★ ★ TIP SHEET ★ ★
★ ★ TIP SHEET ★ ★
Information partners can use on:
Understanding True Out-of-Pocket
Medicare prescription drug coverage Revised November 2012
True out-of-pocket (TrOOP) costs are the expenses that count toward a person’s Medicare
drug plan out-of-pocket threshold of $4,750 (for 2013). TrOOP costs determine when a
person’s catastrophic coverage will begin. The drug plan keeps track of each member’s TrOOP
costs. Each month that a person buys prescriptions covered by his or her plan, he or she will
get an “Explanation of Benefits” (EOB) in the mail showing the TrOOP costs to date.
In order for payments to count towards a member’s TrOOP costs, payments must be for
certain types of costs, be made by or on behalf of the person with Medicare, and not be
covered by other insurance.
What payments count toward TrOOP costs?
These payments count toward a person’s TrOOP costs:
• The amount a person pays for covered prescriptions before his or her drug plan begins
to pay (the annual deductible, if applicable)
• The amount a person pays for each covered prescription after his or her drug plan
begins to pay (copayments or coinsurance during initial coverage period)
• Any payments a person makes for a covered prescription drug during his or her plan’s
coverage gap, if the plan has a coverage gap
Payments for the above costs count toward a person’s TrOOP costs if they’re made by any
of the following:
• The person with Medicare (including payments from his or her Medical Savings Account
[MSA], Health Savings Account [HSA], or Flexible Spending Account [FSA])
• Family members or friends
• Qualified State Pharmacy Assistance Programs (SPAPs)
• Medicare’s Extra Help (low-income subsidy)
• Most charities (unless they’re established, run, or controlled by the person’s current or
former employer or union or by a drug manufacturer’s Patient Assistance Program
operating outside Part D)
• Drug manufacturers providing discounts under the Medicare coverage gap discount program
• Indian Health Service (IHS)
• AIDS Drug Assistance Programs
What payments count toward TrOOP? (continued)
Only payments for drugs that meet these conditions count toward TrOOP costs:
• The drugs are on the plan’s formulary.
• The drugs aren’t on the plan’s formulary, but are treated as being on the formulary
because of a coverage determination, exceptions process, or an appeal.
• The drugs are purchased in a network pharmacy.
• The drugs are purchased at an out-of-network pharmacy in accordance with the plan’s
What payments don’t count toward TrOOP costs?
These payments don’t count toward a person’s TrOOP costs:
• The share of the cost of the drug paid by a Medicare drug plan
• Monthly drug plan premium
• Drugs purchased outside the U.S. and its territories
• Drugs not covered by the plan
• Drugs that are excluded from the definition of Part D drug, even in cases where the
plan chooses to cover them as a supplemental benefit (such as drugs for hair growth)
• Over-the-counter drugs or most vitamins (even if they're required by the plan as part
of step therapy)
Payments don’t count toward a person’s TrOOP costs if they’re made by (or reimbursed
to the person with Medicare by) any of the following:
• Group health plans such as the Federal Employees Health Benefit Program (FEHBP)
or employer or union retiree coverage
• Other types of insurance
• Government-funded health programs such as Medicaid, TRICARE, Workers’
Compensation, the Department of Veterans Affairs (VA), Federally Qualified Health
Centers (FQHCs), Rural Health Clinics (RHCs), the Children’s Health Insurance
Program (CHIP), and black lung benefits
• Other third-party groups with a legal obligation to pay for the person’s drug costs
• Patient Assistance Programs (PAPs) operating outside the Part D benefit
If a person has coverage from one or more of the third parties listed above that pay part
of the out-of-pocket costs, he or she must let the Medicare drug plan know.
How is TrOOP affected if a person switches Medicare drug
Drug plans keep track of their enrollees’ TrOOP costs. When a person switches plans
during the year, his or her TrOOP balance transfers to the new Medicare drug plan.
Medicare has established processes for transferring the TrOOP balance. This transfer
begins when someone disenrolls and then joins a new plan, and repeats periodically after
that to provide updates on late claims. If there’s a discrepancy, a person may need to give
a copy of his or her most recent EOB to the new plan to show the current TrOOP
For example, a person disenrolls from a plan that had no deductible, and then joins a
new plan that has a deductible of $275. The coinsurance or copayments the person paid
during the initial coverage period in his or her former plan and what the plan paid will all
count toward the deductible in the new plan. However, although what the former plan
paid counts toward the new plan’s deductible, those payments won’t count toward the
person’s TrOOP. But, all the TrOOP costs accumulated in the former plan will transfer to
the TrOOP balance the person will start accumulating in the new plan.
More information about annual Medicare drug plan costs is available in the “Drug Plan
Cost Information on www.medicare.gov” tip sheet (CMS Product No. 11245-P),
available at www.cms.gov/partnerships/downloads/11245-P.pdf.
CMS Product No. 11223-P
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