11.4 Claims, Coordination of Benefits, and Subrogation

Paying the right amount to the right person

The claims provisions, coordination of benefits (COB), and subrogation all serve a single principle: health insurance is a contract of indemnity, so an insured should be restored to their pre-loss position but never profit from a loss. The exam tests how multiple coverages interact and how an insurer recovers from a third party who caused the loss.

Coordination of benefits and the order of payment

When a person is covered by two group plans, COB prevents total reimbursement above 100% of expenses. One plan is primary (pays first, as if no other coverage existed) and the other is secondary (pays the remaining allowable expense up to its limits). Standard order-of-benefit rules:

• A plan covering the person as an employee/insured is primary over one 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 (the year of birth is irrelevant).

Worked COB calculation

A child incurs $1,000 of covered expenses. The father's plan and mother's plan both cover the child. The father's birthday is March 3; the mother's is September 12. The father's plan is primary under the birthday rule.

• Father's plan (primary) pays its benefit, say $800.
• Mother's plan (secondary) pays the remaining allowable expense, $1,000 − $800 = $200.
• Total paid: $1,000 — exactly the loss, no more. The family is reimbursed in full but does not profit, satisfying indemnity.

Subrogation, assignment, and facility of payment

Subrogation lets an insurer that has paid a claim step into the insured's shoes to recover from a negligent third party. If a driver injures the insured and the health insurer pays $5,000 of medical bills, the insurer may recover that $5,000 from the at-fault driver's liability carrier; subrogation prevents the insured from collecting twice for the same loss.

Two related clauses round out claims handling:

• Assignment of Benefits — the insured directs payment straight to the provider (e.g., the hospital), so the provider is paid directly.
• Facility of Payment — lets the insurer pay a relative or person who incurred funeral/medical expenses when no beneficiary is named or the insured is deceased/incapacitated, up to a stated limit (often $1,000–$2,000).

COB with deductibles and the non-duplication rule

Real COB math must respect each plan's own cost-sharing. Suppose a $1,200 covered charge runs through a primary plan with an 80/20 coinsurance after a $200 deductible already met: the primary pays 80% of $1,200 = $960, leaving $240. The secondary plan then pays the remaining $240 as allowable, so the insured pays $0 — but total payments still equal $1,200, never more.

Many modern plans use a non-duplication (carve-out) COB instead: the secondary pays only the amount by which its own benefit would exceed what the primary already paid. If the secondary's normal benefit on this claim is also $960, it pays nothing, because the primary already paid at least that much — the insured absorbs the $240 gap. Knowing which method applies changes the answer.

Indemnity vs. valued contracts, and the proof-of-loss tie-in

Most health coverage is reimbursement (indemnity) — it pays actual expenses, which is exactly why COB and subrogation exist to prevent over-recovery. By contrast, valued contracts such as a fixed-indemnity hospital plan or an AD&D rider pay a stated dollar amount regardless of actual cost and are generally not subject to COB; an insured can collect a $200/day hospital cash benefit on top of full major-medical reimbursement.

Claims handling ultimately rests on the proof-of-loss machinery from Section 11.1: the insurer cannot apply COB, subrogation, or assignment until it has the proof of loss establishing the amount, the responsible parties, and the payee. The provisions interlock rather than operate in isolation.

Coordination of Benefits — The Order-of-Payment Rules

When a person is covered by two group plans, coordination of benefits (COB) prevents the insured from collecting more than 100% of the loss by designating a primary (pays first, as if no other coverage) and secondary (pays the balance up to its own limits) plan. Standard order-of-benefit rules:

• The plan covering the person as an employee/insured is primary over the plan covering them as a dependent.
• For a child covered by both parents, the birthday rule applies: the plan of the parent whose birthday falls earlier in the calendar year is primary (not the older parent).
• For divorced parents, a court decree controls; absent one, the custodial parent's plan is primary.

Worked COB Example

A $4,000 hospital bill is covered by Plan A (primary, 80% after a $0 deductible) and Plan B (secondary). Plan A pays $3,200. Plan B, as secondary, covers the remaining $800 (subject to its own provisions), so the insured pays $0 but collects no more than the $4,000 actual loss — the indemnity principle enforced.

Subrogation, Facility of Payment, and Assignment

Subrogation lets a health insurer that paid a claim recover from a negligent third party (or the third party's liability insurer), preventing the insured from being paid twice for the same injury. A facility-of-payment clause lets the insurer pay a relative or anyone equitably entitled when the insured is deceased or incapacitated. An assignment of benefits directs payment straight to the provider rather than reimbursing the insured.

Claim Settlement Standards

Insurers must handle claims promptly: typical model timelines require acknowledging a claim, providing forms within 15 days, and paying or denying within a set period after receiving proof of loss; unreasonable delay is an unfair claims-settlement practice. Health claims paid late may accrue statutory interest. These claim-handling duties tie directly into the unfair-trade-practices material and the Louisiana prompt-payment statutes covered in the state chapters.