What is the donut hole?

The context is seniors and their pharmacy costs.

The donut hole is the commonly used reference to the middle of the year for a senior, where she must pay the full cost of her monthly prescriptions without any assistance from Medicare. Medicare helps around the edges:

First, the senior receiving Medicare must pay her annual deductible. The deductible is $310. On a fixed income, the beginning of the year is not an easy time. Next, after paying the first $310 of pharmacy bills for the year, the senior must pay 25% of her drug costs until her total drug cost reaches $2,830 for the year.

Then, the senior falls into a coverage gap. In this coverage gap or "donut hole," the senior must pay for drugs out of pocket until her annual expenses exceed $6,440. In other words, while the cumulative annual drug costs are between $2,830 and $6,440, the senior is paying 100% out of pocket. Once the senior's drug costs exceed $6,440, she will only pays 5% of her drug costs for the rest of the year.

Eliminating the donut hole is one of the major benefits for seniors of the March 2010 Health Care Reform.