Coordination of Benefits (COB) is an arrangement between a health insurance provider and a healthcare service provider. COB ensures that you are only billed once and the biggest most coverage has been used. A health plan, co-insurance, or self-payments due for the same service is reduced depending on which services are deemed to be higher quality of care.
Coordination of benefits is a process that determines which health insurance plan will pay for an employee’s medical expenses. For example, if a patient has both an HMO (Health Maintenance Organization) and PPO (Preferred Provider Organization) plan, the PPO plan will coordinate with the HMO plan to figure out which one will pay for the cost of care.
Coordination of benefits works by taking into account how much each plan pays toward specific types of care, such as prescription drugs or prescriptions from a doctor. The higher-paying plan pays its share of the cost first, and then the lower-paying plan picks up whatever is left over.
Coordination of benefits differs from step therapy in that step therapy only considers prescription drugs and does not consider other medical services like surgery or hospital stays. Coordination of benefits can also be used to coordinate multiple plans at once—for example, if someone has both an HMO and a high-deductible health plan (HDHP).
What is Coordination of Benefits?
When a person is covered by two health plans, coordination of benefits is the process the insurance companies use to decide which plan will pay first for covered medical services or prescription drugs and what the second plan will pay after the first plan has paid. Insurance companies coordinate benefits for several reasons:
- To avoid paying twice for the same covered service. Duplicate payments could result in paying more than the service cost!
- To determine which plan is primary, which means the insurer pays for covered services first according to the benefits provided by the plan. The other insurer pays secondary, which means it pays the remaining unpaid balance according to the benefits provided by its plan.
- To help keep the cost of health and prescription drug costs affordable.
In today’s world of dual-income, working couples, working Medicare beneficiaries, and the ability to extend dependent coverage to children up to age 26, dual health coverage occurs frequently. Understandably, most health plans have rules to determine which plan will pay primary and which plan will pay secondary. These rules are typically outlined in the “coordination of benefit” provisions in your summary plan description, the document that explains your benefits and how they are determined.
How does coordination of benefits work?
Coordination of benefits allows two insurance carriers to determine their fair share of the cost for covered services. Your out-of-pocket cost for services is limited to the amount, if any, that remains unpaid by the insurers. Covered services refers to the medical care, equipment, services, or prescription drugs the insurers include in their plan benefits.
Coordination of benefits examples
Listed below are four common situations when coordination of benefits occurs:
- You are covered under your own insurance plan with your employer, and covered as a dependent under your spouse or partner’s employer-sponsored plan;
- Your spouse or partner is covered under his or her own insurance plan and as a dependent under your insurance plan;
- Your dependent children are covered under your insurance plan and your spouse or partner’s plan;
- You are still working at age 66, and covered by your employer’s group health plan and Medicare Part A (hospital insurance).
In each of these scenarios there is a primary payor and secondary payor. You or your healthcare provider submits the claim to the primary payor first.
Situation #1
You have coverage under your own insurance plan and under your spouse or partner’s plan: your own insurance plan is always the primary payor; your spouse or partner’s insurance plan is the secondary payor.
You (or your healthcare provider on your behalf) submit a medical or prescription drug claim to your own insurance plan first. Your insurance plan pays its portion of the claim. If your insurance plan doesn’t cover the full claim amount, you can submit the claim to your spouse or partner’s insurance plan, with the explanation of benefits statement from your insurance plan, requesting payment for the remainder of the expense.
When submitting a claim to your partner’s insurance, you may not be reimbursed for the entire remaining balance. This will depend on the amount of coverage offered by your partner’s insurance plan.
Situation #2
Your spouse or partner’s health insurance plan is the primary payor and receives his or her claims first, determines benefits, and pays accordingly. Your plan is the secondary payor. Upon receiving the claim and the primary insurer’s explanation of benefits, the secondary payor determines what portion of the balance of the bill, if any, is your plan’s responsibility to pay. Your spouse or partner pays the remaining balance, if any.
Situation #3
Your children are dually insured by your health insurance plan and your spouse or partner’s plan. In most cases, the health plans will perform coordination of benefits using the “birthday rule.” This means if your birthday month occurs earlier in a calendar year than your spouse or partner’s, your plan will be primary and the other plan will be the secondary payor. If you share the same birthday month as your spouse or partner, the plans will usually assign the order of payors so that the plan that has provided coverage the longest time is the primary payor and the other plan is secondary payor. If you and your spouse are divorced, the custodial parent’s health plan is usually primary, unless a court decree specifies the parent who is responsible for the children’s health insurance.
