Your Medicare Part D drug plan coverage is broken into four parts and you cross between these parts or phases of coverage based on the retail cost of your drugs or your total out-of-pocket spending. A Straddle Claim
occurs when a single formulary drug purchase crosses over into different phases of your Medicare Part D prescription drug plan coverage - so the cost of the drug purchase must be considered in more than one phase of your Part D coverage.
For example, if you have an initial deductible of $480 and you purchase a Tier 3 drug with a $600 retail value, you would first pay $480 to meet the initial deductible, then you would have a balance of $120 ($600 - $480) that would "straddle" or carry into your next coverage phase (the Initial Coverage Phase) where you have a $47 co-pay on Tier 3 drugs. So you would pay an additional $47 co-pay for the $120 balance that "straddled" into the second phase of coverage. Your total cost for the $600 drug would be $480 + $47 = $527.
The Theory of a Straddle Claim
The cost of a drug purchase that crosses two or more parts of your Medicare Part D plan coverage is calculated using a combination of retail drug cost, co-payments, Donut Hole Discounts, or Catastrophic Coverage costs - but no matter what the calculation, you will never pay more than your plan's negotiated retail drug price.
Changing the example above slightly, if you have an initial deductible of $480 and you
purchase a Tier 3 drug with a $500 retail value, you would first pay
$480 to meet the initial deductible, then you would have a balance of
$20 ($500 - $480) that would "straddle" or carry into your next
coverage phase (the Initial Coverage Phase) where you have a $47 co-pay
on Tier 3 drugs. But, you would not pay an additional $47 co-pay for the $20
balance that "straddled" into the second phase of coverage - because your coverage cost would then be higher than the drug's retail cost. Instead, you would pay no more than the $500 retail drug price or ($480 + $20).
A quick review of your Medicare Part D plan coverage
Remember that your Medicare prescription drug plan has four (4) phases or parts, just like other insurance:
- (1) Initial Deductible phase - you pay 100% of your prescription purchases (unless you are enrolled in a Medicare plan with a $0 deductible, then you begin in the next part of coverage - or if your Medicare Part D plan excludes Tier 1 and Tier 2 drugs from the deductible, your deductible would only be applied to all other drugs). The standard Initial Deductible can change every year and the 2023 standard deductible (adopted by many Medicare Part D plans) is $505 ($545 in 2024).
- (2) Initial Coverage phase - you share the negotiated retail cost of your prescription purchases with your plan either as a co-insurance percentage (for instance, you pay 25% of retail) or as a fixed co-payment (for instance, you pay a $30 co-pay for your Tier 3 formulary medication). When you have purchased covered medications with a retail cost of over your plan's Initial Coverage Limit (ICL), you will leave the Initial Coverage Phase (the standard 2023 ICL is $4,660 and $5,030 in 2024) so when the retail value of drug purchases exceeds the ICL - you enter the Coverage Gap or Donut Hole. As a reminder, the Initial Coverage phase is not measured on what you pay, but the retail value of the formulary drug purchases.
- (3) Coverage Gap or Donut Hole phase - the Donut Hole Discount began in 2011 and is applied to all formulary purchases in the Donut Hole. (Also, some Medicare Part D drug plans provide supplemental coverage thought the Donut Hole or Coverage Gap - so members may not even notice that they have exceeded their Initial Coverage Limit, left the Initial Coverage Phase, and entered the Donut Hole for more information, be sure to refer to your Explanation of Benefits letter that your Medicare plan sent you.) Starting in 2020, you will receive a 75% discount on all formulary medications (generic and brand) while in the Donut Hole.
- (4) Catastrophic Coverage phase - after spending a certain amount out-of-pocket for your medications ($7,400 in 2023), you are now charged about 5% of your negotiated retail drug prices (most people do not reach this portion of their coverage).
Beginning with plan year
the Inflation Reduction Act (IRA) of 2022 eliminates beneficiary cost-sharing once your TrOOP reaches the established maximum cap on out-of-pocket spending for Part D formulary drugs (RxMOOP) $8,000 in 2024.
