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Understanding Coordination of Benefits Provisions

What’s the next worst thing to having no insurance coverage? Having two insurance companies cover the same claim. When policies lack a clear definition of which will pay first, insurers can wrangle for months, even years, while the insured is left holding the bag.
When it comes to health insurance, many people have coverage through more than one plan. For example, an active employee over age 65 might have coverage through her employer’s plan and Medicare. Another employee might have health coverage through his own employer and dependent coverage through his spouse’s employer. Another might decide to retain his individual health policy when joining an employer group plan, while a co-worker involved in a car accident might have coverage through the employer health plan and auto insurance policy. Which of these policies will pay, and how much, in the event of a claim?

The National Association of Insurance Commissioners, an organization of state insurance regulators, has developed standard “coordination of benefits” rules to help avert insurer disputes about coverage, as well as to avoid situations where insureds receive duplicate coverage for claims. The provision dictates which plan becomes the primary plan; any other plan becomes the secondary plan(s). The “primary payer” pays what it owes on your claims first, and then sends the rest to the “secondary payer” to pay. In some cases, there may also be a third payer. Nearly every group health insurance policy in every state will include a coordination of benefits provision; however, individual health policies usually do not have this provision.

Which Policy Is Primary?

To figure out how much coverage you have for a particular claim, you need to know which policy is primary. For someone covered by two or more group health policies with a coordination of benefits provision, the rules are pretty straightforward:

  • If you are the insured, your plan is primary; your spouse’s or partner’s plan is secondary.

  • If a dependent child has coverage under both parents’ group plans, the parent whose birth date is earliest in the year has the primary plan. However, if the parents are divorced and the divorce decree specifies which parent must provide health insurance, that parent’s plan would be primary. In cases of remarriage, plans generally pay in this order: the custodial parent’s, the custodial parent’s spouse’s, the non-custodial parent’s, then the plan of the non-custodial parent’s spouse.

  • If two plans have a coverage dispute, the plan that has covered you the longest is primary.

  • If a person has coverage through COBRA and another group plan, the other coverage is primary.

  • If a person has coverage through a group plan and an auto insurance policy for an injury accident, the auto policy generally is primary. However, in most states, auto policies limit medical expenses coverage to an amount specified in the policy, such as $25,000 or $50,000 per incident. If costs exceed this, the group medical plan would become secondary payer.
If you are over 65 and have coverage through both an employer group plan and Medicare, the situation becomes more complex. Medicare does not refer to “coordination of benefits” per se, but does discuss “Medicare and other coverages.”

  • If you are over 65 and have group coverage because you or your spouse is still working, Medicare will be primary if the employer group has fewer than 20 employees, secondary if the group has more than 20 employees.

  • If you are retired and have coverage through both an employer plan and Medicare, Medicare will be primary. Some retiree plans do not pay medical costs during any period in which you were eligible for Medicare but didn’t sign up for it. You may need to enroll in Medicare Parts A and B when you become eligible to get full benefits from your retiree coverage.

  • If a Medicare beneficiary is eligible for medical benefits under a no-fault or liability insurance policy, such as an auto or homeowners policy or workers’ compensation, the other coverage would be primary. In the case of workers’ compensation, Medicare might make a conditional payment if the workers’ compensation insurer denies payment for your work-related medical bills pending a review of your claim.
Individual health plans have no coordination of benefits provision, so if you have coverage under an individual plan and another plan, you could possibly receive total payments under both plans that exceed the amount of your medical bill(s). However, many individual health plans do have “other coverage” provisions intended to prevent overpayment and that affect order of payment: review your policy for details.

Coordination of benefits is a complicated topic; other situations, such as deductibles, copayments, use of preferred or out-of-network providers can also affect your coverage amounts.

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This material is provided for information and education purposes to members and others who may be interested in the subject matter. It is not professional advice, which can only be given on specific facts. The material is provided to Small Business Service Bureau, Inc. (SBSB) by Smart’s Publishing. Smart’s Publishing does not engage in the solicitation, sale, or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. 

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