11.4 Claims, Coordination of Benefits, and Subrogation
Key Takeaways
- The claims sequence is fixed: Notice of Claim 20 days, Claim Forms 15 days, Proof of Loss 90 days, prompt payment on proof, suit only after 60 days and before 3 years.
- COB prevents collecting more than 100% of actual expenses by naming a primary plan (pays first) and a secondary plan (pays the balance).
- The Birthday Rule makes the parent with the earlier calendar-year birthday (month/day only) primary for dependent children; active plans are primary over COBRA and retiree plans.
- Subrogation lets a medical-expense insurer recover paid claims from a liable third party, enforcing indemnity so the insured is restored but not enriched.
- COB coordinates between two health plans on the same person; subrogation recovers from an outside at-fault third party — the source of the second payment distinguishes them.
The Claims Settlement Sequence
When a covered loss occurs, the mandatory provisions drive a fixed sequence. The insured gives Notice of Claim within 20 days; the insurer furnishes Claim Forms within 15 days (or the insured may submit proof in any reasonable written form if forms never arrive); the insured files Proof of Loss within 90 days; the insurer pays Time of Payment of Claims promptly upon receiving proof.
| Step | Deadline | Responsible party |
|---|---|---|
| Notice of Claim | 20 days | Insured |
| Claim Forms sent | 15 days | Insurer |
| Proof of Loss | 90 days | Insured |
| Payment of claim | Promptly on proof | Insurer |
| Legal action | After 60 days; before 3 years | Insured |
Unfair claims practices: State law (the Unfair Claims Settlement Practices Act) forbids insurers from misrepresenting policy terms, failing to act promptly on communications, denying without reasonable investigation, or compelling litigation by lowballing. Bad-faith claim handling is a market-conduct violation.
Coordination of Benefits (COB)
COB prevents an insured covered by more than one health plan from collecting more than 100% of actual expenses. One plan is primary (pays first, as if no other coverage existed); the other is secondary (pays the balance up to its own limits).
Order-of-benefit-determination rules
| Rule | Primary plan |
|---|---|
| Own coverage | A person's own employer plan is primary over coverage as a dependent |
| Dependent children (intact family) | Birthday Rule — parent whose birthday (month/day) falls earlier in the calendar year |
| Active vs. COBRA | Active-employment plan is primary over COBRA |
| Active vs. retiree | Active plan primary over retiree plan |
| Longer-covered | If still tied, the plan covering the person longer is primary |
Birthday Rule example. Mother's birthday March 15; father's September 22. The mother's plan is primary for the children because March precedes September. Only month and day matter — never the birth year, and never who is older.
COB payment math
Worked example. A $1,000 covered bill. Primary plan pays 80% = $800. The secondary plan covers the $200 remainder (subject to its own provisions), so the insured pays $0 out of pocket — but never collects more than the $1,000 actually incurred. COB caps total recovery at actual expense, eliminating profit from double coverage.
Subrogation
Subrogation lets a health insurer that paid a claim recover from the at-fault third party (or that party's liability insurer) after the insured is made whole. It prevents the insured from being paid twice — once by the health plan and again by the wrongdoer — and shifts the ultimate cost to the responsible party.
Worked example. A negligent driver injures the insured. The health insurer pays $50,000 in medical bills. The insured later settles the liability claim for $100,000. Under subrogation, the health insurer is reimbursed its $50,000 out of that settlement; the insured keeps the remaining $50,000 for pain, lost wages, and other damages. Net result: the insured is fully treated but not enriched, and the at-fault party's insurer bears the medical cost.
Key principles
- Subrogation flows from the principle of indemnity — the insured should be restored, not profit.
- The insurer's recovery right typically attaches only after the insured is made whole (many states apply a make-whole doctrine).
- Subrogation appears in medical-expense coverage but generally not in life insurance or fixed/valued benefits (those are valued contracts, not indemnity).
COB vs. subrogation trap: COB coordinates between two health plans covering the same person. Subrogation recovers from a liable third party outside the insurance relationship. Both prevent double recovery, but the source of the second payment is the distinguishing fact.
A dependent child is covered under both parents' group plans. The mother's birthday is July 10 and the father's is April 5. Under the Birthday Rule, which plan is primary?
A health insurer pays $40,000 in medical bills after its insured is injured by a negligent driver. The insured later settles with the driver's liability insurer for $90,000. What does subrogation allow?
Claims Documentation and Assignment of Benefits
The claims sequence runs notice of claim → claim forms → proof of loss → payment, with statutory day-counts the exam tests (notice within 20 days, forms furnished within 15, proof within 90). An assignment of benefits directs the insurer to pay the provider directly rather than reimbursing the insured — common in medical-expense claims and a frequent source of balance-billing disputes.
| Step | Default deadline |
|---|---|
| Notice of claim | 20 days |
| Insurer furnishes claim forms | 15 days |
| Proof of loss | 90 days |
| Payment of claims | Immediately upon proof |
Subrogation vs. COB — Different Recoveries
Keep the two recovery doctrines distinct. Coordination of benefits prevents an insured from collecting more than 100% across multiple health plans; the primary plan pays first, the secondary covers the balance up to its limits. Subrogation lets the insurer, after paying a claim, step into the insured's shoes to recover from a negligent third party (or that party's liability insurer). COB sorts out which health plan pays; subrogation pursues the at-fault party — and the insured may not pocket a double recovery from both.
The Make-Whole Doctrine and Anti-Duplication
Two equitable limits frame these recovery rules. Under coordination of benefits, the secondary plan's anti-duplication language caps total reimbursement at 100% of the actual expense so the insured never profits from holding two health plans. Under subrogation, many states apply the make-whole doctrine, which bars the insurer from recovering from a third party until the insured has been fully compensated for the loss. Together these doctrines enforce the indemnity principle in health claims: the insured is restored, not enriched.
Exam questions that show an insured collecting from both an employer plan and a spouse's plan are testing the anti-duplication ceiling, not a denial.