Medicare Part D coverage is complex, particularly when a prescription drug claim crosses multiple phases of the benefit. These “straddle claims” make it particularly challenging to determine what a beneficiary owes, but it is important to be accurate, particularly when the claim straddles a coverage gap, resulting in expense to the beneficiary.
Standard Medicare Part D Plan
The Medicare Part D program provides beneficiaries with assistance paying for prescription drugs. Plans must offer a benefit package that is at least as valuable as the standard benefit. The standard benefit is defined in terms of the benefit structure, not the particular drugs that must be covered. Because the deductible, initial coverage limit, and annual out-of-pocket threshold change each year according to the changes in expenditures for Part D drugs, beneficiary out-of-pocket expenses may increase annually. The list of covered drugs varies from plan to plan and region to region.
In 2008, the standard benefit includes an initial $275 deductible. After meeting the deductible the beneficiaries pay 25% of the cost of covered Part D prescription drugs, up to an initial coverage limit of $2,510. Once the initial coverage limit is reached, beneficiaries are subject to another deductible, known as the “Donut Hole,” or “Coverage Gap,” in which they must pay the full costs of drugs. When total out-of-pocket expenses on formulary drugs reach $4,050 – including the costs of the deductible and coinsurance – beneficiaries reach the “Catastrophic Coverage” benefit. Beneficiaries entitled to Catastrophic Coverage pay $2.25 for a generic or preferred drug and $5.60 for other drugs, or a flat 5% coinsurance, whichever is greater. Note that this out-of-pocket amount is calculated annually. Beneficiaries who reach the $4,050 out-of-pocket threshold in one year have to begin to meet it again on January 1st of the next year. Not all plans use the same deductible; Part D drug plans are not required to offer the standard benefit, but can offer alternative prescription drug coverage that is “actuarially equivalent” to the standard benefit. In other words, the value of the benefit package must be equal to or greater than the value of the standard benefit package.
What are Straddle Claims?
A beneficiary may have a prescription drug event which may move him/her from one phase of coverage to another. For example, the beneficiary may have $400 left in the initial coverage period and need a drug which costs $500. That particular drug event would be both a covered and a non-covered event. A prescription drug event which crosses multiple phases of the benefit is called a straddle claim. Determining what a beneficiary owes when a straddle claim occurs can be challenging, especially if a claim straddles a coverage gap. When part of the cost of a prescription drug could put the beneficiary in the uncovered area, figuring out how much the beneficiary owes is crucial.
When do Straddle Claims Occur and How Are They Resolved?
Straddle claims occur when a beneficiary obtains a prescription drug that puts him/her from one phase of the Part D benefit to another. Often this can put beneficiary’s drug cost into the coverage gap area.
The beneficiary and the Part D plans have various forms of cost sharing. Two of these are co-pay and co-insurance. Co-pay is a flat dollar amount that the beneficiary pays. Co-insurance is a percentage of the costs that the beneficiary pays.
Straddle claims occur in four instances:
- A prescription drug claim moves a beneficiary from the deductible phase to the initial coverage period. The beneficiary straddles the deductible phase and the initial coverage period.
Example: A beneficiary’s year to date gross covered cost is $225. The beneficiary purchases a $100 covered drug. In this new prescription drug event, $50 falls at or below the $275 deductible limit and is adjudicated per the rules of the deductible phase. The remaining $50 falls in the initial coverage period, in which the beneficiary pays 25 percent co-insurance ($12.50) and the plan pays 75 percent ($37.50).
- A beneficiary straddles the coverage gap and catastrophic coverage phase. Example: A beneficiary’s year to date TrOOP (true out of pocket expenditures) is $4000. The beneficiary purchases a $150 covered drug. Of this cost, $50 falls in the Coverage Gap phase, at or below the $4050 TrOOP threshold; the beneficiary pays 100 percent of the $50. The remaining $100 falls in the Catastrophic Coverage phase. The beneficiary pays the greater of $2.25/$5.60 or 5 percent ($5.00). Note that even though the drug is generic, the beneficiary pays $5.00 (5 percent of 100) instead of the $2.25 because it is the greater amount.
- The calculations for a tiered co-pay structure require use of an additional rule. If not calculated correctly, the total beneficiary liability for a straddle claim in a tiered benefit can exceed the gross drug cost. To prevent this error, plans apply “lesser of” logic when adjudicating straddle claims that have co-pay amounts; the beneficiary pays the lesser of (a) 100 percent of the gross drug cost or (b) the sum of the co-insurance and co-pay amounts.
Example: A beneficiary is enrolled in a basic alternative plan, with a lowered deductible of $100. The beneficiary purchases a Tier-3 drug with a negotiated price of $100. The tier-3 co-pay is $40. The beneficiary’s year-to-date gross covered drug cost is $30. The beneficiary still has a $70 deductible remaining, plus the $40 co-pay for the drug – a total of $110. The negotiated price of the drug is $100. The beneficiary pays the lesser amount – $100. If the negotiated price were higher than the total of the deductible and the co-pay, the beneficiary would pay the deductible and co-pay.
- For full low-income subsidy eligible (LIS) beneficiaries, when a claim crosses from the coverage gap to the catastrophic phase of the benefit, Part D sponsors are required to charge these beneficiaries only the cost sharing applicable to the portion of the claim below the out-of-pocket threshold.
Can a Plan Charge the Full Co-Pay When the Drug Costs Less?
The amount the beneficiary pays depends on the phases of coverage crossed by the straddle claim. Part D sponsors are required to charge beneficiaries one co-payment, the co-payment applicable to the phase of the benefit in which the claim began. However, plans may contract with pharmacies for the minimum beneficiary co-pay amounts per dispensing event even if the gross drug cost is less than the co-pay. CMS is trying to prevent that from occurring by amending the definition of negotiated prices.
On May 16, 2008, CMS issued proposed rules to address the issue of plans charging the full co-pay when drug cost is less. CMS is proposing to amend the definition of negotiated prices to require that Part D sponsors base beneficiary cost sharing on the price ultimately received by the pharmacy or other dispensing provider. CMS is also proposing that the negotiated prices include prices for covered Part D drugs negotiated between the Part D sponsor and other network dispensing providers. Under the current approach, beneficiaries may pay a uniform price across different network pharmacies. However, CMS states “that beneficiaries receive no value from paying more for drugs in return for always paying a uniform stable price.” With the proposed approach, beneficiaries would pay the lowest possible point-of-sale price.
The issue of straddle claims will continue to evolve. For more information, please refer to the following sites:
- CMS FAQ: https://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/enduser/std_adp.phpp_faqid=9036
- CMS 2007 Prescription Drug Event Data Training: http://www.hccblog.com/files/CMS_Part_D_Training.pdf
- CMS proposed rules, 73 Fed. Reg. 28563 (May 16, 2008): http://edocket.access.gpo.gov/2008/pdf/08-1244.pdf