True Out-Of-Pocket (TrOOP) Costs  

“True Out-Of-Pocket” (TrOOP) costs are those that a beneficiary incurs in the course of paying the cost-sharing amounts for covered drugs under a Medicare Part D drug plan. Please note that the monthly premium does NOT count towards TrOOP costs.

HAP's TrOOP section describes the interaction between TrOOP costs, the coverage gap (doughnut hole), and the catastrophic coverage benefit for all Part D drug plans. As beneficiaries incur TrOOP costs, they move closer to the coverage gap.

For Example: For a standard plan, a beneficiary enters the coverage gap after incurring $833.75 in TrOOP costs (2008). This includes the $275.00 annual deductible and $558.75 in coinsurance (2008). TrOOP costs only include payments for drugs that are on the plan’s formulary. Out-of-pocket payments for drugs that are not on the plan’s formulary do not count towards TrOOP.

When the beneficiary enters the coverage gap, the beneficiary’s coinsurance is 100 percent of the cost for covered drugs. These expenses also count as TrOOP costs.

Once a beneficiary has incurred $4,050 in TrOOP costs (2008), they leave the doughnut hole and reach the threshold for the Part D catastrophic benefit. For the remainder of the calendar year, the beneficiary pays a reduced cost for his or her drugs. The beneficiary pays either five percent of the drug cost or a co-pay ($2.25 for generics and preferred drugs and $5.60 for other brand name drugs) - whichever is greater. The drug plan covers the remaining balance.

For Example: Corey is enrolled in a standard PDP for 2008. By filling many medications, Corey has met his $275.00 deductible for 2008 and reached the initial coverage limit of $2,235. The Part D plan had paid 75 percent of the costs, or $1,676.25, and he has paid 25 percent or $558.75. He is now entering the coverage gap, during which he pays out-of-pocket 100 percent of the cost for all of his medications. Before Corey can use his drug plan’s catastrophic benefit during this calendar year, he will have to spend an additional $3,216.25 on drugs that his plan covers through its formulary.

This example illustrates how a person passes through the doughnut hole and reaches the catastrophic benefit through the accumulation of TrOOP costs. Note that if Corey had purchased medications from a pharmacy that does not have a contract with his plan after he entered the doughnut hole, those payments would not count toward TrOOP costs, and he may never reach the catastrophic benefit.

The drug plans are responsible for calculating and reporting TrOOP costs. A plan must send a statement to every enrollee at the end of each month showing how much the plan and enrollee have paid in TrOOP costs. Pharmacies should also be able to tell enrollees how close they are to meeting a plan’s annual deductible or to reaching the coverage gap.

Certain out-of-pocket expenses count towards TrOOP costs, and other out-of-pocket costs do not count. Please see HAP's chart, What Counts as a TrOOP Cost?, for a detailed list.