Powered by Q1Group LLC
Education and Decision Support Tools for the Medicare Community


How to calculate the cost of a $12,000 Medicare Part D drug purchase using Straddle Claim logic.

Category: Straddle Claims and High Costs
Published on 2022-05-07 15:24:50


If your first Medicare Part D drug purchase of the year is an expensive formulary medication, such as Revlimid® (that has a retail cost of $28,000 to $29,000), the cost of this drug purchase would be calculated as a straddle claim - where a single drug purchase is covered across all four phases of your Medicare Part D coverage:

- (1) the expensive drug purchase would start in the Initial Deductible (if any),
- (2) continue through the Initial Coverage Phase until you reach the Initial Coverage Limit ($4,430 in 2022),
- (3) then continue through the Coverage Gap (receiving the 75% brand-name drug Donut Hole discount)
- and (4) finally, continue into the final Catastrophic Coverage phase.

Tip: Straddle Claim calculations can change year-to-year.

As a note, although the math behind straddle claim logic remains consistent, the total cost of your first drug purchase can change year-to-year as your retail drug price changes and the Medicare plan limits change year-to-year.  For example, in 2018, the total cost for the first purchase of a $10,000 brand-name drug would be around $2,880 (not including dispensing fees) - and in 2021, the total cost for this same $10,000 drug would be slightly less at $2,751.07 - due to changes in annual plan limits.

However, since you end your first drug purchase in the Catastrophic Coverage phase, the next (or second) purchases of the $10,000 drug would remain constant across years with a cost of $500 per purchase (5% of retail) for the remainder of the year.

How to calculate the cost of a single $12,000 brand-name formulary drug purchase.

Step 1 - Assumptions:  First, before we can estimated the cost of this $12,000 straddle claim we need to make a few assumptions about the Medicare Part D plan coverage (and your coverage may vary slightly from our assumptions):
  • You are not eligible for the Medicare Part D Extra Help program or Low-Income Subsidy (LIS).
  • This drug is included on your Medicare Part D plan's formulary (drug list) or you have been granted a Formulary Exception and this non-formulary drug is now being covered by your plan.
  • This is your first drug purchase you are making with your Medicare Part D plan (for example, on January 1, 202x).
  • Your Medicare Part D plan has a standard Initial Deductible of $480 and this brand drug is not excluded from the deductible.
  • Your Medicare Part D plan has a standard Initial Coverage Limit of $4,430 (total retail drug value before you enter the Donut Hole).
  • Your Medicare Part D plan charges a standard 25% co-insurance for this drug (you pay 25% of retail in the Initial Coverage Phase - but, please note your actual drug plan may have 33% cost-sharing for expensive drugs).
  • Your Medicare Part D plan does not offer any supplemental or additional Donut Hole coverage beyond the standard 75% discount.
  • You will exit the Donut Hole when your out-of-pocket spending exceeds the annual TrOOP threshold of $7,050 (including the 70% of retail additional credit from the pharmaceutical manufacturer's portion of the brand-name drug Donut Hole discount that was paid on your behalf).  so, you will pay 25% of the retail cost in the Coverage Gap or Donut Hole and receive 95% of the retail drug cost credited toward meeting your out-of-pocket spending threshold (before your enter the Catastrophic Coverage phase)
  • We will not take into account any dispensing or vaccine fees - which usually only amount to a few dollars.
  • You will pay a fixed 5% of the retail cost in the Catastrophic Coverage phase.
Step 2 - The Math:  We calculate and add together what you will pay as your purchase "straddles" all four parts of your Medicare Part D coverage.

(1)  Cost in the Initial Deductible: $480- added to the . . .

Since we are assuming that your Medicare Part D plan has a standard $480 deductible and that this is your first drug purchase during the initial deductible phase, you will pay 100% of the drug cost up to your deductible of $480 and the remaining balance of the retail cost of $11,520 ($12,000 - $480) (retail price - deductible) carries over into your Initial Coverage Phase.

(2)  Cost in the Initial Coverage Phase: $987.50 - added to the . . .

You stay in your Initial Coverage phase until you reach the Medicare plan's Initial Coverage Limit of $4,430 and since you already have spent $480 in the deductible before reaching the Initial Coverage Phase, you would have $3,950 ($4,430 - $480) of the total retail drug cost remaining before leaving the Initial Coverage Phase (you leave the Initial Coverage Phase when your retail drug costs exceed the plan's Initial Coverage Limit).

During the Initial Coverage phase, we assumed that you have a 25% cost-sharing, that is you pay 25% of retail in this phase.  So in the Initial Coverage Phase, your cost-sharing would be 25% of the $3,950 balance or $987.50 (25% of $3,950 = $987.50).

