11.4 Claims, Coordination of Benefits, and Subrogation

This section covers how claims are paid and how insurers prevent an insured from collecting more than the actual loss — the principle of indemnity applied to health coverage.

The Claims Sequence

The required provisions create a claims timeline the exam tests as a sequence:

1. Notice of Claim — insured notifies insurer within 20 days of loss.
2. Claim Forms — insurer furnishes forms within 15 days; if not, the insured may submit proof in any written form.
3. Proof of Loss — insured files within 90 days (up to 1 year if not reasonably possible).
4. Time of Payment — insurer pays immediately on receipt of proof (periodic benefits at least monthly).
5. Payment of Claims — paid per the beneficiary designation; medical benefits often assignable to providers.
6. Legal Actions — insured may not sue for 60 days after proof, and not after 3 years.

Trap: If the insurer fails to send claim forms within 15 days, the proof-of-loss requirement is met by any written statement of the nature and extent of the loss filed within the proof window.

Coordination of Benefits (COB)

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

COB 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 (month/day, not year) falls earlier in the calendar year is primary.
• For divorced parents, a court decree controls; absent one, the custodial parent's plan is primary.

COB Worked Example

A child's covered expense is $1,000. Parent A's birthday is March 3; Parent B's is September 10. Parent A's plan is primary (earlier in the year) and pays $800 under its schedule. Parent B's plan is secondary and pays the remaining $200, bringing the total to $1,000 — never above the actual expense. If both plans paid as primary, the insured could profit, which COB forbids.

Subrogation

Subrogation lets an insurer that has paid a claim step into the insured's shoes to recover from a third party legally responsible for the loss. It enforces indemnity by preventing the insured from collecting twice — once from the health insurer and again from the at-fault party.

Subrogation Numeric

An insured is injured by a negligent driver. The health insurer pays $30,000 in medical bills. The insured later wins a $50,000 liability settlement from the driver. Under subrogation, the health insurer recovers its $30,000 from the settlement, and the insured nets $20,000. The insured cannot keep the full $50,000 plus the $30,000 in paid benefits — that would exceed the actual loss.

Distinction: Coordination of benefits allocates payment among the insured's own plans; subrogation recovers from a third party who caused the loss. Both uphold indemnity but operate on different sources.

Assignment and Payment of Claims

Medical-expense benefits are commonly assigned directly to the provider, so the insurer pays the hospital or physician rather than reimbursing the patient. Disability income benefits are generally paid to the insured. The Facility of Payment clause lets the insurer pay a relative or estate (up to a small limit) when no beneficiary is designated or the named one is a minor or deceased.

COB Allowable Expense and the "Non-Duplication" Variant

COB operates on allowable expense — the charge the primary plan recognizes, not necessarily the provider's billed amount. The standard COB approach has the secondary plan pay the difference between the allowable expense and what the primary paid, up to the secondary plan's own limit. A stricter non-duplication clause goes further: the secondary plan pays only the amount by which its own benefit would have exceeded the primary payment — so if the secondary plan would also have paid only the primary's amount, it pays nothing. Both versions enforce the rule that the insured can never recover more than 100% of the allowable expense.

Worked COB Sequence

A covered procedure is billed at $1,200 with an allowable expense of $1,000. The primary plan pays 70% of allowable = $700. The secondary plan's schedule would normally pay 80% of allowable ($800). Under standard COB, the secondary pays the remaining $300 of the allowable expense, for a total of $1,000 — the insured owes nothing beyond the $200 above allowable. Under a non-duplication clause, the secondary pays only $800 − $700 = $100, leaving the insured responsible for the $200 difference. Recognizing which clause is in force changes the math.

Indemnity, Stacking, and Why These Rules Exist

The unifying theme across COB and subrogation is the principle of indemnity: health insurance restores the insured to the position before the loss but does not let the insured profit. Without COB, a person with two group plans could collect full benefits twice. Without subrogation, a person could be paid by the health insurer and again by the negligent party's liability carrier.

Note the contrast with most individual fixed-indemnity and AD&D policies, which do pay regardless of other coverage because they are valued (not reimbursement) contracts — there is nothing to coordinate when the benefit is a stated dollar amount. The exam rewards recognizing whether a product reimburses expense (subject to COB/subrogation) or pays a fixed sum (not subject to them).