11.4 Claims, Coordination of Benefits, and Subrogation

The Claims Process

A health insurance claim follows the required-provision timeline: notice of claim (within 20 days), the insurer mails claim forms (within 15 days), the claimant submits proof of loss (within 90 days), and the insurer makes time of payment (immediately for medical expense; at least monthly for disability income). Clean claims must be paid or denied within statutory prompt-pay windows (often 30–45 days for electronic claims, varying by state). The insurer retains the right to a physical examination while a claim is pending and may invoke the legal actions provision (no suit before 60 days, none after 3 years).

Coordination of Benefits (COB)

Coordination of Benefits prevents an insured covered by more than one plan from collecting more than 100% of expenses. One plan is primary (pays first, as if no other coverage exists) and the other is secondary (pays the balance up to its own limits, never exceeding total expenses). COB applies to expense-incurred (reimbursement) coverage, not to valued/indemnity benefits like fixed disability income.

Order-of-benefits rules:

Worked Example: COB With Two Plans

A covered person incurs $10,000 in eligible expenses. Plan A (primary) has an 80% coinsurance and would pay $8,000. Plan B (secondary) would have paid $9,000 on its own. Under COB, Plan A pays $8,000 first. Plan B then pays the remaining $2,000 (the gap up to 100% of actual expenses), not its full $9,000 — total reimbursement is capped at the $10,000 actually incurred. The insured pockets nothing beyond reimbursement; COB defeats the chance to profit from double coverage.

The Birthday Rule in Detail

For dependent children covered under both married parents' plans, the birthday rule makes the plan of the parent whose month and day of birth come first in the calendar year primary — the year of birth is irrelevant. If both parents share the same birthday, the plan in force longer is primary. A common trap: candidates pick the older parent; the correct factor is whose birthday is earlier in the year (e.g., a March 3 birthday is primary over a November 12 birthday regardless of age).

Subrogation

Subrogation lets an insurer that has paid a claim step into the insured's shoes to recover from a negligent third party who caused the loss. It supports the principle of indemnity — the insured is restored, not enriched, and the at-fault party ultimately bears the cost. Subrogation prevents double recovery (collecting from both the insurer and the wrongdoer). It applies mainly to expense-incurred medical coverage; pure indemnity/valued benefits (fixed disability income, AD&D lump sums) generally are not subject to subrogation because they are not reimbursement of actual expense.

Exam decision rule: if a third party caused the injury and the health plan paid the bills, the plan may pursue subrogation against that third party (or assert a lien on the insured's tort recovery).

COB vs. Subrogation vs. Assignment — Don't Confuse Them

All three move money around a claim, but they answer different questions:

A stem describing two employer plans is COB; a stem describing a negligent driver who caused the injury is subrogation; a stem where the insured signs over payment to the clinic is assignment. Indemnity (valued) policies — fixed disability income, accident lump sums, hospital indemnity that pays a flat $300/day — are exempt from both COB and subrogation because the benefit is not tied to actual incurred expense, so 'profit' is built into the product by design.

Facility-of-Payment and Time-of-Payment Nuances

The Payment of Claims provision normally directs benefits to the insured (or the named beneficiary for death benefits). Its facility-of-payment clause lets the insurer pay up to a stated amount (commonly $1,000) to a relative or anyone appearing equitably entitled when no beneficiary survives or the insured is a minor/incompetent — protecting the insurer from paying twice.

Time of Payment of Claims requires medical-expense benefits to be paid immediately upon receipt of proof, and periodic (disability income) benefits at least monthly. Prompt-pay statutes layer on top: a clean electronic claim typically must be paid or formally denied within roughly 30 days, with interest penalties for late payment. Together these clauses ensure claimants are paid promptly and to the right party.

Connecting Claims, COB, and Subrogation

These three mechanisms all answer "who ultimately pays," and the exam tests how they interact. The claims provisions set the timeline: notice of claim within about twenty days, claim forms furnished within fifteen days, written proof of loss within ninety days, and payment of benefits promptly — immediately for medical expense and at least monthly for disability income, with prompt-pay statutes adding interest penalties for late payment. Coordination of benefits prevents an insured with two health plans from collecting more than the total allowed charge by ordering one plan primary and the other secondary.

Subrogation lets the insurer that paid a claim step into the insured's shoes to recover from a liable third party, which keeps the insured from being paid twice for the same loss. Together they enforce the indemnity goal of full but not excess recovery.