The donut hole is the name for 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 $400 in 2017, or $40 more than in 2016. 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 2017, the donut hole begins when the member and their Part D plan together have paid a total of $3,700.
Members are in the donut hole. While in the donut hole in 2017, members will pay 40% 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 add up and help you get out of the coverage gap. Members will pay 51% 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 pay no more than 25% of the cost of their medicines while in the gap.
Members have to reach a new maximum to get out of the donut hole. Before the Part D plan starts to help pay for covered medicines again, members must reach the annual out-of-pocket limit on the cost of their medications. In 2017, that amount is $4,950, or $100 more than in 2016. Once you reach that limit, you will only have to pay 5% of your drug costs.