Medicare Part D, which provides prescription drug coverage, involves a complex structure of costs shared between the beneficiary, the plan, and the government. A fundamental concept within this structure is the Total Out-of-Pocket, or TrOOP, threshold. Understanding this mechanism determines the point at which a beneficiary’s financial responsibility for medications dramatically changes. TrOOP functions as a financial safety net designed to protect individuals from facing unlimited costs for prescription drugs each year. Knowing how TrOOP is calculated and what the threshold is helps beneficiaries predict their maximum annual spending on covered medications.
Defining the Total Out-of-Pocket (TrOOP) Threshold
The Total Out-of-Pocket (TrOOP) threshold is a cumulative dollar amount that tracks spending on covered prescription drugs. It is not the amount of money Medicare pays, but rather the total amount paid by the beneficiary, or on their behalf, that counts toward reaching a specific annual limit. Once this limit is reached, the beneficiary moves into the final, most financially protective phase of their Part D coverage.
This threshold acts as a trigger point for catastrophic coverage, a safeguard against high drug expenses. For 2024, the TrOOP threshold was set at $8,000. However, due to changes from the Inflation Reduction Act (IRA) of 2022, the structure and the amount were simplified and reduced starting in 2025.
The TrOOP concept is often confused with other cost metrics like the deductible or the Initial Coverage Limit (ICL). The deductible is the amount a beneficiary pays entirely out-of-pocket before their plan begins to pay, which is set at no more than $590 for the standard Part D plan in 2025. The ICL was the point that triggered movement into the “Coverage Gap” (or “Donut Hole”) phase in previous years, but this phase is eliminated in 2025.
The TrOOP threshold, in contrast, is the total cumulative spending across all phases—deductible and initial coverage—that must be met to exit the high-cost phases and enter catastrophic coverage. Starting in 2025, the annual out-of-pocket spending is capped at $2,000, which effectively becomes the new TrOOP threshold for beneficiaries. This simplified cap provides a clearer financial limit for people with high prescription costs.
What Payments Are Included in the TrOOP Calculation
The TrOOP calculation includes several types of payments made for covered prescription drugs. This is why the official TrOOP amount is often higher than the amount a beneficiary pays directly from their own bank account. The most straightforward contributions are the out-of-pocket costs paid by the patient at the pharmacy, including the annual deductible and the coinsurance or copayments required during the Initial Coverage Phase.
Beneficiary Payments
The money a beneficiary spends directly on their covered medications is always counted toward their TrOOP total. This includes the full cost of drugs paid while meeting the plan’s deductible, which is the initial amount the patient pays before the plan starts contributing. Following the deductible, the percentage of the drug cost the patient pays—known as coinsurance—or the fixed dollar amount—known as a copayment—also accrues toward the TrOOP limit.
Manufacturer Discounts
A component that counts toward TrOOP is the discount provided by drug manufacturers for brand-name drugs. Before 2025, this discount was primarily applied during the Coverage Gap, or “Donut Hole,” phase. Even though the beneficiary did not pay this discount amount directly, the value of the manufacturer’s contribution was legally counted as an incurred cost toward the beneficiary’s TrOOP total.
Subsidies and Other Payments
Payments made on behalf of the beneficiary by certain programs also count toward the TrOOP threshold. The Low-Income Subsidy (LIS) program, often called Extra Help, is the most common example; any amounts paid by this federal program on the beneficiary’s behalf are included in the TrOOP calculation. Furthermore, payments made by state pharmacy assistance programs or by certain government-approved charities also qualify as TrOOP-eligible spending.
What Does Not Count
It is important to understand which payments are excluded from the TrOOP calculation, as these costs do not move the beneficiary closer to the catastrophic coverage safety net. The most common exclusion is the monthly Medicare Part D premium, which is a separate charge for having the coverage and is not considered an incurred cost for a prescription drug.
Payments for drugs that are not covered by the Part D plan’s formulary or for over-the-counter medications are also excluded from TrOOP. Additionally, payments made by certain unapproved entities, such as family members, friends, or non-approved charitable organizations, generally do not count toward the TrOOP total. Only TrOOP-eligible spending progresses the beneficiary through the coverage phases.
Moving into Catastrophic Coverage
Meeting the TrOOP threshold is the gateway to the Catastrophic Coverage Phase, which provides substantial financial protection against very high drug costs. Before 2024, beneficiaries who reached the TrOOP limit were still responsible for a 5% coinsurance for the remainder of the year. The Inflation Reduction Act (IRA) fundamentally changed this structure to eliminate this open-ended liability.
Beginning in 2024, the 5% coinsurance requirement in the catastrophic phase was eliminated. This change ensures that once a person meets the TrOOP threshold, their financial responsibility for covered medications ceases for the rest of the calendar year. Starting in 2025, the IRA further simplified the system by establishing a $2,000 annual out-of-pocket spending cap, which effectively becomes the new TrOOP threshold.
This new cap provides a clear, predictable maximum annual expense for individuals taking high-cost specialty or brand-name drugs. After a beneficiary has spent $2,000 in qualifying costs, they immediately enter the catastrophic phase and pay nothing for covered Part D drugs for the rest of the year. This hard cap on spending offers financial certainty and peace of mind to Medicare beneficiaries who rely on expensive medications.