11.4 Claims, Coordination of Benefits, and Subrogation

The Claims Process

A health claim follows the timeline set by the uniform provisions: the insured gives notice of claim (within 20 days), the insurer supplies claim forms (within 15 days), the insured files proof of loss (within 90 days), and the insurer pays per the time of payment of claims provision. Two cost-sharing structures determine how much the insurer pays:

• Deductible — the flat amount the insured pays before benefits begin (per cause or per calendar year).
• Coinsurance — the percentage split of covered charges after the deductible (e.g., 80/20, insurer pays 80%).
• Out-of-pocket maximum (stop-loss) — the ceiling on insured cost-sharing; after it is met, the plan pays 100%.
• Copayment — a fixed dollar amount per service (e.g., $30 office visit).

Deductible / Coinsurance Worked Example

A plan has a $1,000 annual deductible, 80/20 coinsurance, and a $4,000 out-of-pocket maximum. The insured incurs $11,000 in covered charges.

1. Insured pays the first $1,000 (deductible). Remaining: $10,000.
2. Coinsurance on $10,000: insured 20% = $2,000; insurer 80% = $8,000.
3. Insured's cumulative cost-sharing = $1,000 + $2,000 = $3,000, below the $4,000 cap, so no stop-loss adjustment.
4. Insurer pays $8,000; insured pays $3,000.

If charges had been higher, once the insured's share hit $4,000 the plan would pay 100% of all further covered charges that year. Exam traps: applying coinsurance before the deductible, or forgetting the out-of-pocket maximum caps the insured's share (not the insurer's).

Coordination of Benefits (COB)

When a person is covered by more than one group health plan, the Coordination of Benefits provision (a NAIC model) prevents the insured from collecting more than 100% of the actual expense. One plan is primary (pays first up to its limits) and the other is secondary (pays remaining eligible expense up to 100% of the bill).

Key ordering 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 (month/day, not year of birth) is primary.
• For dependents of divorced parents, a court decree controls; absent one, the custodial parent's plan is primary.

COB Worked Example

A child incurs $2,000 in covered charges. The mother's plan (birthday March 3) is primary and would pay $1,500; the father's plan (birthday September 12) is secondary. Under the birthday rule the mother's plan is primary because March precedes September.

1. Primary (mother) pays $1,500.
2. Secondary (father) pays the remaining eligible expense up to 100% of the bill: $2,000 − $1,500 = $500.
3. Total paid = $2,000 — the insured nets exactly the actual expense, never more.

Trap: the birthday rule uses the month and day of birth, not who is older. A parent born in 1980 with a January birthday is primary over a parent born in 1975 with a December birthday.

Subrogation

Subrogation lets an insurer that has paid a claim 'step into the shoes' of the insured to recover that payment from a negligent third party. If an insured is injured by another's negligence and the health insurer pays the medical bills, the insurer may pursue the at-fault party (or the insured's recovery from that party) to be reimbursed.

Subrogation prevents a double recovery — the insured cannot collect both the insurer's payment and full damages from the wrongdoer for the same loss. It applies to indemnity (reimbursement) contracts such as health and property insurance; it does not apply to valued life insurance contracts, which pay a stated sum regardless of fault. COB and subrogation share the same goal: keep total recovery at — not above — the actual loss.

The Birthday Rule and Order-of-Benefit Determination

When a dependent child is covered by both parents' group plans, coordination of benefits uses the birthday rule to assign primacy: the plan of the parent whose birthday falls earlier in the calendar year (month and day, not year of birth) is primary. If both parents share the same birthday, the plan in force longer is primary. For divorced parents, a court decree or the custodial-parent rule may override.

Worked example: Mom's birthday is March 4; Dad's is September 12. The child's primary coverage is Mom's plan (earlier in the year). Mom's plan pays first up to its limits; Dad's plan, as secondary, pays the remaining eligible balance so total reimbursement never exceeds 100% of the covered expense.

Subrogation and Facility-of-Payment

Two more claims doctrines round out the chapter:

• Subrogation lets a health insurer that paid expense-incurred benefits recover from a liable third party (or that party's liability insurer) after an accident, preventing the insured from collecting twice for the same loss. It applies to reimbursement health coverage, not to fixed-dollar indemnity benefits or life insurance (valued contracts).
• The facility-of-payment provision lets the insurer pay a small benefit to a relative or person who incurred expenses when the insured is deceased or incapacitated and no beneficiary is designated, simplifying small-claim settlement.

Trap: Subrogation prevents double recovery; coordination of benefits prevents over-insurance across two plans. Both enforce the indemnity principle but operate against different parties — a third-party tortfeasor versus a second insurer.