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If the total cost of one formulary drug purchase takes me into the Medicare Part D Donut Hole, will I pay the copay for my drug plus the discounted cost that is over the coverage limit?

Category: Straddle Claims
Updated: Aug, 19 2023

Yes, you are responsible for the copayment of the purchase in the Initial Coverage phase plus cost-sharing on the amount of the purchase that exceeds your Medicare Part D plan's Initial Coverage Limit ($4,660 in 2023 and $5,030 in 2024).

However, in such a situation you will only pay up to the point where the combined cost-sharing (including the brand-name Donut Hole discount) is less than the retail cost of the medication -- meaning you never pay more than the medication negotiated retail cost.

As background, this question is an example of a "Straddle Claim" - where a single prescription purchase straddles two or more phases of your Medicare Part D prescription drug coverage.

In this situation, both the amount of your copayment or cost-sharing for your medication purchase and how close you were to the Initial Coverage Limit will be important in the actual drug cost-sharing calculation - or what you actually pay at the pharmacy.

Example #1 - 2023:  If you are purchasing a tier 3 brand-name formulary drug with a $135 copay (the drug has a $700 retail cost) – and this year you have already purchased drugs with a retail cost totaling $4,360 – and your plan’s 2023 initial coverage limit is $4,660 (you have only $300 until reaching the Coverage Gap) – your cost-sharing will be calculated by adding your copay ($135 in our example) and 25% of the drug’s retail cost carrying over into the Coverage Gap.

So, in our example, $300 of the drug’s $700 retail price will meet your plan’s $4,660 initial coverage limit with the remaining retail cost of $400 ($700 - $300) carrying over into the Coverage Gap where you get the 75% Donut Hole discount on this retail-cost balance for an added cost of $100 (25% of $400).

This means that your total drug cost-sharing for this straddle claim is $135 + $100 = $235.  Your next purchase will no longer be a straddle claim and will fall only in the Coverage Gap where you will pay 25% of the full retail price of $700 or $175 ($700 x 25%).

In summary, your cost for this drug will change as you move through your Part D coverage phases:
- Cost-sharing of purchase solely in the Initial Coverage phase: $135
- Cost-sharing of this example Straddle Claim: $235 ($135 + $100)
- Cost-sharing of purchase solely in the Coverage Gap: $175

Example #2 - 2024:  You purchase a brand-name formulary Medicare Part D medication that has a retail price of $260 (total retail cost) and you usually pay your plan's a $60 copayment for the medication.

Using the 2024 Initial Coverage Limit of $5,030 - If your total annual retail medication costs are already at $4,930, then you only need $100 more to reach the 2024 initial Coverage Limit of $5,030.  (Click here to read more about the 2024 Initial Coverage Limits.)

So $100 of the $260 retail drug cost falls into your plan's Initial Coverage Phase (where you will pay a $60 copay) and the remaining $160 falls into your 2024 Coverage Gap or Donut Hole where you are receive a 75% discount on all formulary drugs.

Therefore, you will pay the $60 copayment on the medication -- plus the discounted portion of the $160 that falls into your Donut Hole where you receive the 75% discount (you pay 25% of the retail cost balance or 25% of $160 = $40) for a total cost of $100 ($60 + $40). 

To see another example, please see our Frequently Asked Question: "How does the Medicare Donut Hole Discount apply to a drug purchases that crosses from the Initial Coverage Phase into the Coverage Gap?" (this FAQ also includes CMS support of the straddle claim calculations).

Click here if you would like to see another FAQ example and explanation of what happens when you buy a medication and the cost moves you into the Donut Hole portion of your Medicare Part D plan.

Question:  Can the cost of my "straddle claim" be more than my retail cost?

No.  Behind the scenes of your prescription purchase, your Medicare plan checks to make sure you will pay less for your medications than the negotiated retail drug price by using what they call the "lesser of" logic - meaning, you will never be charged more than retail for your medication.

Since, in this example, you would pay $100 ($60+$40) and this cost is less than the retail cost of $260 - then the lesser-of rule is satisfied.  If however, the total cost (including what you pay with the Donut Hole discount) exceeds the retail cost, you only will pay the retail cost.

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