How Does a Secondary Insurance Work?

While a single health plan typically serves as primary coverage, individuals sometimes find themselves covered by more than one health insurance policy. In such instances, secondary insurance plays a role in complementing the primary plan, potentially reducing out-of-pocket expenses for healthcare services. Understanding how these multiple plans interact is important for managing medical costs effectively and ensuring comprehensive coverage.

What Secondary Insurance Is

Secondary insurance refers to a health plan that provides coverage after a primary health insurance plan has paid its share of medical expenses. Its main purpose is to supplement the primary coverage, helping to cover costs such as deductibles, copayments, coinsurance, or services that may not be fully covered by the primary plan. Common situations leading to secondary insurance include having Medicare in addition to an employer-sponsored plan, being covered by an individual’s own employer plan and a spouse’s plan, or certain Medicaid scenarios.

How Primary and Secondary Insurance Coordinate Benefits

When an individual has more than one health insurance plan, a process known as “Coordination of Benefits” (COB) determines which plan pays first and how much each plan will cover. COB rules are in place to ensure that benefits are not overpaid and that each insurer pays its fair share of the medical costs. This coordination prevents duplicate payments for the same services.

For dependent children covered by both parents’ plans, the “birthday rule” typically applies: the plan of the parent whose birthday falls earlier in the calendar year is usually primary. If an individual has coverage through their own employer and is also covered as a dependent on a spouse’s plan, their own employer’s plan is generally primary.

First, the healthcare provider submits the claim to the primary insurance company. The primary insurer processes the claim according to its policy terms, applying any deductibles, copayments, or coinsurance. After the primary plan pays its portion, an Explanation of Benefits (EOB) is generated, detailing what was covered and the remaining balance.

This EOB and the remaining balance are then submitted to the secondary insurer. The secondary insurance reviews the claim and pays for eligible expenses, potentially covering some or all of the remaining out-of-pocket costs, up to its own policy limits. However, the secondary plan typically does not pay for costs that the primary plan did not cover due to its own deductibles or copayments.

Everyday Applications of Secondary Insurance

One frequent situation involves individuals with Medicare and an employer group health plan. Generally, if an individual is still working and has group health insurance through an employer with 20 or more employees, the employer plan is primary, and Medicare is secondary. If the employer has fewer than 20 employees, Medicare is typically primary. For retirees, Medicare is usually the primary payer, with the retiree plan acting as secondary coverage.

Another common application is spousal coverage, where both partners have their own employer-sponsored health insurance and also cover each other as dependents. In such cases, each individual’s own employer plan is primary for them, while the spouse’s plan acts as secondary. This setup ensures that medical expenses are processed efficiently between the two plans.

Medicaid can also function as a secondary payer. When an individual has both Medicaid and another form of insurance, such as private health insurance or Medicare, Medicaid typically serves as the payer of last resort. This means the primary insurance pays first, and Medicaid then covers eligible remaining costs, including copayments, coinsurance, and deductibles, provided the services are covered under Medicaid.

COBRA, which allows individuals to continue their employer-sponsored health coverage for a limited time after leaving a job, can also act as secondary insurance. If an individual enrolls in Medicare before COBRA, Medicare will be the primary insurer, and COBRA will be secondary. Conversely, if COBRA coverage is obtained first and then the individual becomes Medicare-eligible, Medicare will become primary, and COBRA will become secondary, though COBRA coverage may end early once Medicare eligibility begins. In situations where an individual has COBRA and new employer-sponsored coverage, the new employer’s plan is typically primary, with COBRA being secondary.