New Coordination of Benefits (COB) rule FAQs

What is the new Coordination of Benefits (COB) rule?

The new rule adds further clarification to the order of benefit determination in cases for unmarried, separated and divorced parents and dependents.  The new COB rule also requires coordinating benefits to the “higher allowable” and eliminates “credit savings”. 

When does the new rule take effect?

The new COB rule will take effect January 1, 2008.

Why the new rule?

The new rule will create greater consistency in claims processing between primary and secondary carriers.  The rule is adapted from model language from the National Association of Insurance Commissioners (NAIC).  Oregon has adopted the new model effective January 1, 2008.  Many other states are looking to this model to provide consistency in plan language. 

Is a self-funded plan required to take the new rule?

A self-funded (ASO) plan is not subject to state regulation and therefore has the option of not following the new COB rule in its plans.  A self-funded plan can choose not to have COB language at all, to stay with its current COB language or to change to the new rule.

What happens if a self-funded plan doesn’t take the new rule or if it has a non-duplication or excess provision?

As is the situation today, a decision not to include a COB provision or to depart from the COB language suggested in the rule could open up the possibility for a disagreement from another plan who is following the new rule, as to order of benefit payment.

What about a collectively bargained group?

Collectively bargained groups can either take the language now or wait until their next collective bargaining date.  If a collectively bargained group is waiting for their next bargaining date to take the language, it will be considered a “complying plan” in the interim.

What does the term “credit savings” mean?

In the “old” COB model a portion of benefits remaining after the secondary insurer had paid its share of a claim was “banked”.  These dollars could sometimes be used to pay benefits on subsequent claims.  Here is an example:

Jack has a claim for a covered surgery in the amount of $3,000.  His primary plan benefit is $2,000, leaving a balance of $1,000.  The secondary plan receives the claim and notes that its benefit would have been $2,500 (if it were in the primary position).  Jack’s secondary plan pays the remaining balance of $1,000 and notes the difference between the benefit ($2,500) and what it paid ($1,000) as “credit savings” (a total of $1,500).  

Later in the same year, Jack receives a series of chiropractic care, which is a benefit of his primary plan but not his secondary plan.  His bill is $500.  His primary carrier pays $300 and his secondary carrier pays the remaining balance of $200 from the “credit savings”.  Jack’s credit savings account is now $1,300.    

What does it mean to coordinate to the “higher allowable”?

If a provider has contracted rates with both plans (primary and secondary), and one of those contracted rates is lower than the other, the plans will be required to coordinate benefits to the higher allowable rate, regardless of the COB position of the plans. Here is an example:

Jack has a claim for a covered surgery in the amount of $3,000.  His primary plan has a contracted rate with the provider for $2,000 with a benefit of $1,800.  The secondary plan has a contracted rate with the provider for $2,100 with a benefit of $1,700. The secondary carrier must coordinate benefits between the higher contracted allowable of $2,100 and the primary carriers payment of $1,800.  In this case, the secondary carrier would pay an additional $300.

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