are prescription drug purchases or claims that cross different phases or parts of your Medicare Part D prescription drug plan (PDP) benefit (or your Medicare Advantage plan that offers prescription drug coverage (MAPD)).
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 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.
For instance, when you purchase your prescription drugs and the negotiated retail price of your purchase crosses you from your Initial Coverage phase - where you share prescription costs with your Medicare Part D plan - to your Medicare plan's Coverage Gap or Donut Hole phase - the cost of the purchase will be split over the two Medicare plan phases.
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).
- (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 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 2020 ICL is $4,020 and $4,130 in 2021) 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 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.)
- (4) Catastrophic Coverage phase - after spending a certain amount out-of-pocket for your medications ($6,350 in 2020 or $6,550 in 2021), you are now charged about 5% of your negotiated retail drug prices (most people do not reach this portion of their coverage).
The 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 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.
(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
2020 Example: If you purchase an expensive prescription medication, such as Zytiga ® (that has a retail cost of around $10,000),
the cost of the first drug purchase would be calculated as a straddle claim covering all parts of your Medicare Part D coverage: the Initial Deductible
- the Initial Coverage Limit
- through the Coverage Gap (receive the 75% brand drug discount)
- and end in the Catastrophic Coverage phase.
And the total cost for the first purchase of this brand-name drug would be around $2,686. Any
purchases made for the remainder of the year would be in the Catastrophic
Coverage phase costing 5% of retail ($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 Blog
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 drug price.
(Original source: The Center for Medicare and Medicaid Services, with clarifications, examples, and emphasis added