11.4 Claims, Coordination of Benefits, and Subrogation

The claims clauses translate a covered loss into a payment. The exam tests the claim timeline, who receives payment, and the two doctrines that prevent an insured from profiting from a loss: coordination of benefits (COB) and subrogation. Both flow from the principle of indemnity in health insurance reimbursement coverage.

The Claims Timeline

The required claims provisions create a sequence the candidate must memorize:

Under payment of claims, benefits for a living insured go to the insured; a facility-of-payment clause lets the insurer pay a relative when no beneficiary is named; and an assignment of benefits directs payment to the provider. Death benefits go to the named beneficiary or, if none survives, the estate.

Coordination of Benefits (COB)

COB applies when a person is covered by more than one group health plan. It designates one plan primary (pays first, as if no other coverage existed) and another secondary (pays the remaining eligible expenses up to its limits). COB prevents the insured from collecting more than 100% of the actual expense. Key ordering rules:

• The plan covering the person as an employee 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 (month and day) falls earlier in the calendar year is primary.

Exam Trap: The birthday rule uses the parent's birth date within the year, NOT who is older. A parent born March 3 (any year) is primary over a parent born November 9.

Worked Example — COB

A covered procedure costs $4,000. Plan A (primary) has an 80% coinsurance after a $500 deductible; Plan B is secondary.

Plan A: ($4,000 - $500) x 80% = $3,500 x 0.80 = $2,800 paid
Remaining eligible: $4,000 - $2,800 = $1,200
Plan B (secondary) pays the remaining eligible: $1,200
Total paid to/for insured: $2,800 + $1,200 = $4,000

The insured receives no more than the $4,000 actual cost. Without COB the insured could collect $2,800 from A plus a large duplicate payment from B and profit — exactly what COB prohibits.

Subrogation

Subrogation lets an insurer that has paid a claim step into the insured's legal shoes to recover from a negligent third party. If an insured is injured by another driver and the health plan pays $20,000 in medical bills, subrogation allows the plan to recover that $20,000 from the at-fault driver's liability insurer once the insured is made whole. This prevents the insured from being paid twice (once by the health plan, again in the liability settlement) and keeps the cost with the responsible party.

Both doctrines exist because health reimbursement coverage is a contract of indemnity — its purpose is to restore the insured to the pre-loss financial position, never to create a windfall. (Note: fixed-benefit policies, such as hospital indemnity paying a flat $300/day, are valued contracts and generally pay regardless of other coverage, so COB and subrogation typically do not apply to them.)

Who Gets Paid: Assignment and Facility of Payment

The payment of claims provision answers the question of payee, and the exam tests its sub-rules. By default, benefits for a living insured are paid to the insured. An assignment of benefits redirects payment to the medical provider, which is why a hospital can bill the insurer directly. The facility-of-payment clause permits the insurer to pay up to a small stated amount to a relative by blood or marriage when no beneficiary is named or the named beneficiary cannot give a valid release — a practical safety valve, not a way to override a valid beneficiary designation.

Common Distractors in This Domain

Three traps recur. First, candidates confuse COB (two health plans, prevents duplicate payment) with subrogation (a third party caused the loss, recovers from that party). Read the stem for the source of the second payment: another health plan signals COB; a negligent third party signals subrogation. Second, the birthday rule tests date-within-the-year, never which parent is older. Third, indemnity doctrines do not touch valued fixed-benefit contracts.

Keep the principle of indemnity as your anchor: every claims clause, COB, and subrogation rule traces back to the idea that the insured should be made whole but never enriched by a covered loss. When an answer choice would let the insured collect more than the actual expense, it is almost always wrong on a reimbursement policy.

Timing Rules Insurers Must Meet

The claims provisions cut both ways: just as the insured faces deadlines, the insurer faces its own. It must furnish claim forms within 15 days of receiving notice, or the insured may submit proof in any reasonable written form. The time of payment of claims provision requires the insurer to pay lump-sum benefits immediately upon receiving acceptable proof and to pay periodic disability benefits at least monthly.

Many states layer prompt-pay statutes on top, requiring clean claims to be paid within roughly 30 to 45 days or interest accrues. On the exam, if a stem describes an insurer that failed to send claim forms, the consequence is that the insured's own written statement of the nature and extent of the loss is accepted as proof — the insurer cannot use its own delay to defeat the claim.