Coordinating Payments and Recoveries

Principles of Coordination of Benefits and Nonduplication

When an individual has health insurance coverage under more than one policy, questions arise about which plan pays first and how much each insurer owes. Coordination of benefits helps prevent payments from multiple health plans from exceeding 100 percent of allowable medical expenses. An allowable expense is a healthcare item or service that is covered under at least one of the overlapping plans. These guidelines protect insurers from paying more than the actual costs incurred, supporting overall cost containment.

A nonduplication provision can limit a secondary plan's payment to the difference between what that plan would have paid on its own and what the primary plan paid; it may pay nothing even when the patient still owes part of the bill. Under coordination of benefits rules, the primary plan pays covered claims first as if no other coverage exists. The secondary plan calculates any additional payment under its coordination of benefits terms after the primary plan determines its payment; it may pay less than the remaining eligible expense or nothing. The combined payment from primary and secondary plans can never exceed total allowable medical expenses.

Coordination of benefits provisions apply primarily to group health insurance contracts rather than individual health insurance policies. The National Association of Insurance Commissioners (NAIC) Coordination of Benefits (COB) Model Regulation provides order-of-benefit rules that many states use for group health plans. Under the NAIC model, a plan without a coordination of benefits provision generally pays first, but the model has an exception when both plans' terms make the other plan primary, and applicable federal rules can control payment order. An individual medical expense policy may coordinate benefits with other coverage when its terms and applicable law permit, but you should not assume group-plan coordination rules apply automatically. An individual policy may include an Insurance with Other Insurers uniform provision that proportionately limits its expense-incurred benefits when the insurer did not receive the specified written notice of other coverage; the provision does not proportionately reduce every type of benefit.

Excess coverage provisions specify that a policy pays benefits only after all other collectible insurance has been exhausted. For example, if Marcus incurs a 1,000 dollar medical bill covered by two group plans, his primary insurer pays its standard benefit first, such as 700 dollars. His secondary insurer evaluates the remaining 300 dollars of allowable expense and pays according to its own terms, guaranteeing Marcus receives no more than 1,000 dollars across both plans.