The Medicare coverage gap is a temporary limit on the amount Medicare pays for prescription drugs. After hitting this spending limit, individuals must pay a co-pay on covered medications. Once these individuals reach a predetermined out-of-pocket spending threshold, full drug coverage resumes.
The spending thresholds and co-pay percentages associated with the Medicare coverage gap change from year to year. Brand-name drugs contribute more to the out-of-pocket threshold than generic drugs. While both the patient's co-pay and the manufacturer's discount on the drug count toward the patient's out-of-pocket spending threshold, only the amount paid by the patient counts for generic drugs.