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How do I calculate the cost of a $10,000 Medicare Part D drug purchase using Straddle Claim logic?

Category: Straddle Claims and High Costs
Published on 2021-02-07 15:24:50
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If you purchase an expensive formulary medication using your Medicare Part D plan, such as Zytiga ® (that has a retail cost of $10,000 to $12,000), the cost of the first drug purchase would be calculated as a straddle claim across all four phases of your Medicare Part D coverage: from the Initial Deductible (if any) - through the Initial Coverage Phase - through the Coverage Gap (receive the 75% brand-name drug Donut Hole discount) - and finally, into the Catastrophic Coverage phase.

Although the straddle claim logic remains consistent, as can be expected, since Medicare plan limits can change every year, the total cost of your first drug purchase can also 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 $10,000 drug would be slightly less at $2,751.07.  The next purchases of the $10,000 drug would remain constant across years with a cost of $500 per purchase for the remainder of the year.

How do we calculate the 2021 cost of this $10,000 formulary drug purchase?

Assumptions:  First, before we can estimated the cost of this $10,000 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, 2021).
  • Your Medicare Part D plan has a standard Initial Deductible of $445 and this brand drug is not excluded from the deductible.
  • Your Medicare Part D plan has a standard Initial Coverage Limit of $4,130 (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 - your actual plan may have 33% cost-sharing).
  • You will exit the Donut Hole when your out-of-pocket spending exceeds the annual TrOOP threshold of $6,550 (including the 70% of retail additional credit from the pharmaceutical manufacturer's portion of the Donut Hole discount that was paid on your behalf).
  • We will not take into account any dispensing or vaccine fees.
  • 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).
Next, we 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: $445 - added to the . . .

Since we are assuming that your Medicare Part D plan has a standard $445 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 $445 and the remaining balance of the retail cost of $9,555 ($10,000 - $445) (retail price - deductible) carries over into your Initial Coverage Phase.

(2)  Cost in the Initial Coverage Phase: $921.25 - added to the . . .

You stay in your 2021 Initial Coverage phase until you reach the Medicare plan's Initial Coverage Limit of $4,130 and since you already have spent $445 before reaching the Initial Coverage Phase, you would have $3,685 ($4,130 - $445) 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 $3,685 balance or $921.25 (25% of $3,685 = $921.25).

Since the amount of the retail drug price falling into the Initial Coverage Phase from the Initial Deductible ($9,555) is greater than the remaining initial coverage balance $3,685, the remaining retail balance of $5,870 ($9,555 - $3,685) carries over (or "straddles") into the Coverage Gap or Donut Hole.

Subtotal of accumulated cost after the Initial Coverage Phase: $445 + $921.25 = $1,366.25

(3)  Cost in the Coverage Gap or Donut Hole phase: $1,364.14 - added to the . . .

You will stay in the Donut Hole or Coverage Gap until your total out-of-pocket costs reach the plan's 2021 total out-of-pocket spending threshold (TrOOP) of $6,550 (which should account for a retail drug cost of around $9,587).  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 ($6,550 (TrOOP) - $1,366.25 (out-of-pocket total before entering Donut Hole))/95% (amount of brand-name Donut Hole discount counted toward TrOOP) = $5,183.75/0.95 = $5,456.58

You will then pay 25% of the retail balance in the Donut Hole (with your 75% brand-name discount) or $5,456.58 * 25% = $1,364.14.

Keeping track of the retail drug cost already applied to your Medicare Part D coverage:  The total retail drug cost value as you exit the Donut Hole: $4,130 (Initial Coverage Limit) + ($6,550 (TrOOP) - $1,366.25 (what you spent out-of-pocket before entering Donut Hole))/95% (amount of brand-name Donut Hole discount counted toward TrOOP threshold) = $9,586.58.
 
Subtotal of accumulated cost after the Coverage Gap: $445 + $921.25 + $1,364.14 = $2,730.39

(4)  Cost in the Catastrophic Coverage phase: $20.67

We can calculate the amount of retail cost that will carry into Catastrophic Coverage as $413.42 (the $10,000 (total retail drug cost) - $9,586.58 (total retail balance after Donut Hole)).  For this final portion of the $10,000 retail drug cost that falls into Catastrophic Coverage, you would pay an additional $20.67 or (5% of $413.42) since it is greater than the minimum brand-name 2021 Catastrophic Coverage cost-share of $9.20.

Total cost at the end of the Straddle Claim for a $10,000 drug purchase: $445 + $921.25 + $1,364.14 + $20.67 = $2,751.07


(5) Next purchase cost:  Cost of any additional purchases of this $10,000 brand-name formulary drug (after the first purchase): $500

Any purchases of this same drug during the remainder of the year would be in the Catastrophic Coverage phase costing 5% of the $10,000 retail cost or $500.

. . .  or you can skip the math and use our Donut Hole Calculator or Cost Estimator found at https://PDP-Planner.com
  • To begin enter the retail drug price (such as 10,000) into "Paid Monthly" (no "$" needed).
  • Choose your mix of generic and brand drug - in this example, we have one brand-name drug so we selected "0% Generic / 100% Brand (not vaccine adjusted).
  • The input the annual deductible ($0, $435, $445 or whatever you have for your plan).
  • Have the month start at January 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 10,000 straddle claim


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