Doughnut Hole

This term, coined in the USA (where it is 'donut hole'), refers to an insurance plan in which there is a gap within the range of expenditures over which no cover is provided. The Medicare prescription drug benefit scheduled to go into effect in 2006 provides a clear example. Enrollees will pay the first $250 (US) as a deductible, 25 per cent of the next $2000 in annual covered prescription drug expenditures, 100 per cent of the next $2850 in drug

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expenses and only 5 per cent after their expenditure exceeds $5100 in a year. The 'hole' is the $2251-$5100 range. Although doughnut hole benefits do not seem to have any economic logic, there is political appeal: if the deductible is kept low enough, most people will enjoy at least some covered benefits, and costs are lower than if there were no doughnut hole.

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