Understanding Medicare Part D's True Out-of-Pocket Limit

Posted on July 6, 2024 By Jeff Snyder

Of all the reasons to enroll in Medicare insurance coverage, making health care more affordable is perhaps the biggest for millions of beneficiaries. One element of Medicare Advantage plans is a maximum-out-of-pocket (MOOP) limit. Is there an out-of-pocket limit for Medicare Part D?

What is TrOOP in the Medicare Program?

Beginning in 2025, if you have a Medicare Part D plan, you have an annual MOOP limit of $2,000 for prescription costs. Once you’ve reached this $2,000 Part D limit, you’ll enter catastrophic coverage. This means the Medicare program and your plan will start covering most of your out-of-pocket costs for applicable prescriptions for the remainder of the plan year.

The Inflation Reduction Act of 2022 set the out-of-pocket threshold for drug plans at $2,000, meaning the former “donut hole coverage gap” has effectively been closed.

While this limit is set by the Centers for Medicare & Medicaid Services (CMS), there are other ways you can save money depending on your Medicare Part D plan. These can all help you avoid reaching your catastrophic coverage by keeping costs down.

What Counts Toward TrOOP?

There are several out-of-pocket costs that add up toward your annual cap. The big three items that count toward this limit are your yearly deductible, coinsurances, and copayments. Premiums don’t count toward the limit, however, as well as pharmacy dispensing fees and what you pay for drugs that aren’t covered by your plan. The only costs that count are those paid by you and those paid by the drug manufacturer.

The big three items that count toward TrOOP are your yearly deductible, coinsurances, and copayments.

Once you’ve reached your Medicare Part D out-of-pocket cap, you’ll enter what’s called catastrophic coverage. Don’t worry, it’s not as scary as it sounds! Once you’ve automatically entered catastrophic coverage, you’ll pay no out-of-pocket costs for any covered drugs. You’ll continue in catastrophic coverage for the remainder of the calendar year.

After the TrOOP Comes Catastrophic Coverage

Once you’ve reached your Medicare insurance TrOOP limit, you’ll enter what’s called catastrophic coverage. Don’t worry, it’s not as scary as it sounds! Once you’ve automatically entered catastrophic coverage for reaching the TrOOP limit, your drug costs are almost completely covered, except for a small coinsurance or copayment for covered drugs. You’ll continue in catastrophic coverage for the remainder of the calendar year.

It’s worth remembering that these coverage limits are set by CMS. Part D plans are able to offer lower deductibles than the federally set maximum of $590 in 2025, but all plans have the same out-of-pocket limit.

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