DEFINITION of 'Medicare Doughnut Hole'

A range of total prescription drug spending in the Medicare Part D program where all of the costs must be covered out-of-pocket. As a result of the Medicare doughnut hole, Medicare Part D participants are forced to choose between paying higher insurance premiums, or potentially paying thousands of dollars out-of-pocket to bridge the coverage gap. Many lower-income participants in Medicare are unable to afford either option.

BREAKING DOWN 'Medicare Doughnut Hole'

While supplemental plans exist that offer some coverage of drug costs within the doughnut hole range, they are significantly more expensive than the standard plans.

For 2014, the coverage gap was between the initial coverage amount up to $2,850 of total drug spending and the catastrophic coverage level, which provides coverage when total drug spending reaches over $4,550 per year. Any drug spending between $2,850 and $4,550 must be paid out of pocket.

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