What Is the Purpose of Coordination of Benefits?

Coordination of Benefits (COB) is a standard practice within health insurance, designed to manage medical claims when an individual is covered by more than one health insurance plan. This system clarifies how multiple insurance policies work together to pay for covered services. It ensures an orderly process for claim submission and payment, preventing confusion and potential overpayment. It establishes a clear hierarchy for payment responsibilities among different plans.

Defining Coordination of Benefits

Coordination of Benefits prevents individuals from receiving more than 100% of medical services costs when they have multiple health insurance plans. Without COB, there would be opportunities for individuals to profit from medical claims, potentially leading to over-utilization of healthcare services. The system helps control overall healthcare costs and reduces the risk of fraudulent claims by ensuring that combined benefits do not exceed the total allowable expenses. This process allows insurance carriers to determine their respective payment responsibilities.

COB manages costs within the healthcare system. Preventing duplicate payments for the same service. For the insured individual, COB aims to provide appropriate payment for services without allowing over-reimbursement. This means that while a secondary plan may cover remaining eligible expenses after the primary plan pays, the total reimbursement from all plans will not surpass the total cost of the treatment.

COB provisions are outlined in the summary plan description in insurance plans. The National Association of Insurance Commissioners (NAIC) developed model guidelines, which many plans use to establish consistent rules. These guidelines streamline managing benefits across various types of insurance, including employer-sponsored plans, individual health insurance, and government programs like Medicare.

Determining Primary and Secondary Coverage

Identifying which health insurance plan is primary and which is secondary. The primary plan pays first for covered services, up to its limits, and then the secondary plan may cover any remaining eligible expenses, such as deductibles, copayments, or coinsurance.

Specific rules determine the order of payment. For dependent children covered by both parents’ plans, the “Birthday Rule” applies. This rule designates the plan of the parent whose birthday falls earlier in the calendar year (month and day) as the primary payer. If both parents share the same birthday, the plan with longer coverage typically becomes primary.

When an individual has coverage through current employment and also through former employment (such as COBRA or retiree coverage), the active employment coverage is generally considered primary. For individuals eligible for Medicare who also have employer-sponsored group health plans, the size of the employer often dictates primary status. If the employer has 20 or more employees, the employer’s plan is usually primary, and Medicare is secondary. Conversely, if the employer has fewer than 20 employees, Medicare typically serves as the primary payer.

If an individual has both an employer-sponsored plan and a separate individual health insurance plan, the employer-sponsored plan is generally primary. The plan covering an individual as an employee usually pays first, while a plan covering them as a dependent on a spouse’s or parent’s policy would be secondary. These established rules provide a framework for insurers to coordinate benefits and process claims accurately.

Common Scenarios for Multiple Coverage

Coordination of Benefits frequently applies in various real-world situations where individuals have more than one health insurance plan. One common scenario involves spouses who each have health insurance through their respective employers and also cover each other as dependents. In such cases, each individual’s own employer-sponsored plan is typically primary for themselves, while their spouse’s plan acts as the secondary coverage.

For children covered by both parents’ health insurance plans, the “Birthday Rule” effectively determines which plan pays first. The plan of the parent whose birthday occurs earlier in the year (considering only the month and day) is primary for the child’s medical expenses. The other parent’s plan then becomes the secondary payer, potentially covering remaining costs.

Individuals with Medicare and employer-sponsored coverage also navigate COB rules. If an individual is 65 or older and still working for an employer with 20 or more employees, their employer’s group health plan is generally primary, and Medicare is secondary. If the employer has fewer than 20 employees, or if the individual is retired and maintains employer coverage, Medicare typically becomes the primary payer.

Another scenario involves individuals with a primary health plan and a supplemental plan, such as accident insurance or a specific disease policy. While major medical plans coordinate benefits to avoid overpayment, fixed-benefit supplemental plans often pay out a set amount regardless of other coverage. However, if a supplemental plan is designed to cover deductibles or coinsurance of the primary plan, it operates as a secondary payer. When transitioning between jobs, an individual might have COBRA continuation coverage and new employer-sponsored coverage, where the active employer coverage is generally primary over COBRA.