Coordination of benefits: Overview, definition, and example
What is coordination of benefits?
Coordination of benefits (COB) is a process used in health insurance to determine the order in which multiple insurance policies will pay for a claim when a person is covered by more than one plan. The goal of COB is to ensure that the total benefits paid by all insurers do not exceed the total cost of the medical services. COB rules help avoid overpayment or duplication of benefits by determining which insurance policy is considered the primary insurer and which is secondary. This process ensures that the insured party receives the maximum benefit from their coverage without exceeding the actual cost of care.
For example, if a person has health coverage through both their employer and their spouse’s employer, COB rules help determine which plan will pay first and which will pay second for any medical claims.
Why is coordination of benefits important?
Coordination of benefits is important because it ensures that individuals with multiple insurance policies are fairly compensated for their medical expenses without duplicating payments. It helps prevent overpayments, which can result in unnecessary insurance costs for providers, and ensures that the insured party gets the appropriate coverage under each policy. COB also provides clarity for healthcare providers and insurers, simplifying the claims process and reducing the potential for disputes or confusion.
For individuals, COB helps maximize the benefits they can receive from multiple policies, ensuring they are not overburdened by medical expenses. For insurance companies, it allows for more efficient processing of claims and ensures that payments are made in the correct order.
Understanding coordination of benefits through an example
Imagine an individual who has primary health insurance through their employer and secondary coverage through their spouse’s plan. The individual receives medical treatment costing $1,000. The primary insurer will pay a portion of the claim, and the secondary insurer will pay the remaining amount, up to the limits of the secondary policy. The coordination of benefits ensures that the individual is not reimbursed more than $1,000, even though they have two insurance policies.
In another example, a child is covered under both parents’ health insurance policies. According to COB rules, the parent whose birthday comes first in the calendar year typically has the primary insurance for the child. The other parent's insurance is considered secondary. The primary insurance pays first, and the secondary insurance may cover additional costs, reducing the overall out-of-pocket expenses for the family.
An example of a coordination of benefits clause
Here’s how a coordination of benefits clause might appear in a health insurance policy:
“In the event that an insured person is covered by more than one health insurance plan, the primary plan will pay benefits first, and the secondary plan will pay benefits for the remaining eligible expenses. The total benefits paid by both plans will not exceed the total amount of the medical expenses incurred. The order of payment will be determined by the Coordination of Benefits rules outlined in this policy.”
Conclusion
Coordination of benefits is an essential process for individuals with multiple health insurance plans, ensuring that they receive the maximum benefits available while preventing overpayments. By defining the order in which insurance plans will pay, COB helps streamline the claims process and ensures fairness for both insurers and insured parties. Understanding COB rules is crucial for making the most of available coverage and managing healthcare costs effectively.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.