There are numerous cases when someone may have coverage under several health insurance policies. Spouses may have coverage for themselves and each other from their employers. Older employees who are unable to retire may have Medicare and employer-sponsored coverage. Retired employees may have employer-sponsored retiree insurance and Medicare coverage.
Multiple health insurance policies can set off a logistical and paperwork nightmare for both the insurers and the insured. But multiple policies may provide benefits that are worth the hassle. Here's a basic rundown of how multiple health insurance policies work together.
Coordination of Benefits
Say, for example, you end up in the hospital for a broken arm. You are covered by two health insurance policies. Which one pays? When it comes to group health insurance plans, that call gets made by using an industry standard called "Coordination of Benefits" (COB).
According to Self-Funding Actuarial Services, COB was established by the National Association of Insurance Commissioners for the administration of multiple health insurance policies. Originally established in 1970, it has been amended over the years to incorporate new health insurance products and to better protect consumers.
The basic intent of COB guidelines is to ensure that people don't gain a financial windfall from duplicate health coverage, while also making sure that all medical and out-of-pocket expenses are covered whenever possible. Generally, one health insurance policy is identified as the primary plan and the other as the secondary plan. The primary plan pays out all its benefits, while any secondary plans pay for additional eligible benefits after the primary plan's benefits are exhausted. A patient can receive benefits for up 100 percent of medical bills, but no more.
Who pays first?
Which plan acts as the primary plan varies by the type of coverage and the situation. Group insurance, individual insurance, Medicare and Medicaid all play by different rules. Generally, insurance providers operate under the following rules:
- For group health plans: Group health insurance plans that do not include a COB provision always will be the primary plan, according to a guide from the Hepatitis C Support Project (HCSP), a nonprofit that provides health care information for patients.
- Non-dependent vs. dependent: A group plan that covers you as an employee or member always pays before a plan that covers you as a dependent, according to health care management company Magellan Health Services.
- Active vs. inactive: Any group health insurance policy that covers you as an active employee pays before one that covers you as a former employee (COBRA benefits, for example).
- For dependent children: If two parents list a child as a dependent on their group insurance policies, some companies use what's called the birthday rule, according to Magellan. The plan of the parent whose birthday falls the earliest in the calendar year is the plan that pays. If both parents have the same birthday, the plan that's been in effect the longest becomes the primary plan.
- For individual health plans: The above rules apply to group coverage. When it comes to individual health insurance plans, COB does not apply. According to HCSP, individual health plans generally pay their full benefits regardless of other group health policies. However, many of these policies include their own provisions regarding multiple insurance plans, so it's critical for policyholders to read their policies.
- Medicare/Medicaid: Medicaid always is the insurer of last resort. So, if you have other plans, they'll pay before Medicaid kicks in, according to HCSP.
When it comes to Medicare, however, things get complicated. Which plan pays first can be influenced by employment status, employer size and the nature of the other insurance coverage. There even are separate rules governing coverage of end-stage kidney disease. Medicare publishes a guide that outlines all these complexities, called Medicare and Other Health Benefits: Your Guide to Who Pays First