When an individual is covered by more than one health insurance plan, Coordination of Benefits (COB) is used to process medical claims. This standardized practice determines the order in which the plans will pay for covered services. Having two separate policies does not mean that all medical expenses will be covered twice, nor does it guarantee full coverage. The primary function of COB is to establish which insurer pays first and which one pays second.
Defining Coordination of Benefits
Coordination of Benefits is a set of rules developed by the insurance industry to prevent a policyholder from receiving payments that exceed the total cost of medical care received. The process ensures that combined payments from all insurance plans do not surpass 100% of the allowable medical expenses. If a claim is submitted, the COB rules dictate that one plan must be designated as the primary payer, and the other as the secondary payer.
The primary plan processes the claim first and pays its benefit amount according to its policy terms, which may include deductibles and copayments. Once the primary plan has paid its share, the secondary plan reviews the remaining balance. The secondary plan may then cover some or all of the remaining eligible costs, but only up to the amount it would have paid if it were the sole insurer.
Determining Primary and Secondary Coverage
The hierarchy for determining which plan pays first depends on the specific circumstances of the policyholder and the nature of the coverage. For an adult with two plans, the plan in which they are enrolled as the primary policyholder or employee is the primary plan. A plan where the individual is covered as a dependent, such as on a spouse’s policy, is considered the secondary plan.
Rules govern individuals who maintain coverage through both an employer-sponsored plan and Medicare. If the person is actively working, and the employer has 20 or more employees, the employer’s group health plan is responsible for paying claims first. Conversely, if the employer has fewer than 20 employees, Medicare assumes the role of the primary payer, with the employer plan acting as the secondary coverage. Coverage obtained through a former employer, such as COBRA or retiree benefits, is considered secondary to any active employee coverage a person may have.
Standard Rules for Dependent Coverage
When a dependent child is covered by separate health insurance plans from both parents, a specific guideline known as the “Birthday Rule” is used to coordinate benefits. This rule determines the primary plan by looking at the parent whose birthday falls earliest in the calendar year. Only the month and day of birth are considered, not the year, meaning the age of the parents is not a factor in the determination.
For example, if one parent’s birthday is in April and the other’s is in September, the plan belonging to the parent with the April birthday will be the primary insurer for the children. The secondary plan then reviews the remaining claim balance and applies its benefits to potentially reduce the family’s out-of-pocket costs.
An exception to the Birthday Rule occurs when a court order or divorce decree specifies which parent is financially responsible for the child’s healthcare coverage. In these situations, the court order takes precedence over the Birthday Rule, making that parent’s plan the primary one. If the parents share the same birthday, the plan that has covered the dependent for the longer period is designated as the primary plan.
The Impact of Non-Compliance
Failing to properly report or update information regarding dual coverage can create significant administrative issues and financial burdens for the policyholder. When insurers are not informed of the existence of a second plan, claims are often processed incorrectly, leading to delayed payments or outright denials. The primary insurer may pay its portion, but the secondary insurer will refuse to process the remaining balance until the coordination of benefits status is resolved.
This administrative confusion can result in the healthcare provider billing the patient directly for the full unpaid balance, a practice known as balance billing. To avoid these complications, policyholders should proactively inform both insurance carriers of their dual coverage status and any changes to their enrollment immediately. Providing accurate and timely COB information ensures that claims are processed in the correct order, maximizing benefits and minimizing unexpected expenses.