Coordination of Benefits

In order to make ends meet, many married couples today must both have jobs outside the home. Because of this fact, husband and wife also often each have their own employer-provided group health coverage, and each is covered as a dependent by the other's plan. This type of "double coverage" can result in individuals being overinsured, which could create the temptation to attempt to gain a profit from being ill.

To avoid this enticement, a special provision is required by law in most states. The Coordination of Benefits Provision is designed to give insured individuals as much coverage as possible while at the same time eliminating overinsurance, by setting forth guidelines to determine which company will pay as primary insurer and which will pay as secondary insurer when a working couple (or their dependents) have a claim that's covered by more than one group insurance policy. It states that in situations where double coverage exists, the insurer covering the employee who actually has the claim is automatically designated as the primary insurance company. The primary company must pay as much of the claim as its policy limits allow. To get a picture of how this works, let's take a look at the following example:

Bob and Carol, a husband and wife, work for different companies. Both are covered by their respective employers' group plans that also extend to dependents, so they each have double coverage. Let's assume that Bob incurs $2,200 in covered medical expenses resulting from an illness. By the Coordination of Benefits provision, his policy is automatically primary. Bob's health care plan includes major medical coverage and a $200 deductible, so the primary insurer (Bob's insurance company) deducts that amount (which Bob must first pay) from the $2,200 bill, leaving $2,000. The primary insurer will then pay its share of the coinsurance. Assuming that the policy calls for an 80%/20% split, the insurer will pay 80% of the $2,000, which is $1,600. This leaves $600 unpaid – the $200 deductible plus the other $400, which is Bob's share of the remaining (after the deductible) $2,000 bill.

But Carol's company also covers Bob, only as a dependent. So for his claim, Carol's insurance company is the secondary (or excess) insurer. The secondary company will pay whatever the primary company does not, up to its own policy limits. Therefore, assuming that the remaining $600 (Bob's total share of the expenses) is within the limits, Carol's company will pay the full $600. Because there is double coverage, Bob's expenses are fully paid for. But he's prevented from receiving more than his actual out-of-pocket costs.

Additionally, when a working couple has double coverage by group insurance, any children that they have will also enjoy double coverage. Before 1985, the usual way to coordinate benefits for children was to automatically make the father's group plan primary and the mother's plan secondary. However, this sex-based procedure has largely gone the way of the dinosaur. Today, the birth months and days of the parents are typically used as the determining factors. The plan of the parent whose birthday comes first during the calendar year is designated as the primary insurer; the other parent's plan is secondary. So, assuming that one of our previous couple's children became ill, if Carol's birthday is March 4th and Bob's is March 8th, then Carol's insurance plan would be primary (this is regardless of which parent is actually older).