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How Does Coordination of Benefits Work?

How Does Coordination of Health and Dental Benefits Work?

As a Group Benefits Broker, I am often asked how coordination of benefits works. Coordination of benefits determines which insurance plan pays first, which insurance plans pay thereafter and how much each insurance plan pays. Most often I am asked, how do insurance companies coordinate benefits when you have coverage under more than one Group Benefits Plan with health and dental coverage. Coordination of benefits for health and dental plans is the focus of this article.

Group Benefit Plan Contracts typically include a Coordination of Benefits Provision to address situations where one has duplicate coverage. The Provision will outline the guidelines to be followed to determine which Plan is the primary, or first payer of a claim. The Coordination of Benefits Provision will also state which Plan is responsible for adjudication and payment of the balance, if any. A claim can be submitted as either a Plan Member (Employee) or a Dependent of the Plan Member.

To confuse things even further, when two Plans are coordinated the overall maximums, types of coverage, coinsurance, maximum visits per year, deductibles and potentially other factors are almost always going to be different.

The Canadian Life and Health Insurance Association (“CLHIA”) Coordination of Benefits Guidelines were created for insurance companies to follow to ensure consistency throughout the insurance industry. This Guide essentially sets out who pays when, and how much.

Who is First Payer?

Here we will explain the Rules which determine the order in which claims are paid, while considering different scenarios.

Coordination of Spousal Plans:
Example one (1):

You have coverage with your Employer’s Plan and are covered as a Dependent under your Spouse’s Employer’s Plan:

Your own Employer’s Plan will pay your claims first; and
Your Spouses Plan will pay your claims second.

Example two (2):

Your Spouse has coverage with their Employer’s Plan and are covered as a Dependent under your Employer’s Plan:

Your Spouse’s Plan will pay their claims first; and
Your own Employer’s Plan will pay your Spouse’s claims second.

Coordination for an Individual with Multiple Plans:

It is not uncommon for an Individual to have a full-time and a part-time job or even two part-time jobs. It is possible that both jobs provide coverage to the Individual. Coordination of benefits can get confusing in these cases.

Example one (1):

Generally, if you have coverage through different Employers on your own, priority of payment is as follows:

  • The Plan where the Plan Member is an active full-time Employee pays first;
  • The Plan where the Plan Member is an active part-time Employee pays second; and
  • The Plan where the Plan Member is a Retiree pays last.

Example two (2):

If you have coverage under different Plans because you have two part-time jobs, priority of payment is typically going to state that the Plan which has covered you longer will be first payer.

  • Job number one – you have been a Member of the Plan since January 01, 1999
  • Job number two – you have been a Member of the Plan since August 01, 2014

In this example, the Plan that has covered you the longest (job one) will pay first as you have been covered longer.

Claims for Dependent Children:

Example one (1):

If both Parents have their own Benefits Plan coverage and their Children are covered under both Plans as Dependents, then the Plan of the Parent with the earlier birth date in the calendar year will pay first.

  • Parent number one’s birthday – September 19, 1979
  • Parent number two’s birthday – January 15, 1984

Parent number two’s birthday falls earlier in the calendar and will, therefore, pay first.

Example two (2):

Though not as common, what happens if both Parents have the same birth date? If both Parents have the same birth date, the Parent with the name that occurs first in the alphabet will pay first.

  • Parent number one’s given name is Xavier
  • Parent number two’s given name is Ariel

Based on the above scenario, Ariel’s (parent number two) Plan will pay first. This is because Ariel (A) comes first alphabetically.

Custody:

For Dependent Children, cases of joint custody and surviving dependent child claims, priority of payment is as follows:

  • The Plan of the Parent with the earlier birth date (month/day) in the calendar year is first payer
  • If Parents share the same birth date, then the Parent with the name that occurs first in the alphabet will pay first

In single custody situations, priority of payment is as follows:

  • The Plan of the Parent with custody pays first;
  • The Plan of the Spouse of the Parent with custody pays second;
  • The Plan of the Parent that does not have custody pays third; and
  • The Plan of the Spouse of the Parent that does not have custody pays last.

For Example:

A Child lives with their Mother and her new Spouse. The Child’s Mother has custody.

  • The Mother’s Plan pays first;
  • The Mother’s Spouse’s Plan pays second;
  • The Plan of the other Parent of the Child (without custody) pays third; and
  • The Plan of the Spouse of the other Parent (without custody) pays last.

Claims for Post-Secondary Students (Dependents) Enrolled in University or College:

A Student may be covered for health and dental coverage through their school or a part-time job. It is possible to also be covered under their Parents Plan as a Dependent, at the same time. However, the Student’s own coverage will always be first payer over their Dependent coverage.

For Example:

A Dependent Child covered under their Parent’s Plan has health coverage through their University’s Plan. The University’s Plan will be first payer in this case.

