Insurance Rules on Coordination of Benefits

The health insurance plan that covers an active employee is the primary plan. Primary plans pay first on claims for payment of covered expenses. Other policies that cover you as a dependent or as a retiree or laid-off employee are secondary plans. For example, if your spouse covers you under her employer-provided group health plan and you are also covered under the plan offered by your employer, your employer’s plan is primary for you. Coordination of benefits also can include worker’s compensation coverage and liability under motor vehicle or homeowner’s insurance.

Working status and group size -- the number of employees covered under a group plan -- determine when Medicare is primary. The employer’s group health plan is primary for people who are 65 or older, still working for an employer with 20 or more employees and eligible for Medicare. If the employer has fewer than 20 employees, Medicare is primary. If you retire, are eligible for Medicare and retain your group health plan, Medicare is primary. Other COB rules for Medicare apply if you are disabled and covered by a large group health plan or are covered under COBRA continuation benefits.

Dependent children often are covered under both parents' group policies. The birthday and gender rules apply to children of parents who are not divorced or separated. Under the birthday rule, the policy of the parent whose birthday falls earliest in the year is the child’s primary plan. The gender rule makes the father’s policy the child’s primary plan. When parents are separated or divorced, the plan of the parent with custody is the child’s primary plan. The plan of the spouse of the parent with custody is next, followed by the plan of the parent who does not have custody. The birthday rule also applies for children in joint custody arrangements. A court can reject standard COB rules and reprioritize the order of coverage.

Under COB requirements, the primary plan pays the portion of the covered expenses required under carrier’s policy. For example, the primary plan may pay 80 percent of allowable expenses, minus deductibles or co-pays. Health insurance carriers use different methods to coordinate the portion of expenses paid by the primary and secondary plans. The 100 percent standard allowable calculation simply requires that the combined payments of both plans will not exceed 100 percent of the allowable charges. The other COB methods provide more detailed instruction for calculating secondary payment after payment is made by the primary plan. The method an insurance carrier uses is found in the plan’s summary plan description that is provided to participants and usually published on the carrier’s website.

The model COB method requires carriers to make COB decisions claim by claim, choosing between primary and secondary liability to arrive at the most cost-effective payment. Secondary plans that use the non-duplication COB subtract the amount paid by the primary plan and pay the balance. Under the secondary limit COB method, the secondary plan subtracts the primary payment from the total bill and pays the portion of the remaining amount as required in its policy, such as 80 percent minus deductibles and co-pays. The maintenance of benefits method allows the secondary plan to reduce its payment to the amount if would pay as primary or the amount it would pay minus the amount paid by the primary plan.