Did you know that around 43 million people in the U.S. had multiple health insurance plans in 2021? Many people enroll in more than one insurance plan due to broader coverage. If you regularly attend to such patients, have you ever wondered how multiple insurance companies work together to cover the costs? The answer is through the coordination of benefits (COB)!
COB in healthcare billing is a process that insurance companies use to determine how to cover medical expenses. Simply put, it helps to identify primary and secondary payers when billing for a patient with multiple insurance plans. The primary goal of COB in medical billing is to avoid overpayments while making sure that claims are processed correctly. Let’s discuss the various aspects of this process.
Importance of COB in Medical Billing
Struggling with payment delays, out-of-pocket costs, and claim denials? You are not the only one! Around 79 million Americans experience one or more medical billing issues. As a critical component, COB in medical billing minimizes some of these problems for patients with multiple insurance plans.
In simple words, it ensures an accurate and efficient payment process and reduces financial burdens on patients. But if you want specific reasons, here is how COB is important in medical billing:
Simplifies Claims Processing
COB helps insurance companies coordinate with each other. It is an important part of the payment process, providing clear rules for determining which insurance plan is primary and which is secondary. Just to be clear, you should know that primary payers cover most of the patient’s medical expenses while secondary insurance plans pay for the remaining amount.
In short, COB in healthcare reduces payment order confusion and delays in claims processing, simplifying the billing process for both payers and providers.
Prevents Fraud & Overpayments
By establishing a clear payment order and responsibilities, COB reduces the chance of healthcare providers submitting duplicate claims and receiving double payments. This is the most common issue in healthcare. In fact, around 46% of provider fraud cases were due to duplicate billing in 2020.
To summarize, COB prevents overpayment by ensuring that the total amount paid by all insurance plans does not exceed the total cost of the provided services. In simple words? It makes sure that they only pay the correct amount.
Reduces Out-of-Pocket Costs
Coordination of benefits is equally important for patients, especially those struggling with the rising cost of healthcare. This process maximizes their insurance benefits and reduces out-of-pocket expenses. Want to know how? It ensures that all of the patient’s insurance plans are utilized to cover the medical costs.
Helps Avoid Legal Consequences
COB is also important for avoiding legal issues. It allows healthcare providers to submit claims to the correct payers in the right order, helping them maintain regulatory compliance and avoiding legal issues, penalties, or audits.
Guarantees Proper Reimbursements
COB also protects healthcare providers by guaranteeing proper reimbursements for their services. It ensures that when a patient has multiple insurance plans, only one payer pays for a specific service at a time.
This helps healthcare providers avoid double payments while maximizing the total amount received across all plans. To put it simply, COB reduces the risk of under- or even non-payments due to miscommunication between insurers.
Coordination of Benefits – Examples
Want to understand how insurance companies coordinate with each other? Here are a few examples of COB in healthcare:
Employer-Sponsored Insurance & Additional Coverage Under a Spouse’s Plan
Let’s consider a simple scenario of someone having two insurance plans! Assume a person named Jane, working in a top fintech company, is enrolled in an employer-sponsored health insurance plan. For the sake of simplicity, let’s call it Plan A. Her husband, Peter, also has health insurance (Plan B) through his employer. Jane is covered under that plan as well.
In this scenario, Plan A is primary, and Plan B is secondary because it lists Jane as a dependent. The COB establishes an order of payment. Therefore, when Jane visits a doctor for her routine checkup, he submits the claim to the primary payer first. After receiving the appropriate amount, he bills the remaining balance to the secondary payer.
Medicare-Medicaid Enrollee (Dual Eligible Beneficiary)
Approximately 12.8 million people in the US are dual-eligible beneficiaries. So, let’s consider this as another example! Suppose a 67-year-old man named John is enrolled in both Medicare and Medicaid. He visits the emergency department due to severe chest pain and symptoms of a stroke. As per the coordination of benefits, the billing team first submits the claim to Medicare.
Once Medicare processes the claim and pays its share of the covered expenses, it forwards the claim to Medicaid for the remaining amount. In this case, Medicaid is the secondary payer, covering additional costs not fully reimbursed by Medicare.
Medicare and Group Health Plan
What happens if a person with employer-sponsored health insurance also qualifies for Medicare? Suppose a 65-year-old woman, Mary, is enrolled in a group health insurance plan through her employer. She is also a Medicare beneficiary. So, the most important question is which plan is primary and which is secondary.
The answer in these types of situations depends on the company’s size. If Mary’s company has 20 or more employees, her group health insurance plan will pay first, and Medicare will pay for the remaining amount. However, if her employer has fewer than 20 employees, Medicare will be the primary payer according to the COB rules.
Rules for Coordination of Benefits
COB rules depend on your, your spouse’s, or any other family member’s employment status. They also depend on the number of employees in your company. All COB rules determine primary and secondary payers in different situations.
As mentioned earlier, the primary payer is the plan that covers most of your medical expenses and always pays first. On the other hand, the secondary payer is the plan that covers your remaining eligible costs.
But what if a patient has a third insurance plan? In that case, it serves as the tertiary payer, covering any remaining expenses after the primary and secondary insurers have processed the claim. Here are a few key rules of coordination of benefits:
Birthday Rule
So, how are the children (listed in both parents’ insurance plans) covered? The birthday rule is applied to determine the order of coverage for the child. The rule is as simple as its name. It indicates that the insurance plan of a parent whose birthday falls earlier in the calendar year is the primary payer.
For example, if Dad’s birthday is on January 25 and Mom’s birthday is on July 15, Dad’s plan is primary and will be billed first.
Active vs. Inactive Employee Rule
What if a beneficiary has two or more group health plans? Insurance companies use the active vs. inactive employee rule to determine their share of payment. Under this rule, the plan that covers the individual as an active employee is primary.
On the other hand, the policy covering them as a retiree or laid-off employee, such as the Consolidated Omnibus Budget Reconciliation Act (COBRA), is secondary.
Custodial Parent Rule
What if the dependent child’s parents are divorced or separated? In this case, the primary payer for the child would be the insurance plan of a parent with child custody. However, if they have joint custody, COB will use the birthday rule to decide the coverage order.
COB for Military Personnel
TRICARE is a health insurance program for military members. It is the primary payer for active-duty soldiers. However, it is considered secondary if a service member or their dependents have other health insurance plans (OHI), such as employer-sponsored insurance.
Medicare Rules
We previously covered this in the COB examples. But to remind you, if a Medicare beneficiary also has a private insurance plan (such as employer-sponsored insurance), COB determines the coverage order based on the number of employees in the company.
- The employer-sponsored insurance is the primary payer if the employer has more than 20 employees.
- In contrast, Medicare covers medical expenses first if the employer has less than 20 employees.
- For dual-eligible beneficiaries (those enrolled in both Medicare and Medicaid), Medicare is always the primary payer, while Medicaid acts as a last resort.
Conclusion
Having multiple insurance plans can be quite beneficial in many situations. But how do you deal with payment confusion? Coordination of benefits (COB) is a critical part of medical billing. It is the industry standard for determining the payment responsibilities between two or more insurers when a person is covered by more than one plan.
This process is crucial for preventing payment fraud and miscommunication between insurance companies. However, it can be challenging for healthcare providers to manage multiple plans and figure out COB while handling clinical tasks. So, if you need professional help, you can always outsource medical billing to MediBillMD for expert support.
