COORDINATION OF BENEFITS | Plan Provisions and Taxation

In recent years, the percentage of individuals having duplicate group medical expense coverage has increased substantially and is estimated to be about 10 percent. Probably the most common situation is the one in which a husband and wife both work and have coverage under their respective employers' noncontributory plans. If the employer of either spouse also provides dependent coverage on a noncontributory basis, the other spouse (and other dependents if both employers provide such coverage) is covered under both plans. If dependent coverage is contributory, it is necessary for a couple with children to elect such coverage under one of their plans. However, because a spouse is considered a dependent, he or she also has duplicate coverage when the election is made. Note that this duplicate coverage can be avoided if dependent coverage can be elected for children only. This option exists under many but not all plans. Duplicate coverage may also arise under the following circumstances:

An employee has two jobs.

Children are covered under both a parent's and a stepparent's plans.

An employee elects coverage under a contributory plan, even though he or she is covered as a dependent under another plan. This could result from ignorance or from an attempt to collect double the amount if a claim should occur. In many cases, this coverage is elected because it is broader, even though it still results in an element of duplicate coverage.

Duplicate coverage can also occur if an individual has coverage under a group plan that is not provided by an employer. A common example involves children whose parents have purchased accident coverage for them through their schools.

In the absence of any provisions to the contrary, group medical expense plans are obligated to provide benefits in cases of duplicate coverage as if no other coverage exists. However, to prevent individuals from receiving benefits that exceed their actual expenses, group medical expense plans contain a coordination-of-benefits (COB) provision, under which priorities are established for the payment of benefits by each plan covering an individual.

Most states do not require medical expense products of insurance companies, the Blues, HMOs, or PPOs to have a COB provision. If one is used, however, it must comply with the appropriate state rules. Most COB provisions are based on the Group Coordination of Benefits Model Regulation promulgated by the NAIC. This regulation, which applies to traditional insurance products and other products subject to insurance regulation, is periodically revised, and all or portions of one of the versions have now been adopted by almost all states. As with all NAIC model legislation and regulations, some states have adopted the COB provisions with variations. Most states also have adopted a virtually identical COB provision for use by HMOs.

Although some flexibility is allowed, virtually all COB provisions apply when other coverage exists through the group insurance plans or other group benefit arrangements (such as the Blues, HMOs, or self-funded plans) of another employer. They may also apply to no-fault automobile insurance benefits and to student coverage that is either sponsored or provided by educational institutions. However, these provisions virtually never apply (and cannot in most states) to any other coverages provided under contracts purchased on an individual basis outside the employment relationship.

Determination of Primary Coverage
The usual COB provision stipulates that any other plan without the COB provision is primary and that any plan with it is secondary. If more than one plan has a COB provision, the following priorities are established:

Coverage as an employee is usually primary to coverage as a dependent. The exception to this rule occurs if a retired person is covered (1) by Medicare, (2) under a retiree plan of a former employer, and (3) as a dependent of a spouse who is an active employee. In this case, coverage as a dependent is primary, Medicare is secondary, and the retiree plan pays last.

Coverage as an active employee (or as that person's dependent) is primary to coverage as a retired or laid-off employee (or as that person's dependent). This rule is ignored unless both plans contain the rule.

Coverage as an active employee (or that person's dependent) is primary to a plan that provides COBRA continuation benefits. This rule is also ignored unless both plans contain the rule.

If the specific rules of a court decree state that one parent must assume responsibility for his or her child's health care expenses and the plan of that parent has actual knowledge of the terms of the court decree, then that plan is primary.

If the parents of dependent children are married or are not separated (regardless of whether they have ever been married) or if a court awards joint custody without specifying that one parent has the responsibility to provide health care coverage, the plan of the parent whose birthday falls earlier in the calendar year is primary and the plan of the parent with the later birthday is secondary.

If the parents of dependent children are not married, are separated (regardless of whether they have ever been married), or are divorced and if there is no court decree allocating responsibility for the child's health care expenses, the following priorities apply:

The plan of the parent with custody is primary.

The plan of the stepparent who is the spouse of the parent with custody is secondary.

The plan of the parent without custody is tertiary.

The plan of the stepparent who is the spouse of the parent without custody pays last.

If none of the previous rules establishes a priority, the plan covering the person for the longest period of time is primary. If this rule also fails to determine the primary plan, then allowable expenses are shared equally among the plans.