TrOOP is the acronym for true out-of-pocket costs. In the context of Medicare Part D, it refers to the maximum amount you spend before you exit the coverage gap (donut hole) and enter the catastrophic drug coverage phase. Medicare sets this out-of-pocket spending threshold, which is $7,050 in 2022. Read below for a detailed explanation of what counts toward TrOOP, the coverage gap, and how catastrophic coverage works.
What Payments Count Toward TrOOP?
The following payments count toward TrOOP:
- Your annual deductible is the amount you pay before your plan starts paying. Medicare has set the standard deductible for Part D at $480 for 2022. Your Part D prescription drug plan, offered by private insurance companies through a stand-alone plan or bundled service in a Medicare Advantage Plan, can only impose the maximum standard drug deductible. Your plan may remove the deductible requirement or set a lower limit.
- Coinsurance and copayments you pay for covered prescription drugs. These amounts will vary depending on your plan, which tier your drugs are on, and which pharmacy you use. Lower-tiered and generic drugs from your plan’s preferred pharmacy have the lowest coinsurance and copayment charges.
- What you pay in the coverage gap for drugs on your plan’s formulary. The most you pay for each prescription while in the coverage gap is 25%.
- The 70% discount you get for brand-name drugs from the manufacturer while you are in the coverage gap. There is no discount for generic drugs.
What Costs Aren't Counted Toward TrOOP?
The following costs don’t count toward TrOOP:
- Your drug plan monthly premium. Stand-alone Part D prescription drug plans (PDPs) charge a monthly premium. Some Medicare Advantage Plans with drug coverage (MA-PD) have a zero or low monthly premium.
- What your plan pays. 5% for covered brand-name prescription drugs or 75% for generic drugs while you are in the coverage gap.
- The pharmacy dispensing fee.
- What you pay for drugs that are not on your plan’s formulary (list of covered drugs).
What Is the Coverage Gap or "Donut Hole"?
The coverage gap or “donut hole” is the third drug benefit phase of your Medicare Part D plan when your plan temporarily reduces coverage. Previously, beneficiaries had to pay a larger portion of most drug costs in the coverage gap. Since 2020, beneficiary cost-sharing responsibility has been reduced to 25% for all covered prescription drugs. For generic drugs, your plan pays the other 75%.
Your plan pays 5% for brand-name drugs and the drug manufacturer pays 70%. Your 25% + the manufacturer’s discount of 70% = 95%. This 95% counts toward your TrOOP.
There are four drug benefit phases of Medicare Part D:
- Deductible phase: The annual amount you pay before your plan starts paying
- Initial coverage phase (ICP): This phase starts after you have met your deductible and continues until you and your plan have spent a total of $4,430 (in 2022).
- Coverage gap or “donut hole” phase: This phase starts when you exit the initial coverage phase and ends when your TrOOP costs reach $7,050 (in 2022). The maximum you pay for a covered prescription drug is 25% of the negotiated retail cost of the drug. This may or may not be more than what you paid during the initial coverage phase.
- Catastrophic coverage phase: The catastrophic phase starts when you exit the coverage gap and lasts until the end of the calendar year. You pay $3.95 for each generic drug and $9.85 for each brand-name drug or five percent of the cost of the drug, whichever is greater.
If you qualify for Extra Help to pay for prescription medications, you will not enter the coverage gap.
How Does Medicare Catastrophic Coverage Work?
Once you exit the coverage gap, that is, your TrOOP reaches $7,050, you enter the catastrophic coverage phase. You are responsible for a small coinsurance (5%) or copayment ($3.95 generic, $9.85 brand name) for covered prescription drugs for the rest of the year.
For most Medicare beneficiaries enrolled in a PDP or MA-PD, costs in the catastrophic coverage phase will be minimal compared to the first three drug phases. However, if you take a high-cost medication, the 5% you are responsible for could add up.
The catastrophic coverage phase lasts until the end of the calendar year, and you restart at phase one on January 1.
What Happens If You Change Medicare Drug Plans?
There are specific periods during the year when you can change your Medicare drug plan. After your Initial Enrollment Period (IEP) when you are first eligible for Medicare, the most common time to take advantage of the opportunity to change your plan is during the Medicare Open Enrollment Period (OEP). This annual event occurs each fall between October 15 and December 7. You can make a change to your MA with drug coverage or your standalone PDP. Coverage and drug benefit phases will reset/begin on January 1.
Suppose you have a Medicare Advantage Plan with or without drug coverage. In that case, you can change your plan during the annual Medicare Advantage OEP, which occurs from January 1 through March 31. You can make one plan change during this time. Your coverage will start the first of the month after your plan receives your request.
If you have to change Medicare Part D plans due to special circumstances; for instance, if you move to another area, your TrOOP amount transfers from one plan to the next so that you don’t have to start over.
Learn More From Our Sources
- Medicare | Costs for Medicare drug coverage | Last accessed November 2023
- Medicare | Costs in the Coverage Gap | Last accessed November 2023
- Medicare | Catastrophic Coverage | Last accessed November 2023
- Medicare | Joining a Health or Drug Plan | Last accessed November 2023
- Medicare Interactive | Changing Part D plans | Last accessed November 2023