Legal Definitions - coordination-of-benefits clause

A Coordination-of-Benefits (COB) clause is a provision found in insurance policies, particularly health insurance, that determines how two or more insurance plans will pay for medical expenses when an individual is covered by multiple policies. Its primary purpose is to prevent an individual from receiving more than 100% of the cost of their medical care by outlining which plan pays first (the "primary" plan) and which pays second (the "secondary" plan).

This clause establishes rules for how benefits are coordinated, ensuring that the combined payments from all insurers do not exceed the actual cost of the services received. It helps to fairly distribute the financial responsibility among different insurance providers.

Here are some examples illustrating how a Coordination-of-Benefits clause works:

• Example 1: Spouses with Separate Employer Plans

  Imagine Sarah and Mark are married, and both work for different companies. Sarah has health insurance through her employer, and Mark has health insurance through his employer. Sarah is also covered as a dependent on Mark's plan, and Mark is covered as a dependent on Sarah's plan. If Sarah incurs significant medical expenses, the COB clause in both policies will come into play. Sarah's employer's plan, which covers her as the primary employee, would typically be designated as the primary payer. Mark's employer's plan, which covers Sarah as a dependent, would then act as the secondary payer. The COB clause ensures that after Sarah's primary plan pays its share, the secondary plan may cover remaining eligible costs, preventing Sarah from receiving more than the total cost of her treatment from both insurers combined.

• Example 2: Child Covered by Divorced Parents' Plans

  Consider a child, Emily, whose parents, Lisa and David, are divorced. Both Lisa and David have separate health insurance plans through their respective employers, and both plans cover Emily. When Emily needs medical care, the COB clause will determine which parent's insurance is primary. Often, a "birthday rule" is used, meaning the plan of the parent whose birthday falls earlier in the calendar year is considered primary. For instance, if Lisa's birthday is in March and David's is in August, Lisa's plan would be primary. David's plan would then be secondary, potentially covering any remaining eligible expenses after Lisa's plan has paid its portion. This prevents both plans from paying the full amount independently, which would result in an overpayment.

• Example 3: Accident with Auto Insurance and Health Insurance

  Suppose John is involved in a car accident and sustains injuries requiring medical treatment. John has both a standard health insurance policy and medical payments coverage through his auto insurance policy. The COB clause in John's health insurance policy would specify whether the auto insurance's medical payments coverage is primary for accident-related injuries, or if the health insurance is primary. Typically, auto insurance medical payments coverage is primary for accident-related injuries. After the auto insurance pays its limits, John's health insurance would then act as the secondary payer for any remaining eligible medical costs. This coordination prevents John from being reimbursed twice for the same medical bills – once by his auto insurer and once by his health insurer – ensuring that the total payment does not exceed the actual cost of his treatment.