Nonduplication and coordination of benefits

Why coordination of benefits exists

Many people are covered by more than one group health plan at the same time: a worker on her own employer's plan who is also a dependent on her spouse's plan, or a child covered under both parents' plans. Without a rule, each plan could pay the same bill in full and the insured would collect more than the loss. That is overinsurance, and it breaks the principle of indemnity: insurance should restore you to where you were, not leave you better off.

The coordination of benefits (COB) provision in a group health contract solves this. When a person has two plans, one is named primary and the other secondary, and together they pay no more than 100% of the allowable expense.

How the two plans pay

• The primary plan pays first, exactly as if no other coverage existed. Its deductible, coinsurance and limits apply normally.
• The secondary plan pays second. It looks at what remains and pays some or all of it, but never more than it would have paid had it been primary.
• Combined payments never exceed the allowable expense. The insured does not profit from having two plans.

Example: a $1,000 allowable hospital bill. The primary plan pays 80%, or $800. Under standard COB the secondary plan can pay the remaining $200, so the insured owes nothing, provided the secondary plan's own normal benefit would have been at least $200.

Nonduplication: a stingier secondary

Some group plans use a nonduplication (sometimes called carve-out) provision instead of standard COB. The secondary plan figures what it would have paid as primary and subtracts what the primary actually paid. If both plans pay 80%, the secondary owes $800 minus $800, which is nothing, and the insured still owes the $200. Nonduplication prevents overinsurance just as COB does, but it does not fill the gap that standard COB would fill.

Which plan is primary? The order-of-benefit rules

Apply these in order and stop at the first one that decides:

1. A plan with no COB provision is always primary.
2. Employee before dependent. The plan that covers the person as the employee or member pays before the plan that covers that person as a dependent.
3. Dependent children of parents who are married or living together: the birthday rule. The plan of the parent whose birthday falls earlier in the calendar year (month and day only, not year of birth) is primary. If the parents share a birthday, the plan that has covered a parent longer is primary.
4. Children of divorced or separated parents. A court decree assigning health care responsibility controls. Without one, the order is: the custodial parent's plan, then the custodial parent's spouse's plan, then the non-custodial parent's plan, then that parent's spouse's plan.
5. Active before inactive. A plan covering the person as an active employee pays before a plan covering that person as a laid-off or retired employee. Likewise, ordinary coverage pays before continuation coverage such as COBRA.
6. Longer before shorter. If nothing above decides, the plan that has covered the person longer is primary.

Overinsurance beyond the group plan

The same idea appears elsewhere. When an employee converts group coverage to an individual policy, the converted policy may exclude benefits that would duplicate other coverage the person has. Medicare has its own secondary-payer rules: for an active worker aged 65 or older at an employer with 20 or more employees, the group plan is primary and Medicare is secondary; for a retiree, Medicare is primary.

COB never reduces the total benefit below what one plan alone would pay. It only stops the total from exceeding the loss.