11.4 Claims, Coordination of Benefits, and Subrogation

The final cluster of National health provisions governs how claims are paid, how multiple policies share a loss through coordination of benefits (COB), and how an insurer recovers from a responsible third party through subrogation. These rules enforce the principle of indemnity — the insured should be restored, not enriched.

The Claim Settlement Sequence

The required provisions create an ordered claims timeline the exam tests as a sequence:

1. Notice of claim — insured notifies insurer within 20 days of loss.
2. Claim forms — insurer furnishes forms within 15 days of receiving notice.
3. Proof of loss — insured submits documentation within 90 days of loss.
4. Time of payment — insurer pays lump sums immediately; periodic (disability) benefits at least monthly.
5. Legal actions — insured may sue no sooner than 60 days after proof, up to a maximum of 3 years.

Trap: If the insurer fails to supply claim forms within 15 days, the insured may submit proof of loss in any written form describing the nature and extent of the loss.

Coordination of Benefits (COB)

When a person is covered by two group health plans, COB prevents total reimbursement from exceeding 100% of the allowable expense. One plan is primary (pays first as if no other coverage existed) and the other is secondary (pays the balance up to the allowed amount).

Worked COB Example

An insured incurs a $1,000 allowable hospital bill. The primary plan pays 80%; the secondary plan covers up to 100% of allowable charges.

Key point: Without COB the insured could collect $800 + $1,000 = $1,800 on a $1,000 bill — a profit. COB caps total payment at the allowable expense, enforcing indemnity.

Subrogation

Subrogation lets a health insurer that has paid a claim step into the insured's shoes to recover those payments from a negligent third party (or that party's liability insurer). It prevents the insured from being paid twice — once by the health plan and again through a liability settlement.

• The insurer's recovery is limited to what it actually paid; any surplus from a settlement belongs to the insured.
• Subrogation applies to expense-incurred (reimbursement) health coverage, where indemnity governs.
• It generally does not apply to valued/indemnity life and fixed-benefit contracts (e.g., a $200/day hospital indemnity policy), because those pay a stated amount regardless of actual cost and are not subject to indemnity recovery.

Worked example: A health insurer pays $30,000 in medical bills after a car accident caused by another driver. The insured later wins a $100,000 liability settlement. Through subrogation the health insurer recovers its $30,000; the insured keeps the remaining $70,000.

Assignment of Benefits

Under the Payment of Claims provision, an insured may assign medical benefits so the insurer pays the provider directly. Assignment changes who receives the check — it does not transfer policy ownership or the right to control coverage.

Determining Primary and Secondary Plans

The order of payment under COB follows a fixed hierarchy the exam tests directly. The plan covering the person as an employee/subscriber pays before a plan covering them as a dependent. For a child covered under both parents, the birthday rule controls: the parent whose birthday falls earlier in the calendar year (month and day, not year of birth) provides the primary plan.

• Active employee coverage is primary over retiree or COBRA continuation coverage.
• For divorced parents, a court decree assigning responsibility overrides the birthday rule.
• Medicare's coordination rules (working-aged, disability, ESRD) determine when Medicare is secondary to an employer plan.

Trap: The birthday rule uses the earlier month/day, never the older parent. Two test-takers in three pick "older parent" — it is wrong.

Indemnity vs. Fixed-Benefit Contracts

The reason COB and subrogation apply to some health policies and not others traces to the principle of indemnity. Expense-incurred (reimbursement) coverage promises to pay actual costs, so paying twice would create a profit — hence COB and subrogation control it. A fixed-benefit contract (for example, a hospital indemnity policy paying a flat $300 per day) pays a stated sum regardless of the real bill; it is a valued contract not governed by indemnity, so its benefits stack on top of other coverage and are not subject to subrogation recovery.

Coordination of Benefits Worked

When a person is covered by two group plans, coordination of benefits (COB) prevents the insured from collecting more than 100% of the bill. The primary plan pays first as if no other coverage existed; the secondary plan may pay the remaining allowable amount.

Order-of-benefits rules:

Worked example: a $2,000 covered claim. Plan A (primary) pays 80% = $1,600, leaving $400. Plan B (secondary), an 80% plan, would have paid $1,600 alone; as secondary it pays up to the remaining $400, so the insured pays $0 — but never more than 100% total. Subrogation lets the insurer that paid a claim recover from a liable third party (e.g., the at-fault driver's insurer), preventing double recovery by the insured. The time-of-payment-of-claims provision requires prompt payment once proof of loss is received, and clean electronic claims often carry statutory payment deadlines.