Since the amount of the retail drug price falling into the Initial Coverage Phase from the Initial Deductible ($11,520) is greater than the remaining initial coverage balance $3,950, the remaining retail balance of $7,570 ($11,520 - $3,950) carries over (or "straddles") into the Coverage Gap or Donut Hole.

Your costs so far:  Subtotal of accumulated cost after the Initial Coverage Phase: $480 + $987.50 = $1,467.50

(3)  Cost in the Coverage Gap or Donut Hole phase: $1,469.08 - added to the . . .

You will stay in the Donut Hole or Coverage Gap until your total out-of-pocket costs reach the plan's total out-of-pocket spending threshold (TrOOP) of $7,050 (which should account for a retail drug cost of around $10,306).  We are assuming you are using 100% brand-name drugs and receiving 95% credit for your Donut Hole purchases (the 25% Donut Hole Discount of retail you spend plus the 70% discount provided by the pharmaceutical industry on your behalf).

So the retail value of what you can purchase in your Donut Hole is ($7,050 (TrOOP) - $1,467.50 (out-of-pocket total before entering Donut Hole))/95% (amount of brand-name Donut Hole discount counted toward TrOOP) = $5,582.50/0.95 = $5,876.32

You will then pay 25% of the retail balance in the Donut Hole (with your 75% brand-name discount) or $5,876.32 * 25% = $1,469.08.

Keeping track of the $12,000 retail drug cost already applied to your Medicare Part D coverage:
The total retail drug cost value as you exit the Donut Hole: $4,430 (Initial Coverage Limit) + ($7,050 (TrOOP) - $1,467.50 (what you spent out-of-pocket before entering Donut Hole))/95% (amount of brand-name Donut Hole discount counted toward TrOOP threshold) = $10,306.32.
 
Subtotal of accumulated cost after the Coverage Gap: $480 + $987.60 + $1,469.08 = $2,936.68

(4)  Cost in the Catastrophic Coverage phase: $84.68

We can calculate the remaining amount of the $12,000 retail drug cost that will carry into Catastrophic Coverage as $1,693.68 (the $12,000 (total retail drug cost) - $10,306.32 (total retail balance after Donut Hole)).

For this final portion of the $12,000 retail drug cost that falls into Catastrophic Coverage, you would pay an additional $84.68 or (5% of $1,693.68) since it is greater than the minimum brand-name 2022 Catastrophic Coverage cost-share of $9.85.

Total cost at the end of the Straddle Claim for a single $12,000 drug purchase:
$480 (
initial deductible) + $987.50 (initial coverage phase) + $1,469.50 (Donut Hole) + $84.68 (catastrophic coverage)
= $3,021.26

(5) The next or second $12,000 drug purchase:  Cost of any additional purchases of this $12,000 brand-name formulary drug (after the first purchase): $600

Any purchases of this same drug during the remainder of the year would be in the Catastrophic Coverage phase costing 5% of the $12,000 retail cost or $600.

Step 3 (optional) - Skip the math and use our Donut Hole Calculator or Cost Estimator by starting at: https://PDP-Planner.com - then:
  • Enter the retail drug price (such as 12,000) into "Paid Monthly" (no "$" needed)
  • Tip:  No idea of the retail cost for your prescription? - If you cannot find the retail drug price for your prescription, you can use our Q1Rx Drug Finder (https://Q1Rx.com) to estimate the plan's retail drug price.  Begin by entering your drug, choose the strength, and, if available, we will show the "average" retail drug price for the given prescription drug across all pharmacies in a plan's Service Area (state or ZIP Code area).  You will actually see the average retail drug prices for all Medicare drug plans in your chosen area that cover your chosen drug.  Your actual retail drug price can vary slightly depending on the chosen pharmacy where you purchase the formulary drug.

    Q1Medicare Q1Rx Drug Finder

  • Next, choose your mix of generic and brand drug - in this example, we have one brand-name $12,000 drug so we selected "0% Generic / 100% Brand (not vaccine adjusted).
  • Then, input your Medicare plan's annual deductible ($0, $435, $445, $480 or whatever you have for your plan).
  • Choose "January" as the starting month so you can see the whole year (or choose a date when your plan coverage began).
  • Click on the green "Get Report" button.
Q1Medicare Donut Hole Calculator or PDP Planner showing 12,000 straddle claim

The end result of the PDP-Planner or Donut Hole Calculator should look something like the following if you use $480 as your standard initial deductible and you will see that the first drug purchase (1:Jan) is calculated over all four phases of the Medicare Part D drug plan.

Q1Medicare Donut Hole Calculator or PDP Planner showing 12,000 straddle claim







Medicare Supplements
fill the gaps in your
Original Medicare
1. Enter Your ZIP Code:
» Medicare Supplement FAQs




Ask a Pharmacist*
Have questions about your medication?

» Answers to Your Medication Questions, Free!
Available Monday - Friday
8am to 5pm MST
*A free service included with your no cost drug discount card.




