11.4 Claims, Coordination of Benefits, and Subrogation

Once a covered loss occurs, claims provisions govern how the loss is reported, proven, and paid; coordination of benefits (COB) prevents an insured from collecting more than 100% of expenses when two plans apply; and subrogation lets a paying insurer recover from a liable third party. These are core to health insurance and frequently combine into multi-step exam math.

The Claims Process Recap

The claim chain mirrors the Uniform Provisions:

1. Notice of claim — within 20 days of loss.
2. Claim forms — insurer supplies within 15 days; if not, written proof in any form suffices.
3. Proof of loss — within 90 days.
4. Payment — immediately on proof; periodic (disability) benefits at least monthly.

The payment of claims provision directs benefits to the insured (or the assigned provider), and death benefits to the beneficiary. A facility-of-payment clause permits paying a relative who incurred expenses if no beneficiary survives.

Coordination of Benefits (COB)

COB is a group health provision (modeled by the NAIC) that designates one plan as primary and the other as secondary so total payment never exceeds the actual expense. Order-of-benefit rules:

• The plan covering the person as an employee/member is primary over the plan covering them as a dependent.
• For a child covered under both parents, the birthday rule applies: the plan of the parent whose birthday (month/day, not year) falls earlier in the calendar year is primary.
• For divorced/separated parents, a court decree or the custodial-parent order controls.

The secondary plan pays the difference up to its own limits — it does not duplicate the primary payment.

Worked COB Example

An insured incurs a $1,000 covered medical bill. Plan A (primary) pays 80% = $800. Plan B (secondary) would normally pay 80% as well, but because COB caps total recovery at the $1,000 actual expense, Plan B pays only the remaining $200. The insured collects $1,000 total — not $1,600. COB enforces the principle of indemnity in health insurance.

The Birthday Rule (Worked)

A child is covered under both parents. The mother's birthday is March 3; the father's is September 12. The mother's plan is primary because March precedes September in the calendar year. The birth year is irrelevant — only month and day matter.

Subrogation

Subrogation transfers the insured's right to recover from a negligent third party to the insurer after the insurer pays the claim. If a health insurer pays $10,000 for injuries caused by a negligent driver, it may pursue that driver (or the driver's liability insurer) to recoup the $10,000. Subrogation:

• Prevents the insured from double recovery (collecting from both the health plan and the at-fault party).
• Reinforces indemnity — the insured is made whole, not enriched.
• Requires the insured to cooperate and not impair the insurer's recovery rights.

Assignment of Benefits

An assignment of benefits directs the insurer to pay the provider directly. It is not the same as COB or subrogation; it simply redirects the payee.

Traps

• COB caps total payments at 100% of expense; the secondary plan pays the gap, never a full duplicate benefit.
• The birthday rule uses month and day, never the parent's age (birth year).
• Subrogation runs against a third party, not between two health plans (that is COB).

COB Order-of-Benefits in Detail

The NAIC model gives a tie-break sequence the exam likes to probe. Apply the rules in order until one resolves the priority:

1. Non-dependent vs. dependent: the plan covering the person as an employee/member is primary over the plan covering them as a dependent.
2. Dependent child — birthday rule: the plan of the parent whose birthday (month/day) is earlier in the year is primary; if both parents share a birthday, the plan in force longer is primary.
3. Court decree: for separated/divorced parents, a decree assigning responsibility controls; otherwise the custodial parent's plan is primary.
4. Active vs. retired/COBRA: active-employee coverage is generally primary over retiree or COBRA continuation.
5. Longer/shorter: if none of the above resolves, the plan covering the person longer is primary.

Why COB and Subrogation Coexist

Both doctrines enforce the principle of indemnity — the insured is reimbursed for loss, not enriched by it. COB allocates responsibility between two health plans; subrogation recovers from a liable third party after payment. A single auto-accident claim can trigger both: COB decides which health plan pays first, and subrogation lets the paying insurer pursue the at-fault driver's liability carrier.

Worked Example — Combined COB and Subrogation

A member injured by a negligent driver incurs $20,000 in covered bills. Plan A (primary) pays $16,000 (80%) and Plan B (secondary) fills the $4,000 gap, so the member pays nothing and never exceeds the $20,000 expense (COB at work). Because a third party caused the loss, the insurers may then subrogate against the negligent driver's liability insurer to recover the $20,000 they paid — preventing the member from also keeping a separate liability settlement for the same medical bills.

Coordination of Benefits and the Birthday Rule

When a person is covered by more than one health plan, coordination of benefits (COB) prevents the insured from collecting more than 100% of the actual charges. One plan is primary (pays first as if no other coverage existed) and the other is secondary (pays the allowable balance up to its own limits).

For a child covered under both parents, the birthday rule makes primary the plan of the parent whose birthday falls earlier in the calendar year (month and day, not age). If both parents share a birthday, the plan in force longer is primary.

Worked Numeric

A $1,000 covered charge: the primary plan pays 80% = $800. The secondary plan, which would also pay 80% alone, instead pays only the remaining $200 so the total never exceeds the $1,000 actual cost - it does not pay another $800.

Subrogation

Subrogation lets the insurer that paid a claim step into the insured's shoes to recover from a negligent third party. If a health plan pays $30,000 for injuries caused by a driver and the insured later wins a liability settlement, the plan may recover its $30,000, preventing the insured from being paid twice for the same loss.