Coordination of Benefits (COB) is a process that is used in medical billing when a patient has more than one active insurance coverage plan. The primary purpose of COB is to determine which insurer pays first, and the insurer pays the remaining amount. It also helps prevent errors and duplication of payments since multiple payers are involved.
COB is important in medical billing since it prevents overpayments and reduces claim denials. Providers accurately apply COB rules to streamline the revenue cycle. It helps improve cash flow while maintaining transparency. Coordination of Benefits also protects the providers from regulatory risk and ensures patients are only billed for what they owe.
To ensure these benefits are realized in practice, healthcare providers follow a specific set of rules to determine the correct order of insurance reimbursements. These rules collectively work as a framework to identify primary, secondary, and tertiary payers to bill accurately. This reduces the risk of compliance and overpayments.
The Medical Group Management Association describes COB as the process used by healthcare providers to determine the order in which multiple insurance plans pay for a single patient’s medical services.
In practical application, COB is governed by a set of rules that considers factors like employment status, custodial parent arrangements, birthdates of parents for child coverage, and COBRA continuation coverage. These factors play a crucial role in accurate and orderly claim submission.
Example
An adult is covered under two different employer-sponsored plans. One is from his job while the other is from the spouse’s job. COB determines that the plan that is covering the patient as an employee is primary. Meanwhile, the spouse’s plan that is covering him as a dependent is secondary.
The coordination of benefits starts with determining the primary and secondary payer. The primary payer is the one who covers the patient’s medical expenses first. However, the secondary payer covers the remaining balance.
Centers for Medicare & Medicaid Services and State Insurance departments determine the correct order of payers in their Coordination of Benefits rules. It is essential to submit the claims in the correct order. Errors in doing so delay processing or sometimes even deny the payments.
The law requires providers to submit the claims to the primary insurer first. They review the claims by going through allowed amounts, coinsurance, copays, deductibles, and coverage exclusions.
After verifying all the details, the payer issues an EOB (Explanation of Benefits). The EOB is official proof of the primary plan coverage. This includes billed amount, allowed amount, amount paid, patient’s responsibility, and reason for denials.
After the primary insurer has issued initial plan coverage, the secondary payer determines the remaining balance. The providers need to attach a copy of the EOB while billing the secondary payer. However, secondary insurance does not always cover the leftover part of the balance. It depends on the patient’s plan benefits.
In rare cases, some patients have three insurance coverages. In the case of tertiary insurance, the providers need to give proof of previous insurance coverage. This prevents duplicate payments of the submitted claims.
Under the Affordable Care Act, CMS requires the providers to refund overpayments within 60 days. If the providers fail to comply with the federal compliance rules, it triggers False Claims Act violations.
That is because the providers are not allowed to collect more than 100% of the billed charges.
Explanation of Benefits (EOBs) are considered official documentation to match the reimbursements with initial charges. They also determine the remaining patient responsibility.
The medical billers use EOBs to appeal for denied claims and resolve reimbursement issues.
Coordination of benefits helps the providers identify the correct sequence of payments. The order of benefits is set by the federal and state-specific COB laws. The primary insurance needs to be billed first, then secondary, and then tertiary (if any) insurance last.
The correct payment sequence is important because it results in claim denial if the provider submits the claim in the wrong payment order.
COB ensures that the total reimbursement does not exceed 100% of the provider’s billed payments. The overpayments raise a risk for compliance and also trigger audit issues if not refunded on time. As per CMS regulations, the provider needs to provide a refund within 60 days to avoid penalties.
Studies show that 20-25% of the claim denials are because of the COB issues. Missing COB information automatically results in the claim denial, as the insurer states it is the other payer’s responsibility.
Medical Group Management Association data states that each denied claim costs around $25-$118 for rework and resubmissions. Hence, coordination of benefits reduces the administrative burden caused due to claim denials.
Along with that, performing Verification of Benefits (VOB) at the time of service also reduces the chances of denials.
COB rules clarify to patients the out-of-pocket costs. It ensures that patients are being billed for only the amount they owe. This way, people are less likely to dispute and file complaints.
Compliance with the COB regulations leads to accurate billing to the right payer. That is why COB is important because improper billing results in the False Claims Act violations, if done knowingly.
