Final answer:
The Coverage Gap, also known as the Donut Hole, refers to a period in Medicare prescription drug plans where after a certain spending limit is reached, coverage is decreased, leading to higher out-of-pocket costs for medications until another spending threshold is met.
Step-by-step explanation:
The term Coverage Gap often referred to as the Donut Hole, is a temporary limit on what most Medicare Part D Prescription Drug Plans or Medicare Advantage Prescription Drug plans will cover for drugs. Once you and your drug plan have spent a certain amount on covered drugs, you enter the donut hole where the coverage is reduced significantly, leading to higher out-of-pocket costs for prescription drugs until you reach the catastrophic coverage threshold. After this threshold is met, the plan covers a majority of the costs.
Individuals may face a coverage gap if they spend at least 10 percent of their income on healthcare costs not covered by insurance or, for low-income adults, when medical expenses or deductibles are at least 5 percent of their income. In essence, having insurance does not guarantee complete financial protection against health costs, as there can be substantial out-of-pocket expenses.