Three Typical Types of Straddle Claims
Depending on your Medicare Part D prescription drug plan benefit design (that is, whether your Medicare Part D prescription drug plan has an Initial Deductible or whether your plan provides some additional coverage in the Donut Hole), Straddle Claims usually occur in three situations - when prescription drug purchase claims cross:
(1) From the Initial Deductible phase into the Initial Coverage phase where coinsurance applies or the Initial Coverage phase where a co-payment percentage structure applies. In this first case, you will pay the portion of the retail purchase price that satisfies the Initial Deductible and then the remainder of the retail cost will be charged some portion of cost-sharing in the Initial Coverage phase - where the total of the two charges does not exceed the drug's retail price.
(2) From the Initial Coverage phase (or when the Initial Coverage Limit (ICL) is exceeded) during which a co-payment or coinsurance applies and into the Coverage Gap (or Donut Hole) phase where coinsurance or (as of 2011) the Donut Hole discount applies.
(3) From the Coverage Gap or Donut Hole phase where co-insurance applies into the Catastrophic Coverage phase in which co-payment or coinsurance may apply (you pay about 5% of the retail price).
Expensive drugs and straddling all phases of your Medicare Part D plan coverage with one purchase
2021 Example: If you purchase an expensive prescription medication, such as Zytiga ® (that has a retail cost over $10,000),
the cost of the first drug purchase would be calculated as a straddle claim added together across all parts of your Medicare Part D coverage: the Initial Deductible
- the Initial Coverage Phase
- through the Coverage Gap (receive the 75% brand drug discount)
- and end in the Catastrophic Coverage phase.
For a $10,000 brand name formulary drug that was the first purchase of the year, the Medicare beneficiary would pay around $2,751.
additional purchases made for the remainder of the year would be in the Catastrophic
Coverage phase costing 5% of the $10,000 retail price ($500) for each prescription.
You can see how this straddle claim coverage cost was estimated using our Medicare Part D Donut Hole Calculator or PDP-Planner - just enter the $10,000 retail value of the medication into the "paid monthly" field on the form.
Straddle Claim Example From the Initial Deductible into the Initial Coverage phase
If a Medicare beneficiary was enrolled into a Medicare Part D plan with an initial deductible of $405
and their total covered retail drug purchases up to this time were $355
and now this same person just purchased covered prescription drugs with a negotiated retail price of $90
- Of that $90 retail price, $50 would falls at or below the $405
Initial Deductible limit, where the Medicare beneficiary is responsible
for 100% of their prescription costs. So the person pays 100% of the
first $50 plus
- The remaining $40 falls into the Initial Coverage phase, where the beneficiary pays a cost-sharing of 25% coinsurance (or $10) and this person's Medicare Part D prescription drug plan pays 75%.
- So, the person pays a total of $50 + $10 = $60 and not the full negotiated retail price of $90.
Again, since this $90
prescription drug purchase "straddles" two Medicare Part D plan phases,
the cost is split over the standard Medicare Part D plan cost-sharing
model. The Medicare beneficiary pays the first $50
in the Initial Deductible phase and $10
of the remaining $90
price in the Initial Coverage phase for a total cost of $60
- and the Medicare Part D plan is responsible for paying the remaining retail cost-sharing balance of $30
For more examples of Straddle Claims you can click here to see our Medicare Part D article
Lesser-of-Logic: You never pay more than your plan's negotiated retail cost
Please note that the calculated cost-sharing in the example above did
not exceed the Medicare Part D plan's negotiated drug price. However,
let us assume that our Medicare plan had a co-pay of $45
for the same example drug during the Initial Coverage phase (instead of the 25% co-insurance).
In this example, the retail cost for the formulary drug is $90 - and $50
of the retail cost is spent in the Initial Deductible to reach the $405
deductible - and the remaining $40
"straddles" into the Initial Coverage phase where the drug has a $45
co-pay. The total cost at this point is $50
(Initial Deductible) + $45
(co-pay) = $95
coverage cost --- but
this coverage cost would exceed the retail drug price of $90
--- therefore, the person would only be charged $40
in the Initial Coverage phase instead of
co-pay so that the total drug cost did not exceed the retail price of $90
($50 + $40).
Medicare has implemented "Lesser-of Logic
that means you will never pay more for your formulary drug than your
plans negotiated retail price. When you buy a drug, your Medicare Part D
plan will calculate your coverage cost for the particular drug purchase
and then ensure that you are not paying over 100% of the retail drug
price - and you will pay the "lesser of" the coverage cost or the retail
(Original source: The Center for Medicare and Medicaid Services, with clarifications, examples, and emphasis added