Coordination of Benefits is the system health insurance companies use to determine their respective payment responsibilities when a patient has more than one health insurance policy. This situation commonly occurs when an individual is covered both by their own employer’s plan and a spouse’s plan, or when a child is covered by both parents’ insurance. The process clarifies which plan is primary, meaning it pays first, and which is secondary, paying the remaining balance within its limits. This coordination prevents overpayment or duplicate payments, ensuring combined benefits do not exceed 100% of the total allowable cost.
Confirming the Need for Coordination
The initial step involves the healthcare provider or the patient identifying all active coverage at the time of service. Collecting and verifying every insurance card and policy is important for accurate billing. Intake forms often include questions designed to uncover spousal, parental, or other third-party coverage.
The provider’s billing team must contact each carrier to verify the patient’s eligibility and confirm the presence of other insurance plans. Failure to accurately identify all coverage sources early on can lead to immediate claim rejections and significant delays in payment. An insurance company may refuse to process a claim if they suspect other coverage exists and the coordination status is not properly documented.
Establishing the Order of Benefits
Establishing the correct order of benefits determines which plan is designated as primary and which is secondary. This hierarchy is determined by a uniform set of rules, often based on guidelines established by the National Association of Insurance Commissioners (NAIC). The primary plan always pays its benefits without considering the coverage offered by the secondary plan.
For adults covered by multiple plans, the plan in which the individual is enrolled as an employee or the main policyholder is primary over a plan where they are covered as a dependent, such as through a spouse. A plan covering a person as an active employee is also primary over a plan covering the same person as a retired or laid-off employee. In cases involving Medicare and a private plan, specific federal rules dictate the order, often based on the size of the employer or the beneficiary’s employment status.
When dependent children are covered by both parents’ policies, the “Birthday Rule” is the most common determinant. This rule states that the plan of the parent whose birthday falls earlier in the calendar year is primary, using the month and day, not the year of birth. If the parents are divorced or separated, the plan of the custodial parent is usually primary, unless a court decree assigns financial responsibility for healthcare to one parent.
Processing the Claim Through Multiple Payers
Once the order of benefits is established, the provider first submits the claim to the primary payer. The primary plan processes the claim according to its policy terms, applying deductibles, copayments, and coinsurance. After paying its share, it issues an Explanation of Benefits (EOB) document detailing the services covered, the amount paid, and the remaining patient responsibility.
The provider then submits the claim again, this time to the secondary payer, and includes a copy of the primary plan’s EOB. The secondary plan reviews the claim and the primary payment information to determine its liability. The secondary plan will pay the remaining balance, but only up to the amount it would have paid had it been the primary insurer, and only for services covered under its own policy. This ensures that the two insurance payments combined do not exceed the total allowable charge for the service.
Reconciling Payments and Patient Obligation
The final stage of the process involves reconciling the payments from both the primary and secondary carriers to determine the patient’s final financial obligation. The combined payments from both plans often cover a substantial portion of the total allowable charges. However, the exact amount paid by the secondary insurer depends on its specific Coordination of Benefits clause.
Some plans use a “non-duplication of benefits” clause, which can significantly limit the secondary payment. Under this clause, if the primary plan’s payment meets or exceeds the amount the secondary plan would have paid as primary, the secondary plan may pay nothing at all. If the provider is in-network with both plans, any remaining difference between the charged amount and the total combined allowable payment is typically written off by the provider, preventing the patient from being billed for that difference.