If a patient is covered as an employee under their job’s insurance plan and is also listed as a dependent under their spouse’s plan, the employee plan is considered primary. The spouse’s coverage plan pays the secondary bills.
For example:
A person just started working full-time and has their employer coverage. But he is also listed as a dependent under their parents’ plan. Their employer coverage will pay the bills primarily.
The birthday rule states that for a dependent child whose insurance is covered by both parents, the plan of the parent whose birth date comes earlier in the calendar is considered primary. However, if both parents have the same birth date, the plan with the longer coverage history will be primary.
For example:
Mother’s birthdate is February 8th, while the father’s is September 20th. The mother’s insurance coverage will be primary.
Both parents have the same birthdate, June 11th. However, mom’s plan has been active since 2020, while the father’s since 2018. In this case, the father’s insurance will be primary.
Gender rule was designated by older COB policies in which the father’s insurance is considered primary. Even though this rule is outdated, some regional or older insurance coverage plans still enforce it.
For example:
Even if the mom’s birthday comes earlier than the father’s, his plan will still be primary according to the gender rule. That is only if the father’s employer plan follows the Gender rule.
This rule applies to the children of separated or divorced parents. The custodial parent’s plan, with whom the child spends most of his time, becomes primary. Whereas the other parent’s plan becomes secondary.
However, if the custodial parent is remarried, then the stepparent’s plan becomes secondary, and the non-custodial parent’s plan becomes tertiary. These rules are subject to change if the court has decided otherwise.
For example:
The mother of a child is the custodial parent, and her plan is supposed to be primary. But the court has ordered the Dad to provide the child’s healthcare coverage. In this case, the Dad’s plan becomes primary for the child.
If someone is covered under both an active employment plan and a retiree plan, the insurance plan for active employment becomes primary. The retiree plan covers all the remaining coverage.
For example:
A woman has Medicare and a retiree health plan from her old job. Medicare becomes primary, and the retiree plan becomes secondary.
If someone has two insurance plans under his name, then the plan that has covered the patient’s coverage for the longer period becomes primary.
For example:
A woman has two plans. One started in 2022 while the other started in 2019. The second plan becomes primary since it has been active longer than the first one.
COBRA stands for Consolidated Omnibus Budget Reconciliation Act. It is a federal law that allows individuals to continue their group health insurance coverage if they have experienced a job loss. However, if there is active coverage, COBRA becomes secondary.
For example:
A man loses his job and takes COBRA. But he also becomes eligible for Medicare. In this case, Medicare is primary and COBRA becomes secondary.
Medicaid is usually the last one to cover if all the other coverage plans have already paid their share. Medicare’s role, on the other hand, depends on the patient’s employment status and employer size.
For example:
A patient has both an employer plan and Medicaid coverage. The employer has already paid 70% of the bill. Now, Medicaid will cover the remaining 30% only if it doesn’t exceed Medicaid’s fee schedule. A 63-year-old patient is still employed and has an Employer Group Health Plan (EGHP). His office contains 40 employees. But they also have Medicare Part A and B. In this case, EGHP will pay first, and the Medicare plan becomes secondary. However, if the same company has 15 employees, Medicare becomes primary, and EGHP will pay the remaining balance.
That is because the Medicare rule states that if the company has 20+ employees, the employer plan becomes primary. But in the case of fewer than 20 employees, Medicare will become primary.
The Workers’ Compensation (EC) insurance becomes primary if the injury is caused by a work-related activity. However, if WC denies or partially covers the claim, then the regular health insurance will pay for the healthcare.
For example:
A construction worker slips on the wet floor and breaks his arm. The employer’s WC will act as a primary plan. However, he later develops unrelated arthritis, so the regular health insurance will be primary in that condition.
COB is a set of rules used when a patient has multiple active insurance plans. It is used to determine primary, secondary, and tertiary coverage plans. Whereas, EOB is a documentation sent by the insurer that shows how the claim was processed. It includes all the details of payments and adjustments.
Medical Group Management Association. (2022). Revenue cycle benchmarking report.
Medical Group Management Association. (n.d.). Understanding the levels of rejection in medical billing [Blog post]. GetMagical.
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