What Is Primary and Secondary Insurance?

Understanding health insurance can be complex, especially with multiple plans. Many individuals have more than one policy, raising questions about how they interact to cover costs. Knowing how different plans coordinate benefits is important for managing financial obligations and navigating the healthcare system. This article explores primary and secondary insurance, detailing how they work together to process claims and impact your out-of-pocket expenses.

Defining Primary and Secondary Insurance

When an individual has coverage under two health plans, one is primary insurance and the other is secondary. The primary plan pays for healthcare services first, processing claims and paying its portion before any other coverage takes effect. After the primary insurer processes a claim and pays its share, any remaining eligible balance can be submitted to the secondary plan. Secondary insurance functions as a supplemental policy, covering costs not fully paid by the primary plan, such as deductibles, copayments, or coinsurance.

The distinction between primary and secondary insurance is about the order of payment. The determination of which plan is primary is typically based on rules outlined in the “coordination of benefit” provisions of the insurance policy. For instance, an individual’s employer-sponsored plan is generally primary over a plan where they are covered as a dependent, such as a spouse’s plan.

How Coordination of Benefits Works

Coordination of Benefits (COB) is the process insurance companies use to determine which plan pays first for covered medical services and what the second plan will pay. This mechanism prevents duplicate payments and ensures the total amount paid by all insurers does not exceed the total cost of the healthcare service.

The process begins when a healthcare provider submits a claim to the primary insurer. The primary plan reviews the claim, decides what is covered, and pays its portion according to its benefits and coverage limits. For example, if a medical bill is $1,000 and the primary plan covers $700, that $700 is paid directly to the provider.

Once the primary insurer has paid its share, an Explanation of Benefits (EOB) is often sent, detailing what was paid and what remains. The remaining eligible balance is then sent to the secondary insurance for consideration. The secondary plan reviews the claim and the primary plan’s payment, then contributes its portion based on its own terms and coverage limits.

COB is an industry standard, with guidelines often based on models from the National Association of Insurance Commissioners (NAIC). These guidelines help establish consistent rules for determining the order of payment, particularly when both plans have COB clauses.

Common Situations Involving Multiple Insurance Plans

Individuals frequently have more than one health insurance plan due to various life circumstances, and specific rules dictate which plan pays first.

When both spouses have their own employer-sponsored health plans and also cover each other, the plan covering an individual as an employee is generally primary. The spouse’s plan, where they are covered as a dependent, then acts as secondary.

For children covered by both parents’ health insurance plans, the “birthday rule” often determines primary coverage. This practice states that the plan of the parent whose birthday falls earlier in the calendar year (month and day, not year) is primary for the child. The plan of the parent with the later birthday then becomes secondary. If both parents share the same birthday, the plan that has covered a parent longer typically provides primary coverage.

Medicare’s role as primary or secondary depends on employment status and employer size. If an individual aged 65 or older is still working and has group health coverage through an employer with 20 or more employees, the employer’s plan is typically primary, and Medicare is secondary. If the employer has fewer than 20 employees, Medicare usually becomes the primary payer, with the employer-sponsored plan acting as secondary.

When an individual has COBRA continuation coverage and also gains coverage through a new employer’s health plan, the new employer’s plan is generally primary. COBRA coverage then typically serves as secondary. Similarly, for work-related injuries or auto accidents, workers’ compensation or auto insurance usually acts as the primary payer for related medical expenses, with personal health insurance becoming secondary.

Impact on Your Healthcare Costs

Having both primary and secondary insurance can significantly impact out-of-pocket healthcare costs. The secondary plan can help cover expenses the primary plan did not fully pay, such as deductibles, copayments, and coinsurance. This can lead to a substantial reduction in the amount a patient would otherwise owe directly to providers.

For instance, if a primary plan covers 80% of a service, a secondary plan might cover some or all of the remaining 20%, potentially leaving the patient with minimal or no balance. While secondary insurance can offer considerable financial relief, it does not guarantee zero out-of-pocket costs. Patients may still be responsible for certain expenses, especially if a service is not covered by either plan, if benefit maximums are reached, or if there are differences in allowed amounts between the plans. Individuals may also need to meet deductibles for both plans before coverage fully kicks in, depending on policy terms.

The financial benefit of coordinated benefits lies in providing more comprehensive coverage. This layered coverage helps mitigate the financial burden of unexpected medical events or ongoing treatments, making healthcare more affordable for individuals with multiple plans.