What exactly is the donut hole?

You always hear about it relating to medication coverage in Medicare. I think it means something bad.

The Medicare donut hole is a payment stage.

The “donut hole” refers to the third of four payment stages in Medicare Part D prescription drug coverage. And you’re right, this can be bad. It’s a place where most beneficiaries can pay higher out-of-pocket costs for medications. At this donut hole stage, the drug companies are not required to pay anything toward the cost of prescribed medications for Medicare beneficiaries. So, those who take more than three brand-name medications will probably land in the donut hole at some point. During this stage, minus discounts provided by drug manufacturers, a person is responsible for the full cost of medications. 
In 2023, once out-of-pocket drug costs reach $7,400, it's onto the fourth drug plan payment stage, called Catastrophic Coverage, where one can pay considerably less for the rest of the year. But, for some, the costs continue to mount, with no maximum limit. Only three percent of beneficiaries ever reach this fourth payment stage in a benefit year.

Check out an infographic on the donut hole.