7.3 Deductibles, Coinsurance, and Coordination of Benefits

7.3 Deductibles, Coinsurance, and Coordination of Benefits

Quick Answer: Coordination of Benefits (COB) is the standardized Canadian insurance mechanism that allows individuals covered under two separate group health or dental plans to claim reimbursement from both carriers up to a maximum of 100% of eligible expenses. Administered under Canadian Life and Health Insurance Association (CLHIA) guidelines, when both group plans have COB provisions, coverage as the primary member precedes coverage as a dependant; an employee’s own plan normally pays before spousal coverage. For dependent children, primary coverage is determined by the "Birthday Rule"—the parent whose birthday falls earlier in the calendar year (comparing month and day, ignoring birth year) provides primary coverage.

Cost-Sharing Mechanisms in Extended Health and Dental Plans

Group benefit plans utilize cost-sharing mechanisms to maintain financial sustainability, encourage prudent utilization, and share financial risk between the plan sponsor (employer) and plan members (employees):

Deductibles

A deductible is an initial out-of-pocket amount that an insured individual or family must pay toward covered health or dental expenses each year before the insurer begins reimbursing claims.

• Individual Deductibles: A fixed annual threshold (typically $25 to $50 per insured individual) applied to eligible expenses.
• Family Deductibles: A collective threshold (standardly $50 to $100 per family, typically double the individual deductible). Once claims from one or more family members collectively satisfy the family deductible, the deductible is considered satisfied for all family members for the remainder of that plan year.
• Calendar Year vs. Rolling Policy Year: Most plans operate on a calendar year basis (January 1 to December 31), resetting the deductible every January 1. Many contracts include a deductible carry-forward provision: eligible expenses incurred during the final three months of the calendar year (October 1 to December 31) that were applied toward satisfying the deductible can be carried forward to satisfy or reduce the deductible for the subsequent calendar year.

Coinsurance and Stop-Loss Protection

Coinsurance represents the contractual percentage split of covered medical or dental expenses between the insurer and the insured after the deductible has been satisfied (e.g., 80% paid by the insurer, 20% paid by the employee).

To protect plan members against catastrophic out-of-pocket pharmaceutical costs, comprehensive Extended Health Care plans incorporate an out-of-pocket maximum or stop-loss provision. Under a stop-loss clause, once a member's personal coinsurance contributions for eligible prescription drugs reach a specified annual limit (e.g., $1,500 to $2,000 in a calendar year), the plan's coinsurance rate automatically escalates to 100% for all eligible prescription drug claims for the remainder of that calendar year.

Internal and Lifetime Maximums

Plans establish financial ceilings to cap overall liability:

• Annual Internal Sub-Limits: Annual dollar caps applied to specific disciplines (e.g., $500 per year for physiotherapy, $1,500 per year for basic dental).
• Lifetime Maximums: Cumulative lifetime caps applied to specific high-cost benefits (e.g., $2,500 lifetime for child orthodontics). While historical individual plans sometimes placed a $500,000 or $1,000,000 lifetime ceiling on total EHC benefits, modern group plans have largely eliminated overall lifetime maximums on core healthcare benefits.

Coordination of Benefits (COB) Under CLHIA Guidelines

When two working spouses are both enrolled in employer-sponsored benefit plans that include family coverage, their coverages can be coordinated. The Canadian Life and Health Insurance Association (CLHIA) has established standardized Coordination of Benefits (COB) guidelines followed by all Canadian life and health insurers.

The governing legal principle of COB is the indemnity principle: insurance contracts are designed to reimburse actual financial losses incurred, never to generate a financial profit. Consequently, when an individual coordinates benefits across multiple group plans, the cumulative reimbursement received from all insurers combined can never exceed 100% of the actual eligible expenses incurred.

Priority Rules: Primary vs. Secondary Plan Determination

To prevent conflicting claim submissions and administrative gridlock, CLHIA guidelines establish a rigid priority sequence determining which carrier pays first (the primary plan) and which carrier pays second (the secondary plan):

Rule 1: Active Employee vs. Inactive / Retiree / Part-Time

When a person is the primary covered member under several plans, active full-time coverage precedes active part-time coverage, which precedes retiree coverage. First distinguish primary-member coverage from coverage as someone else’s dependant.

Rule 2: Employee vs. Dependent / Spouse

When both group plans include COB provisions, an individual submits claims to the plan covering them as the primary member before a plan covering them as a dependant. A plan without a COB provision pays before one with such a provision. Any unreimbursed balance (deductibles, coinsurance, or fee differentials) is then submitted to their spouse's employer plan, which acts as the secondary payer. If an individual is employed by two separate employers full-time and holds active coverage under both, the plan that has covered the employee for the longer continuous period is primary.

Rule 3: Dependent Children Claims — The "Birthday Rule"

For unmarried dependent children covered under both parents' benefit plans, the primary insurer is determined by the Birthday Rule:

• The primary plan is the plan of the parent whose birthday occurs earlier in the calendar year (comparing only the calendar month and day).
• The year of birth is completely disregarded. It is irrelevant which parent is older or younger in age; the rule looks solely at which parent celebrates their birthday first in the calendar year.
• Example: Suppose the father was born November 15, 1980, and the mother was born March 20, 1984. Although the father is older in age, the mother's birthday (March 20) occurs earlier in the calendar year than the father's birthday (November 15). Therefore, the mother's plan is primary for all dependent children's claims, and the father's plan is secondary.
• Same Birthday Tie-Breaker: If parents have the same month-and-day birthday, use the alphabetical order of their first names to determine whose plan pays first.

Priority Sequence for Divorced or Separated Parents

For G4, single custody means one parent has both physical and legal custody; every other arrangement is joint custody. Single custody uses this four-step sequence:

1. First Priority: The plan of the parent with custody of the child.
2. Second Priority: The plan of the spouse/common-law partner of the parent with custody (the custodial step-parent).
3. Third Priority: The plan of the parent without custody (the non-custodial parent).
4. Fourth Priority: The plan of the spouse/common-law partner of the parent without custody (the non-custodial step-parent). Joint custody: Use the birthday rule for the parents, then their spouses in corresponding order. G4 does not require exactly equal residence to use this rule.

Post-Secondary Student Plan Integration

A student’s own comprehensive group student plan normally pays before plans covering the student as a parent’s dependant. Employee coverage takes priority over student coverage. For Québec RAMQ-eligible drug claims, the parent’s drug plan—or RAMQ if applicable—pays before the student plan; the ordinary student-first rule applies to other claims.

Step-by-Step COB Claims Adjudication Mechanics

Coordination of benefits processes claims sequentially:

1. Submit to Primary Plan: The member submits the original claim and receipts to the primary insurer. The primary insurer adjudicates the claim applying its contractual deductible, coinsurance, and sub-limits, and issues an Explanation of Benefits (EOB) along with its payment.
2. Submit to Secondary Plan: The member submits a copy of the primary EOB, the claim form, and duplicate receipts to the secondary insurer.
3. Secondary Plan Calculation: The secondary carrier evaluates the remaining unpaid eligible expense. The secondary insurer reimburses up to the amount it would have paid if it had been the primary carrier, provided that total reimbursement from both plans combined does not exceed 100% of the actual eligible expense.

Coordination of Benefits Claim Processing Scenarios