Tips & Disclaimers
  • The Medicare Advantage and Medicare Part D prescription drug plan data on our site comes directly from Medicare and is subject to change.
  • Medicare has neither reviewed nor endorsed the information on our site.
  • We provide our Q1Medicare.com site for educational purposes and strive to present unbiased and accurate information. However, Q1Medicare is not intended as a substitute for your lawyer, doctor, healthcare provider, financial advisor, or pharmacist. For more information on your Medicare coverage, please be sure to seek legal, medical, pharmaceutical, or financial advice from a licensed professional or telephone Medicare at 1-800-633-4227.
  • We are an independent education, research, and technology company. We are not affiliated with any Medicare plan, plan carrier, healthcare provider, or insurance company. We are not compensated for Medicare plan enrollments. We do not sell leads or share your personal information.
  • Benefits, formulary, pharmacy network, provider network, premium and/or co-payments/co-insurance may change on January 1 of each year. Our PDP-Compare.com and MA-Compare.com provide highlights of annual plan benefit changes.
  • The benefit information provided is a brief summary, not a complete description of benefits. For more information contact the plan.
  • Limitations, copayments, and restrictions may apply.
  • We make every effort to show all available Medicare Part D or Medicare Advantage plans in your service area. However, since our data is provided by Medicare, it is possible that this may not be a complete listing of plans available in your service area. For a complete listing please contact 1-800-MEDICARE (TTY users should call 1-877-486-2048), 24 hours a day/7 days a week or consult www.medicare.gov.
  • When enrolling in a Medicare Advantage plan, you must continue to pay your Medicare Part B premium.
  • Medicare beneficiaries with higher incomes may be required to pay both a Medicare Part B and Medicare Part D Income Related Monthly Adjustment Amount (IRMAA). Read more on IRMAA.
  • Medicare Advantage plans that include prescription drug coverage (MAPDs) are considered Medicare Part D plans and members with higher incomes may be subject to the Medicare Part D Income Related Monthly Adjustment Amount (IRMAA), just as members in stand-alone Part D plans. In certain situations, you can appeal IRMAA.
  • You must be enrolled in both Medicare Part A and Part B to enroll in a Medicare Advantage plan. Members may enroll in a Medicare Advantage plan only during specific times of the year. Contact the Medicare plan for more information.
  • If you are enrolled in a Medicare plan with Part D prescription drug coverage, you may be eligible for financial Extra Help to assist with the payment of your prescription drug premiums and drug purchases. To see if you qualify for Extra Help, call: 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048, 24 hours a day/ 7 days a week or consult www.medicare.gov; the Social Security Office at 1-800-772-1213 between 7 a.m. and 7 p.m., Monday through Friday. TTY users should call, 1-800-325-0778; or your state Medicaid Office.
  • Medicare evaluates plans based on a 5-Star rating system. Star Ratings are calculated each year and may change from one year to the next.
  • A Medicare Advantage Private Fee-for-Service plan (PFFS) is not a Medicare supplement plan. Providers who do not contract with the plan are not required to see you except in an emergency.
  • Disclaimer for Institutional Special Needs Plan (SNP): This plan is available to anyone with Medicare who meets the Skilled Nursing Facility (SNF) level of care and resides in a nursing home.
  • Disclaimer for Dual Eligible (Medicare/Medicaid) Special Needs Plan (SNP): This plan is available to anyone who has both Medical Assistance from the State and Medicare. Premiums, co-pays, co-insurance, and deductibles may vary based on the level of Extra Help you receive. Please contact the plan for further details.
  • Disclaimer for Chronic Condition Special Needs Plan (SNP): This plan is available to anyone with Medicare who has been diagnosed with the plan specific Chronic Condition.
  • Medicare MSA Plans combine a high deductible Medicare Advantage Plan and a trust or custodial savings account (as defined and/or approved by the IRS). The plan deposits money from Medicare into the account. You can use this money to pay for your health care costs, but only Medicare-covered expenses count toward your deductible. The amount deposited is usually less than your deductible amount, so you generally have to pay out-of-pocket before your coverage begins.
  • Medicare MSA Plans do not cover prescription drugs. If you join a Medicare MSA Plan, you can also join any separate (stand-alone) Medicare Part D prescription drug plan
  • There are additional restrictions to join an MSA plan, and enrollment is generally for a full calendar year unless you meet certain exceptions. Those who disenroll during the calendar year will owe a portion of the account deposit back to the plan. Contact the plan provider for additional information.
  • Medicare beneficiaries may enroll through the CMS Medicare Online Enrollment Center located at www.medicare.gov.
  • Medicare beneficiaries can file a complaint with the Centers for Medicare & Medicaid Services by calling 1-800-MEDICARE 24 hours a day/7 days or using the medicare.gov site. Beneficiaries can appoint a representative by submitting CMS Form-1696.