Retiree Coverage:

Retiree Plans are second payer after any group coverage that covers the same person as an active full-time or part-time Employee.

For Example:

A Retiree has a part-time job that provides them with benefits and the Retiree also has their own Retiree coverage through their previous Employer.

The group coverage through the part-time active Employer will be first payer and the Retiree Plan will pay second.

If an Individual has more than one Retiree Plan, then the plan that has been effect the longest pays first.

What if You Have Both Personal and Group Benefits Coverage?

If an Individual has both personal and group health or dental coverage, the Group Plan may pay first. Specific Policy Provisions will need to be reviewed to ensure of the correct Coordination of Benefits Provisions.

After Coordination of Benefits is Determined, How Do Plans Calculate Claims?

The Coordination of Benefits Provision limits the total benefit amount an Individual can claim to a combined maximum of 100 percent of the cost of the eligible expenses incurred. This means that individuals with overlapping coverage on a specific claim cannot receive total payments greater than the actual cost of the claim being submitted.

When benefit payments involve coordination, each insurer determines the total amount of incurred expenses eligible for coverage before deductibles and/or coinsurance are applied. The first payer (primary insurer) pays eligible expenses first, and then calculates the benefits amount payable as though the covered individual has no other coverage. Then, the second payer (insurer) calculates the amount of the eligible expenses it must pay, which is the lesser of:

  • The amount the insurer would have paid had it been first payer
  • One hundred (100) percent of the eligible expenses reduced by the benefit amount paid by the first payer

Dental Accidents:

Health care plans with accidental dental coverage pay first, before dental plans in the case of accidental dental claims.

Other Situations:

If the above does not cover a given circumstance, benefit payments are pro-rated by insurers in proportion to the amounts that would have been payable had the group plan been the only coverage in place at the time.

Submitting Claims:

Secondary insurers require copies of receipts and an Explanation of Benefits (“EOB”) from the first payer.

Special Rules

It is important to note that there are circumstances where the above does not apply. For instance:

  • Auto insurance – Provincial Legislation determines if coverage available under automobile insurance is first or second payer or not when coordinated with group health and dental Plans.
  • Out-of-Country/Province Health Care Expenses – Other Rules have been developed to coordinate benefits when more than one plan covers these emergencies.
  • Workers Compensation

It is always important to check and be sure of any Legislation that exists in your Province of residence if you are making a claim due to an automobile accident or a work-related injury or accident.

Useful Terminology from the Above Article:

Group Benefits:

An insurance policy that provides coverage for many people under one contract. The group is typically made up of employees of the same company or members of the same organization (i.e., a Union or Trade Association) who have a relationship beyond the desire for insurance. The policyholder is the organization, and the covered individuals receive a certificate of coverage. The most common group benefit policies are for life, accident, disability and health. Group Benefits are also known as Group Insurance and Employee Benefits.

Personal Insurance:

An insurance policy that provides coverage for an Individual and their Dependents. This type of Plan is typically purchased and paid for personally and as such is completely portable. It is issued in the individual’s name and owned by the person who is the Named Insured in the policy. The most common personal policies are for life, accident, disability, travel and health. Personal Insurance is also known as Individual Insurance.

Insurance Broker:

Person or business that brings together clients seeking insurance coverage with insurance companies. The Broker represents the Buyer rather than the Insurance Company but receives commissions from the Insurance Company. Brokers must be licensed and insured themselves in the Provinces in which they conduct business.

Coinsurance:

An arrangement set out in a health or dental insurance plan where the Insurance Company and the Plan Member share the expenses according to a specific formula. An example of the formula might be, 80% covered by the Plan (Insurer) and 20% covered by the Plan Member (Employee).

Deductible:

The amount of expenses that the Insured must pay before and Insurer begins payment. In other words, the amount that is deducted from the expenses before a claim is paid. The deductible is usually a flat amount.

Eligible Expenses:

Expenses that will be covered by a health or dental plan as defined in the applicable insurance contract before any deductibles, coinsurance and maximums are applied.

Plan Member:

The primary Person who is eligible to receive a benefit from a Group Benefit Plan. In other words, the Employee, Union Member or Association Member.

Plan Sponsor:

This is the Employer, Union Association or other Organization that provides group health or dental benefits to its Employees/Plan Members.

Dependent:

A person who relies on, or obtains benefit coverage through, a covered Individual. Dependents are most commonly a Spouse, Domestic Partner and/or Minor Children, but they could also be a Sibling or Parent. A benefit contract typically defines who is considered a Dependent.

Explanation of Benefits (“EOB”):

A Statement from an Insurance Company that reports on the services and amounts paid on behalf of the Insured. The EOB summarizes the charges submitted, the dollar amount allowed by the insurer for each service, the amount paid and the balance owing by the Insured, if any. If any services were not paid, reasons are given for the denial of coverage.

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