11.4 Claims, Coordination of Benefits, and Subrogation

Paying claims without overpaying

When a covered loss occurs, the claims process and a set of cost-control clauses govern how much, and to whom, benefits are paid. The guiding principle for medical and disability coverage is indemnity — the insured should be restored to their prior financial position but not profit from a loss. Coordination of Benefits (COB), subrogation, and overinsurance clauses all enforce this principle when more than one source could pay for the same loss.

Coordination of Benefits and the order of payment

COB applies when a person is covered by more than one group health plan and prevents total reimbursement from exceeding 100% of the allowable expense. One plan is primary (pays first up to its limits) and the other is secondary (pays the remaining allowable expense). Order-of-benefit-determination 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 falls earlier in the calendar year is primary (month and day, not year).
• An active employee plan is primary over a retiree/COBRA plan.

Worked COB and subrogation numbers

Worked COB example: A child incurs $1,000 in allowable expenses. Mom's plan (primary by birthday rule, March) covers 80% and Dad's plan (secondary, September) covers 70%. The primary plan pays $1,000 x 80% = $800. The secondary plan does not pay its own 70% on top; it pays only the remaining allowable balance up to 100%, so it pays the leftover $200. Total paid = $1,000 (100%), and the family pays $0 — never more than 100% of the allowable expense.

Subrogation is the insurer's right, after paying a claim, to recover that amount from a negligent third party who caused the loss. Worked example: An insured's auto-accident medical bills of $30,000 are paid by the health insurer. The insured later wins a $50,000 liability settlement from the at-fault driver. Subrogation lets the health insurer recover its $30,000 from that settlement, preventing the insured from being paid twice for the same expense.

The order-of-benefit-determination rules

When a person is covered by two group plans, COB rules decide which pays first. The plan covering a 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 makes primary the plan of the parent whose birthday falls earlier in the calendar year (month and day, not birth year) — so a mother born April 12 is primary over a father born August 3 regardless of who is older. For divorced parents, a court decree controls; absent one, the custodial parent's plan is primary.

An active-employee plan is primary over a retiree or COBRA plan. These rules ensure exactly one plan pays first and that total reimbursement never exceeds 100% of the allowable expense.

Subrogation and overinsurance with numbers

Subrogation lets an insurer that has paid a claim step into the insured's shoes to recover that amount from a negligent third party, preventing the insured from being paid twice for one loss. Worked example: a health insurer pays $25,000 for injuries caused by a negligent driver; when the insured later collects a liability settlement from that driver, subrogation lets the insurer recover its $25,000 from the settlement.

Overinsurance (relation-of-earnings) provisions perform the same anti-windfall function in disability coverage by capping benefits at the insured's actual lost income, so stacking multiple DI policies cannot produce more income while disabled than while working. Both clauses enforce the indemnity principle — restoring the insured to their prior position without profit — which is the unifying theme behind COB, subrogation, and overinsurance and a reliable source of exam questions.

The claims process from notice to payment

A clean claim moves through defined stages the exam tracks with day counts. The insured gives notice of claim (within 20 days of loss), the insurer supplies claim forms (within 15 days, or the insured may submit proof in any form), and the insured files proof of loss (within 90 days). The insurer then investigates medical necessity and verifies coverage before paying — immediately for medical expense and at least monthly for periodic disability benefits. Throughout, the indemnity principle governs: the insured is restored to their prior financial position but may not profit.

Unfair claims-settlement statutes forbid the insurer from unreasonable delay, failing to acknowledge claims promptly, or denying without a reasonable investigation. Tying the procedural deadlines to the cost-control clauses — COB, subrogation, and overinsurance — gives a complete picture of how a health claim is paid fairly without overpayment, which is exactly what the exam tests.

Worked coordination-of-benefits number

A concrete COB calculation appears often. A child incurs $1,000 of allowable expense and is covered by both parents' plans. The mother's birthday is in March (primary by the birthday rule) and her plan pays 80%, while the father's September plan is secondary and pays 70%. The primary plan pays $1,000 × 80% = $800. The secondary plan does not add its own 70% on top; it pays only the remaining allowable balance up to 100%, so it pays the leftover $200. Total reimbursement is exactly $1,000 (100%) and the family owes $0 — never more than the allowable expense.

The lesson the exam drills: COB caps combined payment at 100% of the allowable charge, the birthday rule sets primacy for dependent children, and the secondary plan fills only the gap the primary left.