11.4 Claims, Coordination of Benefits, and Subrogation

Paying the Claim

The required Payment of Claims and Time of Payment of Claims provisions control mechanics:

• Lump-sum benefits (e.g., AD&D) are paid immediately upon receipt of proof of loss.
• Periodic benefits (e.g., disability income) are paid at least monthly.
• Assignment of benefits lets the insured direct medical payments straight to the provider; otherwise benefits go to the insured.
• Facility-of-payment clauses allow payment to a relative or estate if no beneficiary exists.

Most states add a prompt-pay law: a clean claim (complete, no disputes) must be paid within roughly 30–45 days, or statutory interest accrues. This is a market-conduct and unfair-claims-practices issue.

The insurer also retains investigation rights under the Physical Examination and Autopsy provision — it may, at its own expense, examine the insured as often as reasonably necessary while a claim is pending and order an autopsy where state law permits. These rights protect against fraud but cannot be used to unreasonably delay a legitimate clean claim.

Reimbursement vs. Valued Benefits

Trap: A fixed-indemnity hospital plan pays the stated amount even if the actual bill is higher or lower — it is not tied to expenses, so it does not coordinate the way expense-incurred plans do.

Who Gets Paid, and When

The assignment of benefits form is signed at the provider's office so the insurer pays the hospital or physician directly; without it, the insured is reimbursed and pays the provider personally. Disability income, by contrast, is almost always paid to the insured because it replaces lost wages, not specific bills. Prompt-pay statutes and the model Unfair Claims Settlement Practices Act make it a violation to delay, deny, or underpay clean claims without reasonable cause — a recurring market-conduct exam theme.

Coordination of Benefits (COB)

When a person is covered by two group plans, COB stops the insured from collecting more than 100% of the actual expense. One plan is primary (pays first as if no other coverage exists); the other is secondary (pays remaining eligible expense up to its limits).

Order-of-Benefits Rules

1. The plan covering you as an employee/member is primary over a plan covering you as a dependent.
2. Birthday rule for a child: the plan of the parent whose birthday falls earlier in the calendar year (month/day, not year of birth) is primary. If birthdays match, the plan in force longer is primary.
3. For divorced parents, a court decree controls; otherwise custody rules apply.
4. Medicare is generally secondary to an active large-employer group plan (Medicare Secondary Payer rules).

Worked example — COB. A hospital bill is $8,000. The primary plan pays 80% = $6,400. The secondary plan covers the remaining eligible $1,600 (subject to its own terms). The insured collects $8,000 total — never more. Without COB, two plans paying $6,400 each would let the insured pocket the excess, violating indemnity.

Birthday-rule example. Dad's birthday is March 10; Mom's is September 2. For their child, Dad's plan is primary because March precedes September — the parent's age is irrelevant.

Subrogation

Subrogation lets the insurer, after paying a claim, step into the insured's shoes to recover from a legally liable third party.

• It prevents the insured from double recovery (collecting from both the health insurer and the at-fault party).
• It supports the principle of indemnity — restore the insured, not enrich.

Worked example — subrogation. A negligent driver injures the insured; the health plan pays $20,000 in medical bills. The insured later wins a liability settlement from the driver. The health plan exercises subrogation to recover its $20,000 from that settlement, so the insured is not paid twice for the same bills.

Distinction: COB coordinates between two health plans of the insured; subrogation recovers from a third party who caused the loss. The exam pairs them to test whether you know the source of the recovery.

Why These Rules Exist

Health and medical-expense insurance follows the principle of indemnity — restore the insured to the pre-loss position, no more. COB and subrogation both enforce that ceiling: COB caps total payments at 100% of the actual expense across plans, and subrogation prevents the insured from keeping both the insurer's payment and a duplicate recovery from the wrongdoer. Disability income and other valued benefits are exceptions to strict indemnity because they pay stated amounts, which is why over-insurance provisions like Relation of Earnings exist to police them.

Final trap: Subrogation generally does not apply to life insurance or to pure valued health benefits — there is no 'expense' to be reimbursed, so there is nothing to recover from a third party. It is an indemnity-coverage concept.

Coordination of Benefits — Worked Calculation

When a person is covered by two group health plans, COB rules prevent total recovery above 100% of the loss by ranking one plan primary and the other secondary. The birthday rule decides primacy for dependent children: the plan of the parent whose birthday falls earlier in the calendar year is primary (year of birth is irrelevant).

Worked COB example: Maria has a $1,000 covered claim. Her primary plan (her own employer) pays $800. Her secondary plan (spouse's employer) then pays the $200 her primary did not cover — but never more than it would have paid as primary and never producing total payment above the $1,000 loss. Maria's out-of-pocket on this claim is $0, and neither plan profits. If the secondary plan would itself have paid only $700 as primary, it pays nothing beyond keeping the insured whole.

Claim Provisions and Timeframes

The Uniform Provisions Law sets claim deadlines the exam tests: notice of claim within 20 days, the insurer furnishes claim forms within 15 days, proof of loss within 90 days, and payment of claims promptly upon receipt of proof. The time payment of claims provision (immediate or periodic for ongoing disability) and the legal actions provision (no suit for 60 days after proof, none after 3 years) round out the tested timeline.