What Does Coordination of Benefits Mean in Insurance?

When an individual has health coverage under more than one insurance plan, Coordination of Benefits (COB) comes into play. This process is used by insurance companies to determine how medical expenses will be covered. COB helps manage claims effectively when multiple policies are involved.

Defining Coordination of Benefits

Coordination of Benefits (COB) is the process insurance companies use to determine how to cover medical expenses when an individual is covered by multiple health insurance plans. Its fundamental purpose is to prevent individuals from receiving duplicate payments for the same medical services. This mechanism is necessary to avoid overpayment, which could result in paying more than the service cost. COB ensures fair claims processing by clarifying which plan pays first and which pays second.

Determining Primary and Secondary Payers

Insurance companies follow principles to establish the order in which each company will pay for medical services. When an individual has multiple insurance plans, COB rules determine which plan is the “primary payer” and which is the “secondary payer.” The primary plan is responsible for processing the claim first and paying its share.

After the primary plan has paid, the secondary plan then reviews the claim and considers the remaining eligible balance. This secondary plan may cover costs that the primary plan did not, such as deductibles, copayments, or coinsurance, depending on its policy terms.

Key Rules for Coordination

Specific rules guide how insurance plans coordinate benefits when an individual has multiple coverages. A common rule for dependent children covered by both parents’ plans is the “birthday rule.” This rule designates the plan of the parent whose birthday falls earlier in the calendar year as primary, with the other parent’s plan becoming secondary. The birthday rule applies to the month and day, not the year.

For individuals covered by both their own employer’s plan and a spouse’s plan, the plan covering the individual as an employee is primary. The spouse’s plan, where the individual is covered as a dependent, acts as the secondary payer.

If a person has coverage as an active employee and also through a retiree plan or COBRA from a former employer, the active employee coverage is primary. Group health plans, such as those offered by employers, are primary over individual health insurance plans.

Impact on Policyholders

Coordination of Benefits directly impacts insured individuals by potentially reducing their out-of-pocket expenses. By effectively coordinating coverage, COB can help cover costs such as deductibles, copayments, and coinsurance that remain after the primary plan has paid. This maximizes the benefits received across multiple plans, ensuring policyholders utilize their available coverage efficiently.

It is important for policyholders to inform all their insurers about other existing coverage to ensure proper coordination. Failing to update this information can lead to delays or denials of claims, resulting in the policyholder being responsible for the full cost. Maintaining accurate records with all insurance providers facilitates a smoother billing process and helps avoid unexpected charges.