What Is a Coordination of Benefits Provision?

Coordination of Benefits (COB) is a process used by health insurance companies when an individual has coverage under two or more health insurance plans. Its purpose is to prevent duplicate payments for medical services, ensuring that combined payments from all plans do not exceed the total cost of care. This mechanism clarifies which plan pays first and how subsequent plans contribute to the remaining balance. COB streamlines claim processing and maintains fairness in benefit distribution.

Understanding Coordination of Benefits

Coordination of Benefits (COB) outlines how multiple health insurance plans work together to cover an individual’s medical expenses. This system prevents policyholders from financially gaining from an illness or injury, which could occur if multiple plans each paid the full cost of a service. COB also helps manage overall healthcare costs within the insurance system.

When an individual has more than one health insurance plan, COB rules establish one plan as the “primary” payer and another as the “secondary” payer. The primary plan processes the claim first, paying its portion of covered services according to its policy terms. After the primary plan pays, the secondary plan reviews the remaining balance and pays additional amounts within its own coverage limits. This coordination applies regardless of how the multiple plans are obtained, such as through employment, a spouse’s coverage, or government programs like Medicare.

Rules for Determining Primary and Secondary Plans

Specific rules govern which insurance plan pays first when an individual has multiple coverages, standardizing the order of payment. The National Association of Insurance Commissioners (NAIC) developed model guidelines that many states and insurance companies adopt.

A common rule for children covered by both parents’ plans is the “Birthday Rule,” which designates the plan of the parent whose birthday falls earlier in the calendar year (month and day, not year) as primary. For individuals with coverage through current employment and another plan like COBRA or a retiree plan, the active employment coverage is typically primary. If an individual holds two active employer-sponsored plans, the plan covering the individual as an employee is generally primary over a plan covering them as a dependent.

When Medicare is involved, the primary-secondary determination depends on employment status and employer size. For example, if an individual over 65 is still working and covered by an employer plan from a company with 20 or more employees, the employer plan is usually primary. If the employer has fewer than 20 employees or the individual is retired, Medicare typically becomes the primary payer. Medicaid is almost always considered the payer of last resort, paying only after Medicare and all other insurance plans have processed their claims.

Common Scenarios for Benefit Coordination

Coordination of Benefits rules apply in various real-world situations, illustrating the practical application of primary and secondary payer determinations. For example, consider a married couple where each spouse has their own employer-sponsored health plan, and they are also covered as dependents on each other’s plans. Each individual’s own employer plan is typically primary for their medical claims, with their spouse’s plan then serving as the secondary payer, covering remaining costs.

For a family with children covered under both parents’ health insurance plans, the “Birthday Rule” applies. The plan of the parent whose birthday falls earlier in the calendar year would be primary for the children’s claims, with the other parent’s plan acting as secondary coverage.

When an individual has both private insurance and Medicare, if actively working for a large employer (20 or more employees), their employer-sponsored private insurance is usually primary, with Medicare as secondary. If retired or working for a small employer, Medicare typically becomes the primary payer. An individual holding two active employer plans, perhaps from two different jobs, would generally find the plan from their primary employment, or the plan they enrolled in first, acting as the primary payer, with the other employer’s plan being secondary.

Impact on Your Healthcare Expenses

Coordination of Benefits directly influences a policyholder’s out-of-pocket healthcare expenses. When two plans coordinate, the secondary plan can significantly reduce the financial responsibility for deductibles, copayments, and coinsurance that remain after the primary plan has paid. After the primary insurer processes a claim and pays its portion, the secondary insurer assesses the remaining balance.

The secondary plan may cover services not fully paid by the primary plan, up to its own policy limits. For instance, if a primary plan pays 80% of an allowed charge, the secondary plan might cover some or all of the remaining 20%, depending on its benefits. This coordinated payment ensures that combined benefits from both plans typically do not exceed 100% of the allowed medical charges, preventing overpayment while minimizing the patient’s personal financial burden. Having COB in place can lead to lower overall costs for the individual than if they only had one health insurance plan.