Nonduplication and coordination of benefits

Why duplicate payment is a problem

Health insurance is meant to indemnify: to put the insured back where they were before the loss, not to leave them better off. When one person is covered by two or more health plans, for example their own employer's plan and a spouse's plan, each plan could pay the same bill in full. The insured would then collect more than the loss. This is called overinsurance, and it gives people a reason to overuse care and drives premiums up for everyone.

Nonduplication is the general principle that the insured should not be paid twice for the same expense. Policies carry out that principle in several ways:

A coordination of benefits (COB) provision in group medical plans.
Individual policy provisions such as Other Insurance in This Insurer and **Insurance with

Other Insurers**, which let the insurer limit or prorate benefits when other coverage exists.

Exclusions for losses paid by another system, such as workers' compensation for a work injury.

How coordination of benefits works

Group hospital, medical and surgical expense plans must contain a COB provision. When a claim is covered by two plans that both have one, the rules decide which plan is primary and which is secondary:

The primary plan pays first, exactly as if no other coverage existed.
The secondary plan then looks at what is left and pays toward the remaining allowable

expenses, up to its own benefits.

Together the plans pay up to 100% of the reasonable expenses actually incurred, and never

more. The insured is made whole, but does not profit.

For example, a covered hospital bill of $10,000: the primary plan pays its 80%, or $8,000. The secondary plan can pay the remaining $2,000. The total is $10,000, the actual loss.

A diagram titled 'Coordination of benefits: one 10,000 dollar claim', using illustrative figures. On the left is a single bar representing the 10,000 dollar bill. The bottom four fifths of the bar is labeled Primary, 8,000 dollars, 80 percent. The top fifth is labeled Secondary, 2,000 dollars. A dashed line across the top of the bar marks 100 percent of the actual expense, a 10,000 dollar cap, and the two payments stop exactly at that line. Under the bar it says total paid, 10,000 dollars. On the right is a list headed 'Who pays first?': one, the employee plan before the dependent plan; two, for a child, the plan of the parent with the earlier birthday, month and day, not year; three, for divorced parents, the custodial parent, then the stepparent, then the other parent; four, an active employee's plan before a retired or laid-off employee's plan; five, a current job plan before COBRA; six, otherwise, the plan in force longer. A note at the bottom says the primary pays as if alone, the secondary pays toward the rest, and never more than the loss. — The primary plan pays first; the secondary fills the gap, up to 100% of the loss.

Which plan is primary

The order of benefit determination rules are applied in sequence until one of them decides:

Employee before dependent. The plan that covers the person as an employee, member or

subscriber pays before the plan that covers them as a dependent.

Birthday rule for children. When a child is covered as a dependent of both parents, the plan

of the parent whose birthday (month and day, not year) comes earlier in the calendar year is primary. If both parents share a birthday, the plan that has covered that parent longer is primary.

Divorced or separated parents. First the plan of the parent with custody, then the plan of

that parent's spouse (the stepparent), then the plan of the parent without custody. A court decree that makes one parent responsible for the child's health care overrides this order once the plan knows about it.

Active before laid-off or retired. A plan covering someone as an active employee, or that

employee's dependent, pays before a plan covering them as a laid-off or retired employee.

COBRA is secondary. If someone has COBRA continuation coverage and another group plan, the

plan covering them as a current employee (or that employee's dependent) pays first.

Longer coverage wins. If none of the rules decide, the plan that has covered the person

longer is primary.

Medicare adds its own order in some cases. For a Medicare beneficiary who is also a dependent of an active worker, the order can be: the person's own employee plan first, then the active worker's plan covering them as a dependent, then Medicare last.

Where COB does not apply

COB is for expense-reimbursement medical plans. A plan cannot coordinate against:

An indemnity-type policy, such as hospital indemnity paying a fixed amount per day.
An excess insurance policy.
A policy limited to specified illnesses or accidents, such as cancer-only coverage.
A Medicare supplement policy.

These policies pay their stated benefits regardless of what other coverage pays.