hole is a temporary limit on what Part D will pay for medicines.
Here's how it works:
Members pay for all medicines to reach a deductible. Before Medicare helps pay for any medicines, each year members must pay the full deductible. Plans vary, but your deductible cannot be over $320 in 2015. Some plans do not have a deductible.
Medicare then shares your drug costs. The Medicare member starts by paying a percentage of the cost of medicines, with the Part D plan paying the rest (it could also be a copay).
A maximum amount is reached. When the costs reach a certain amount, coverage ends and the donut hole begins. In 2015, coverage ends when the member and their Part D plan together have paid a total of $2,960.
Members are in the donut hole. While in the donut hole in 2015, members will pay 45% of the price of a brand-name drug. However, almost the entire cost of a brand-name drug – the amount you pay, plus the amount your plan pays -- will count as out-of-pocket costs. That will help you get out of the coverage gap. Members will pay 65% toward generic drugs during this period. However, unlike with brand-name drugs, only the amount you pay for generics will count toward your total out-of-pocket expenses. The donut hole is scheduled to close by the year 2020. At that time, members will typically pay no more than 25% of the cost of their medicines at any point during the year once their plan’s deductible has been met.
Members have to reach a new maximum. Before the Part D plan starts to help pay for covered medicines again, members must pay the yearly limit on the cost of their medications. In 2015, that amount is $4,700.