Coordination of Benefits

Your employee is covered under your companies benefits and also under their spouses.  So which plan pays first? That’s the question that arises when a plan participant or beneficiary is entitled to coverage under more than one plan or insurance policy. Coordination of Benefit (COB) rules, as specified in plan documents or insurance policies, will answer these questions and that’s why it is important to make certain those plan documents address coordination of benefits. However, if those rules are unclear and therefore a dispute arises that isn’t resolved then the issue will be decided in court.

Often the way the courts resolve these disputes differs based on the kind of plan or insurance policies involved. To provide more information, some of the COB issues that self-funded Employee Retirement Income Security Act (ERISA) plans face are highlighted below.

What are the Rules with Respect to Self-insured Plans?

ERISA is silent with regard to COB, so self-funded health plans may create their own COB rules (another example of why moving to a self-insured program is advantageous!). Further, state COB laws are pre-empted because they apply to self-insured plans. As a result, plans that do not offer COB guidance generally become the primary coverage, so it is important to have clearly drafted COB language.

What Happens During a Conflict Between Plans?

In the past when conflicts have come up between self-funded ERISA plans and private insurance COB clauses, the courts have expressed varying opinions. Some have endorsed a pro rata apportionment of liability while others have found the insurer to be primary.

Where two ERISA self-funded plans conflict, the courts comply with the following federal common-law rules to resolve the conflict:

  • The Birthday Rule for Dependents – The plan of the employee whose birthday occurs earlier in the year is primarily responsible, and where parents have the same birthday, the plan that has covered a parent for the longest continuous period is primarily responsible for the expenses of any dependent.
  • Employer-first Rule for Dual Coverage – Generally where an employee is covered by more than one plan, courts will look to the plan that covered a claimant as an employee first to be the primary plan.
  • Medicare – As a general rule, if an individual is covered under both Medicare and a group health plan, Medicare is secondary to the employee benefits plan. There are exceptions to this rule.

For more information on COB, consult any of the Broad Reach Benefits Team today.