Medicare drug plans have an annual limit for drug coverage. When the patient and the drug plan have spent a designated amount of money for covered drugs, and the limit is reached, the patient must then pay all costs for prescription drugs until they hit the yearly limit. This gap in coverage, when a patient must pay all out of pocket costs is also referred to as the "donut hole". Once a plan's out-of-pocket limit has been reached, catastrophic coverage automatically goes into effect. Catastrophic coverage assures that once the plan's out-of-pocket limit for covered drugs has been met; only a small coinsurance amount or copayment is required for the rest of the year.
Note: With the Extra Help program, there is not drug coverage gap, and either a small or copayment or none at all after reaching the catastrophic coverage.