What Is the Purpose of Coordination of Benefits?

Coordination of Benefits (COB) is a process insurance companies use to determine how to cover medical expenses when an individual is covered by more than one health insurance plan. The primary purpose of COB is to prevent individuals from receiving duplicate payments for the same medical services. This system aims to avoid situations where benefits paid might exceed the actual cost of the medical service.

Understanding Coordination of Benefits

Coordination of Benefits is a set of rules applied by insurance companies when an individual has active coverage under two or more group health benefit plans. Without COB, an individual could potentially receive more than 100% of the cost of their medical treatment, which could lead to a profit from an illness or injury.

COB controls healthcare costs for both insurers and policyholders by ensuring each plan pays its fair share. It streamlines the billing process by establishing a clear order for payment responsibilities, reducing confusion and potential delays. This mechanism helps in managing the complexities that arise from dual coverage, contributing to the overall affordability of health and prescription drug costs.

How Multiple Group Plans Coordinate Benefits

When an individual holds more than one group health plan, COB rules designate one plan as “primary” and others as “secondary” or “tertiary.” The primary plan pays its benefits first, according to its terms, and then the secondary plan reviews the claim to pay any remaining balance within its coverage limits.

The “Birthday Rule” is frequently applied for children covered by both parents’ plans. Under this rule, the plan of the parent whose birthday falls earlier in the calendar year (month and day, not year of birth) is typically primary. If both parents share the same birthday, the plan that has provided coverage for the longer duration usually becomes primary.

Another common scenario involves active employment versus retiree or COBRA coverage. Generally, a health plan from active employment is primary over a retiree plan or COBRA continuation coverage. For individuals covered by their own employer’s plan and also by a spouse’s employer’s plan, the individual’s own plan is usually primary for their claims, and their spouse’s plan is primary for their claims. The other plan then serves as the secondary payer.

Government programs like Medicare also have specific coordination rules with group health plans. If an individual aged 65 or older is still working and covered by an employer’s group health plan, Medicare is typically secondary if the employer has 20 or more employees. However, if the employer has fewer than 20 employees, Medicare usually becomes the primary payer. Medicaid, conversely, is almost always the payer of last resort, meaning it is secondary to other health coverage.

Impact on Insured Individuals

Coordination of Benefits generally reduces an individual’s out-of-pocket costs, such as deductibles, copayments, and coinsurance. This occurs because the secondary plan may cover what the primary plan did not, up to the maximum allowable amount for covered services.

For instance, if a primary plan covers a portion of a $250 medical bill, the secondary plan may pay the remaining balance. This coordinated effort helps minimize the financial burden on the insured individual. The individual’s out-of-pocket costs are limited to any amount that remains unpaid by both insurers after coordination.

To ensure proper coordination and prompt claims processing, it is important for individuals to inform both insurance companies about all existing coverage. Providing accurate and up-to-date information to healthcare providers is also necessary. After the primary claim is processed, the individual might need to submit the claim and the Explanation of Benefits (EOB) from the primary insurer to the secondary carrier, or the carriers may coordinate directly. Failure to update COB status can result in claims being refused or identified as patient responsibility.