Medicare Part D provides prescription drug coverage but involves various financial phases and terminology. Understanding how the program tracks a person’s drug spending is important for managing costs. This tracking centers on True Out-of-Pocket, or TrOOP. This metric determines when a beneficiary transitions to the most protective phase of their drug coverage.
Defining True Out-of-Pocket (TrOOP)
True Out-of-Pocket (TrOOP) is the total amount a Medicare beneficiary must spend on covered prescription drugs in a calendar year before transitioning into the Catastrophic Coverage phase of their Part D plan. TrOOP functions as a financial safety net, limiting the financial burden for individuals with high prescription drug costs. The federal government, through the Centers for Medicare & Medicaid Services (CMS), sets the TrOOP limit annually, which all Part D plans must follow. The calculation of TrOOP is specific, including not just the beneficiary’s own payments but also certain payments made on their behalf. The TrOOP threshold for 2024 is set at $8,000, though this amount is subject to annual adjustments by CMS.
What Financial Contributions Count Toward TrOOP
The most common payments that accelerate a person toward the TrOOP limit are the deductibles, copayments, and coinsurance amounts paid during the Initial Coverage phase. These are direct out-of-pocket payments a beneficiary makes at the pharmacy counter. Payments made by the beneficiary during the Coverage Gap, historically known as the “Donut Hole,” also count toward the TrOOP calculation.
A particularly important detail is the inclusion of the brand-name drug manufacturer discount applied in the Coverage Gap. Although the beneficiary may only pay 25% of the brand-name drug cost, the 70% manufacturer discount is counted as if the beneficiary paid it, significantly speeding up the TrOOP accumulation. This means that for a brand-name drug in the Coverage Gap, 95% of the drug’s cost is credited toward the TrOOP limit. Payments made on a person’s behalf by programs like Medicare’s Extra Help (Low-Income Subsidy) or certain charitable organizations also contribute to the TrOOP total. For covered generic drugs in the Coverage Gap, only the 25% paid by the beneficiary counts toward the TrOOP limit.
Costs That Do Not Calculate Toward TrOOP
The monthly premium paid to enroll in the Part D plan is explicitly excluded from the TrOOP calculation. This premium covers the cost of the insurance itself, not the direct cost of the medications. The cost of prescription drugs that are not covered by the person’s specific Part D plan, such as certain over-the-counter medications or drugs excluded by law, are also not counted. Furthermore, any payments made by the Part D plan itself, such as the 75% share the plan pays during the Initial Coverage phase, do not count toward the TrOOP limit.
Payments made by certain government programs or third parties, with the exception of Extra Help, are generally excluded from the calculation. Specifically, financial assistance from Medicaid, TRICARE, or employer-sponsored group health plans does not count toward the beneficiary’s TrOOP total.
Entering Catastrophic Coverage
Reaching the TrOOP threshold triggers a person’s entry into the Catastrophic Coverage phase, which is the final stage of Medicare Part D benefits. Once the TrOOP limit is met, the financial burden on the beneficiary is substantially reduced for the rest of the calendar year. In the current structure, entering this phase meant the beneficiary paid a small copayment or coinsurance amount, typically 5% of the drug cost, for all covered prescriptions.
The Inflation Reduction Act of 2022 introduced significant changes, eliminating the 5% coinsurance requirement for 2024. This means enrollees pay nothing for covered Part D drugs after reaching the TrOOP threshold. Beginning in 2025, the TrOOP calculation will be replaced by a simpler $2,000 annual cap on out-of-pocket drug spending for all beneficiaries.