What is a Medicare donut hole?

The "donut hole" is a gap in Medicare's Part D coverage of prescription drugs. The gap is reached when a program member exceeds a total of $2,800 of annual spending on prescription drugs.

Once a program member spends $2,800, they hit the "donut hole" where he must cover the full cost of his drugs out of pocket until he spends $4,550 in total for the year. After passing this out-of-pocket spending threshold, a member is usually only responsible for only about 5 percent of his prescription drug costs. Some Medicare Part D plans do offer coverage in the donut hole, but they charge higher premiums.