Lesson 12 - Insurance Sequences (COB)

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Definition

COB stands for coordination of benefits. COB is the process where multiple insurance plans work together to determine how they will pay for a patient's medical expenses. This process ensures that the payment from all plans doesn't exceed the actual cost of care, preventing overpayments and duplicate entries. COB also known as an insurance sequence. Normally, COB occurs when patient has coverage through more than one insurance plan.

In short, COB determines which plan pays first and how much each plan pays by categorizing the plans into sequence like primary, secondary, and tertiary.

Insurance Sequences

1. Primary Insurance (The first payer)

   Primary insurance is the first plan to pay when a patient receives medical care. It's the lead plan that takes charges of processing the claim first. If a patient has multiple health insurance plans, such as one through his/her job and another through a spouse or parent. The primary plan will review the bill and determine what's cover and pay its share to the health care provider.

2. Secondary Insurance (The backup plan)

   Secondary insurance process the claim after the primary insurance has paid its share. It acts as a financial safety net for both the patient and provider, helping to cover leftover costs that the primary plan doesn't fully covered. These costs may include copay, deductible, coinsurance, or any unpaid portion of a claim. By covering these expenses, secondary insurance can reduce out of pocket costs for the patient and ensure the healthcare provider receives full payment.

3. Tertiary Insurance (Additional coverage)

   In some cases, a patient may have a third insurance plan that can provide additional coverage. Tertiary insurance pays after the primary and secondary insurance plans have paid their shares, this type of insurance can be useful for patients with the complex medical needs or high health care costs. The Tertiary Plan also called a final plan to pay the remaining cost. Normally zero balance remains after the tertiary insurance processed, but any balance still remains, the patient will be responsible for paying.

let's get back to the point, COB is the process that defines which plan should act as lead a primary and then which one be a secondary and tertiary by applying COB rule.

COB Rules:

1. Birthday Rule: The plan of the policyholder with the earlier birthday in the year pays first.
2. Employee / Dependent Rule: The plan covering the person as an employee pays first, and the plan covering the person as a dependent pays second.
3. Federal Rule: According to federal rule, only the Medicare becomes the primary plan, when the patient becomes hospice or suffering from the end renal disease according to the terms.
4. Individual Plan Rule: If a patient has coverage through an employer-sponsored plan and a family plan (as dependent), then the individually purchased plan becomes tertiary and pays last under Coordination of Benefits (COB) rules. However, if the patient has no other coverage, or only one other plan, the individual plan can act as primary or secondary, depending on the coordination sequence.

Understanding COB is crucial to do accurate billing, so let's take an example:

Example:
Suppose Hassan has three health insurance plans.

1. Primary Plan: Hassan's employer sponsored health insurance plan.
2. Secondary Plan: Hassan's family health insurance plan, which covers him as dependent.
3. Tertiary Plan: Hassan has a purchase individual plan from insurance for another additional coverage.

Scenario:

Hassan needs surgery and incurs an $8000 medical bill, and all three plans covered the surgery service. The primary plan has $1,000 deductible with 80% coinsurance, the secondary insurance has $500 deductibles remaining with 90% coinsurance and the tertiary plan has no deductible remaining and 100% coverage for approved services.
According to the COB rules payment will proceed as:

1. Primary plan pays first: The primary insurance plan pays its share of the medical bill according to its coverage rules. The total bill is $8,000. Hassan has a $1,000 deductible and 80% coinsurance. First, the deductible is applied, reducing the bill to $7,000. The plan then pays 80% of $7,000, which equals $5,600. So, the primary plan pays $5,600, and the remaining balance is $2,400 left as PR 1 & PR 2.
2. Secondary plan pays second: The secondary plan reviews the remaining $2,400 balance, which includes $1,000 (PR 1) and $1,400 (PR 2)—a total of $2,400. According to the plan’s coverage rules, it pays 90% of the remaining balance. 90% of $2,400 equals $2,160, but a $500 deductible still applies. After deducting that, the secondary plan pays $1,660. The new remaining balance is $740 leftover by secondary insurance.
3. Tertiary plan pays third: The tertiary plan then reviews the $740 remaining balance. As the services are 100% approved, the tertiary insurance plan pays the full $740 according to its coverage rules.

Conclusion

By coordinating benefits, Hassan receives a total payment of $7,160 from the primary and secondary insurance plans, while the tertiary plan covers the remaining balance, leaving Hassan with zero out-of-pocket cost. However, from this sequence, we can understand that if the tertiary plan was not available, Hassan would have to pay that $740 balance out of pocket. Similarly, if there was no secondary insurance, then the secondary balance would also become Hassan’s financial responsibility. It’s important to note that any amount not covered (PR) by the available insurance plans becomes the patient's responsibility, unless the patient has another insurance policy in the coordination sequence. For example, after the primary insurance pays, if there is no secondary plan, the remaining balance is billed directly to the patient. If a secondary plan exists, we proceed to bill it first, and the same logic applies to tertiary insurance.

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