What Is Coordination of Benefits? Explanation and FAQ
Healthcare facilities sometimes provide care for patients that are on multiple insurance plans. In these instances, it’s important to figure out which entity is paying for what costs in order to avoid any hiccups in billing. This process is formally known as coordination of benefits (COB). So, what is coordination of benefits? In health insurance terms, it’s the method for determining how payment proceeds with multiple payers.
In this FAQ, we’ll answer questions that go beyond that simple definition so you can streamline medical reimbursements while maintaining billing compliance.
What Does Coordination of Benefits Mean?
In the U.S., patients sometimes have coverage from multiple health insurance plans. For example, a family with more than one wage earner may have a health plan from each employer, or someone with a history of military service might have VA benefits in addition to insurance from their civilian job.
To determine how coverage is split in these situations (specifically, who pays for a patient’s care first), insurers follow the coordination of benefits process. You could also explain coordination of benefits as a provision for allowing people to use all of their available insurance options to receive up to 100% coverage for their medical needs, while avoiding duplicative billing and overpayment.
What Is Coordination of Benefits in Practice?
In the clinical setting, it’s essential that providers and medical billers know which is the primary vs. the secondary insurance. Coordination of benefits clarifies this by assigning these roles. See below for a breakdown of those payer types.
| Primary Payer | The first to pay for any of the patient’s covered services, according to the benefits outlined in their plan |
| Secondary Payer | The next to pay for any remaining costs, according to what they should cover per their plan |
After the primary and secondary payers are established with each insurance, coordination of benefits has largely been fulfilled in the episode of care. Healthcare staff should now understand how to start the billing process while giving patients more transparency into how costs will be shared.
Coordination of Benefits: Example
To understand how benefit coordination applies in practice, we can look at a simplified example:
- A patient has a medical bill totalling $100.
- A claim is first submitted to the primary payer/insurer, who is responsible for $80, based on their coverage plan.
- Then, a claim is submitted to the secondary payer/insurer, who calculates how much of the remaining $20 they should cover, based on their plan details.
- The patient then pays for any remaining, out-of-pocket expenses.
In this example, the billing provider needs to know who to bill first in order to receive appropriate reimbursement and to avoid compliance issues. If the patient is 65 years of age, with Medicare coverage alongside work sponsored benefits (provided their employer has more than 20 employees), then per the current standards for coordination of benefits, Medicare will be the secondary payer. If the provider bills Medicare first, they’re risking noncompliance with the Medicare Secondary Payer Act (MSA).
What Is Coordination of Benefits’ Importance?
Streamlined repayment (for providers) and uncomplicated coverage are achieved by using coordination of benefits, meaning, a smooth, efficient process for submitting and reimbursing claims. A breakdown of its benefits includes the following provisions:
- The total coverage between plans doesn’t exceed the total cost of care.
- Covered medical services are not paid for twice by different insurers.
- Errors are avoided throughout the administrative billing process.
- The patient doesn’t overpay due to miscalculated out-of-pocket costs.
- One insurer isn’t bearing significantly more costs than another.
What Are the Rules Around Coordinating Benefits?
Deciding which insurance is the primary payer follows a set of rules. In some cases (like the MSA), these rules are regulatory in nature, negating any chance of dispute from an insurance company over primary designation. Additional examples of clear COB rules are outlined in the following table.
| Private and Public Plans | Some people have both private and public (government-sponsored) health plans. In these instances, the private plan will generally pay first. |
| Dependent Children | Children can sometimes be covered by insurance plans provided by both of their parents’ employers. The parent with the earlier birthday will have their plan pay first. |
| Employer-Sponsored Health Plans | Some individuals may purchase a commercial plan on top of a plan provided by their employer. The employer-sponsored plan will generally be the primary payer. |
| Dual Coverage With Spouses | Individuals can sometimes elect to be covered by both their employer’s plan and their spouse’s employer’s plan. In this case, their own employer’s plan would be the primary payer while their spouse’s plan would be secondary. |
| Medicare and Medicaid | Some individuals over the age of 65 may have both Medicare and Medicaid. For these individuals, Medicare will serve as the primary payer. |
| Consolidated Omnibus Budget Reconciliation Act (COBRA) | Individuals may have COBRA coverage from a previous employer and a current employer-subsidized health plan. The most current employer health plan will serve as the primary payer. |
Who Is Responsible for Coordinating Benefits?
Insurance companies are primarily responsible for coordinating their benefits, with some aspects of this process regulated by federal and state laws. The National Association of Insurance Commissioners (NAIC) and The Centers for Medicare and Medicaid Services (CMS) provide guidelines that insurance companies should follow.
It’s also important for healthcare facilities to stay aware of policies surrounding this process. Not only does this allow for stronger oversight of the administrative billing process, but this also enables proper education for staff and patients who are working with multiple insurers.
Keep Up With the Latest Policies Impacting Your Facility
Now that you know the fundamentals to answering the question, What is coordination of benefits? you may be wondering what other policies can affect your patients and staff. Learn more by getting the latest healthcare news and insights today.