Situation #4
Your employer’s group health plan is the primary payor if the company employs 20 or more people. It receives your claim first, determines benefits, and pays according to the plan’s benefits. Medicare is the secondary payor, and determines what portion of the balance of the bill, if any, Medicare will pay. In this hypothetical situation, you have Medicare Part A, which provides coverage for hospital services. If you submitted a claim for a physician office visit, Medicare Part A would deny the claim and pay nothing because it does not cover physician office exams. (Medicare Part B does.) If you submit a claim for a hospital stay, Medicare Part A will determine what portion of the balance of the bill, if any, is payable according to the Medicare Part A benefits, which typically includes a daily copayment for hospital stays.
What are the rules of coordination of benefits?
The National Association of Insurance Commissioners (NAIC) released its first set of model coordination of benefits guidelines in 1971. This model was to serve as an example for employers and state legislatures to adopt as a consistent set of coordination of benefits rules. Many plans use the model coordination provisions. Highlights of the model coordination of benefits guidelines follow.
- Most coordination of benefit provisions include the following general rules for employees and spouses covered by two group health plans: The plan that covers the individual as an employee will generally pay primary and the plan that covers the individual as a dependent will generally be the secondary payor.
- The “birthday rule” is common for children covered by two employer group health plans. In this situation, the plan covering the parent whose birthday falls first in the year will pay primary on the children; the other parent’s plan becomes the secondary payor.
- If a person has COBRA continuation coverage or any state-mandated continuation of coverage, the continuation coverage is secondary.
- If neither plan spells out coordination of benefit rules, the plan that covered the person for the longer time is usually primary.
How do I know what my cost for medical care or prescription drugs will be after my insurance companies coordinate benefits?
Coordination of benefit provisions do not allow the claimant to receive more than 100% of the eligible charges between both health plan payments. Furthermore, plans take different approaches when they calculate coordination of benefit payments. Usually, you can find out how your insurance plans perform coordination of benefits by reading the coordination of benefits provision in your Summary Plan Description or policy.
If you don’t find the provision, or have questions about how coordination of benefits works for one or both plans, ask for an explanation from the plan administrator or insurance company. Two common methods of coordination of benefits and payment results follow.
Full coordination of benefits method
The primary plan calculates the claim payment as if there is no other insurance involved. The secondary carrier also calculates what benefit amount would have been paid for the claim if there were no primary carrier involved. The primary plan pays the benefit as calculated. The secondary carrier pays the balance if its calculation shows at least that amount would have been payable if no other coverage had been in place. For example, let’s say you are covered by two plans, one has a $500 deductible and the other a $25 office visit copay that apply to physician care in the office. You incur $100 expense at the doctor’s office. Your primary payor applies the $100 toward meeting the $500 deductible and pays nothing. The secondary payor applies the plan’s $25 copay (calculating payment as if no other coverage is in place) and pays $75. You would be responsible for paying the $25 office visit copay.
Non-duplication coordination of benefits method
The secondary plan does not reimburse any more on the claim than it would have paid, if it were the primary payor. The secondary carrier reviews the primary paid amount. If the primary carrier’s paid amount is equal to or more than what the secondary payor would have paid on its own, no benefit is payable. In this case, if you incur a $100 doctor office visit expense and the primary payor pays $80, the secondary payor with a $25 office visit copay pays nothing because the primary plan paid more than what the secondary payor would have paid on its own.
When you are covered by two plans, you will know, ultimately, what amount you owe on a medical or prescription drug claim by reading the second payor’s explanation of benefits. This statement will show the amount you owe, the amount the second payor paid, and the amount that was disallowed because it was previously paid by the primary payor and/or exceeded the contract rate of the provider of service.
How does deductibles work with health insurance
What are health insurance deductibles?
A health insurance deductible is a specified amount or capped limit you must pay first before your insurance will begin paying your medical costs.
For example, if you have a $1000 deductible, you must first pay $1000 out of pocket before your insurance will cover any of the expenses from a medical visit. It may take you several months or just one visit to reach that deductible amount.
You’ll pay your deductible payment directly to the medical professional, clinic, or hospital. If you incur a $700 charge at the emergency room and a $300 charge at the dermatologist, you’ll pay $700 directly to the hospital and $300 directly to the dermatologist. You don’t pay your deductible to your insurance company.
Now that you’ve paid $1000, you have “met” your deductible. Your insurance company will then start paying for your insurance-covered medical expenses.
Your deductible automatically resets to $0 at the beginning of your policy period. Most policy periods are 1 year long. After the new policy period starts, you’ll be responsible for paying your deductible until it’s fulfilled.
You may still be responsible for a copayment or coinsurance even after the deductible is met, but the insurance company is paying at least some amount of the charge.
Deductible vs. premium
A health insurance premium is the amount you pay each month to your insurance provider. This is the only payment you’ll have if you never use your health insurance.
You’ll continue to pay premiums until you no longer have the insurance plan. A deductible, on the other hand, only has to be paid if you use the insurance.
Premium prices increase with each additional person you add to your insurance plan. If you’re married and covering your spouse, your premium price will be higher than a single person with the same plan. If you’re married and covering your spouse and two children, your premium price will also be higher than for a single person or a married couple with the same coverage.
If you receive insurance through an employer, your premium is typically deducted directly from your paycheck. Many companies will pay a certain portion of the premium. For example, your employer may pay 60 percent, and then the remaining 40 percent would be deducted from your paycheck.
Deductible vs. copay
Your health insurance will begin paying for your healthcare expenses once you meet your deductible. However, you may still be responsible for an expense each time you use the insurance.
A copayment is the portion of a medical insurance claim that you’re responsible for paying. In most cases, a doctor’s office will request the copayment at the time of your appointment.
Copayments are usually fixed, modest amounts. For example, you may be responsible for a $25 copay every time you see your general practitioner. This amount varies among insurance plans.
In some cases, the copayment isn’t a set amount. Instead, you may owe a set percentage based on the amount your insurance will be charged for the visit.
For example, your copayment may be 10 percent of your visit’s charges. One visit may be $90. Another could be $400. For that reason, your copayment may change at each appointment.
If you use visit a medical professional, clinic, or hospital outside your insurance’s approved network, you may have a different copayment than you do when using one that’s in network.
Deductible vs. coinsurance
Some health insurances limit the percentage of your medical claims they’ll cover. You’re responsible for the remaining percentage. This amount is called coinsurance.
For example, once your deductible is met, your insurance company may pay 80 percent of your healthcare expenses. You’d then be responsible for the remaining 20 percent. Typical coinsurances range between 20 and 40 percent for the insured individual.
You don’t begin paying your coinsurance until your deductible is met. If you use medical services outside your insurance’s approved network, your coinsurance amount may be different than if you’d used services in the network.
Deductible vs. out-of-pocket maximum
Your out-of-pocket maximum is the most you’ll pay during a policy period. Most policy periods are 1 year long. Once you reach your out-of-pocket maximum, your insurance plan will pay all additional expenses at 100 percent.
Your deductible is part of your out-of-pocket maximum. Any copayments or coinsurances are also factored into your out-of-pocket maximum.
The maximum often doesn’t count premiums and any out-of-network provider expenses. The out-of-pocket maximum is typically rather high, and it varies from plan to plan.
High- vs. low-deductible plans
High-deductible, low-premium insurance plans have gained popularity in recent years. These insurance plans allow you to pay a small amount each month in premium payments.
However, your expenses when you use your insurance are often higher than that of a person with a low-deductible plan. A person with a low-deductible plan, on the other hand, will likely have a higher premium but a lower deductible.
High-deductible insurance plans work well for people who anticipate very few medical expenses. You may pay less money by having low premiums and a deductible you rarely need.
Low-deductible plans are good for people with chronic conditions or families who anticipate the need for several trips to the doctor each year. This keeps your up-front costs lower so you can manage your expenses more easily.
What’s the right deductible for me?
The answer to this question depends largely on how many people you’re insuring, how active you are, and how many doctor visits you anticipate in a year.
A high-deductible plan is great for people who rarely visit the doctor and would like to limit their monthly expenses. If you choose a high-deductible plan, you should begin saving money so that you’re prepared to pay any medical expenses up front.
A low-deductible plan may be best for a larger family who knows they’ll be frequently visiting doctors’ offices. These plans are also a good option for a person with a chronic medical condition.
Planned visits, such as wellness visits, checkups on chronic conditions, or anticipated emergency needs, can quickly add up if you’re on a high-deductible plan. A low-deductible plan lets you better manage your out-of-pocket expenses.