Multiple Payors and Coordination of Benefits (COB)

One aspect of the healthcare system that frequently leads to confusion and difficulty obtaining proper payment for health care services is coordination of benefits (COB). What happens when there is more than one entity potentially liable to pay for health care treatment?

Potentially liable entities

For coordination of benefits purposes, “liable entity” is not referring to the financial obligation of the patient himself or of relatives such as a spouse or a minor’s parents.

“Potentially liable entities” from a COB perspective means organizations such as health insurance companies, employer-sponsored ERISA health benefit plans, auto liability insurers, or government programs such as CHIP, STAR, Medicare, or Medicaid.

In a COB context, “liable” means “financially obligated” whether that obligation arises from tort liability, wrongdoing, or a simple contractual relationship such as health insurance.

Also, COB usually is not applicable in a worker’s comp situation. If a worker’s compensation system is applicable, normally the only entity responsible to pay medical providers for treatment is the worker’s compensation carrier.

Documents setting financial responsibility

The financial obligations of payor entities virtually always arise from and are governed and limited by a contract, policy, or similar document such as the following:

Auto liability insurance policy
No fault auto insurance policy
Uninsured motorist insurance coverage (referred to as UM)
Underinsured motorist insurance coverage (referred to as U I M)
ERISA Summary Plan Description (SPD)
Individual health insurance policy
Group health insurance policy
Supplemental health insurance policy (general policy to help with deductibles, etc.)
Catastrophic health insurance policy
Supplemental health insurance plan (for a specific medical condition)
Disease-specific supplemental insurance policy
Critical illness insurance (another term for specific-condition or disease-specific)
Medigap Insurance Plan
Medicare Advantage Plan
Medicare Replacement Plan
Homeowner Liability insurance policy
General Liability insurance policy
State or federal statute or regulation setting government program rates

Other factors related to COB financial responsibility

In addition to the documents, as a practical matter the interpretation of the documents and situation affects the obligations. This is particularly true in COB situations where multiple entities try to minimize, avoid or shift financial responsibility to other entities.

Persons and factors that may affect an entity’s understanding of its own financial responsibility and the financial responsibility of other involved entities include: insurance company claims adjustors; adjustors at Third-Party Administrators (TPA); adjustors who work at independent claims adjusting companies; medical bill audits by outside auditing companies; employees in the Human Resources Department of a small business that processes claims in-house; in-house policies and procedures of an insurer, TPA, or other claims processor; and legal counsel for a payor. Note that those persons usually work for a company that has a vested interest in minimizing the amount it pays.

Typical Situations with COB Issues

Coordination of benefits issues typically arise in the following situations:

Multiple entities each have partial financial responsibility for payment of health care services.
Persons involved in the situation incorrectly think that multiple entities have partial financial responsibility, when in fact only a single entity has responsibility.
Persons involved incorrectly think that only one entity has responsibility when in fact several do.
Persons involved misunderstand the priority of obligations (primary, secondary, tertiary).
Persons involved misunderstand the amount of each entity’s obligation.
Persons involved claim that first-party insurance such as a patient’s health insurance has priority over third-party insurance such as an at-fault driver’s liability insurance.
Persons involved incorrectly believe that a government payor has financial responsibility when responsibility of private-sector entities makes that inapplicable.

Mistake or intentional?

Although the above list talks about “misunderstand” or “incorrectly believe”, particularly in a coordination of benefits situation it is not uncommon to find facts or law intentionally misstated or omitted in hopes of avoiding or minimizing payment, and organizations taking that approach often are obstinate. Overcoming such tactics can require tracing relationships between related companies and tracking down corporate officers, regional managers, or in-house counsel, who may be in a different state at a division with a completely different name.

Interactions with Provider Liens or Assignments

Additional issues can arise when there is more than one payment source coupled with other obligations such as a hospital lien, physician liens, or an Assignment of Benefits (AOB). Manziel Law Offices, PLLC has substantial experience handling these types of multi-party, multi-issue situations for a range of Providers.

Other COB-Type Issues

A number of other COB-type issues sometimes occur, which are beyond the scope of this article. These issues usually are very fact-dependent. A provider faced with issues such as these should contact Manziel Law Offices, PLLC to discuss the specific case. Some common ones are these:

Lack of COB Information – Payors, particularly ERISA plans and health insurers, might deny or pend a claim because they don’t have recent information about whether the patient possibly has other coverage.
COB Coordination by Provider – Payors, particularly ERISA plans and health insurers, sometimes insist that the Provider must do all the benefits coordination – contact the patient for current information, call various insurers with on-going updates, etc.
Refund demand – A secondary payor tells the Provider it wants full or partial refund because some other payor is primary.
Recoupment – A secondary payor partially or fully recoups because it claims that some other payor is primary.
Reinsurance issues – Reinsurance is basically insurance with a very large deductible; for instance, the Plan (almost always a self-funded ERISA plan) may pay the first $25,000 itself and then “reinsurance” picks up the rest. Although this is not usually considered “coordination of benefits”, very similar issues often arise.
Late Filing Denial from Secondary – ERISA plans, insurance policies, and managed care contracts often say that claims must be filed with a certain time period. Standard practice is that if a payor is secondary the deadline starts to run when the Provider receives payment or denial from the primary. Some secondaries try to apply the primary deadline and deny the claim.
Subrogation – A secondary payor that has paid wants reimbursement from a primary payor.
Subrogation rights – A payor refuses to pay until the patient signs documents protecting the payor’s subrogation rights.
Right of Reimbursement – This is really “right of subrogation” just by another name. Due to certain court rulings, ERISA Plan documents often include a “right of reimbursement” clause separate from a “subrogation” clause.
Right of First Recovery – This too is really just another name for “right of subrogation” in hopes of avoiding certain court rulings.

COB Questions to Be Determined

In any potential COB situation the following issues need to be examined and determined:

Is there in fact more than one entity with possible financial responsibility?
If so, which entity has primary liability?

That entity must pay as if there were no other payors.
For the other payors, what is the priority of each one’s obligation? Which is secondary, tertiary, and even possibly fourth-in-line (quaternary)?
For the other payors, what is the amount of each one’s obligation?
Are there “payors of last resort” – usually government programs such as Medicare and Medicaid – who usually are not responsible if there are any other resources?

Limits, Obligations and Priority

Health insurance policies and ERISA plans have a patient portion, consisting of deductibles, co-pays, co-insurance (a portion of the bill the coverage does not pay, e.g., 20%) and/or annual or lifetime maximums (often referred to as “caps”.)

In a COB situation, the primary payor must pay its full obligation as if there were no other payors. If a balance remains, the secondary payor must then pay the secondary’s full obligation (which may be less than if it were primary). If a balance still remains, the tertiary payor must then pay the tertiary’s full obligation, etc.

In practice, COB provisions use the term “secondary” to refer to any position other than primary. Commonly, a secondary payor’s obligation is to pay up to the difference between what the primary did pay and what the secondary would have to pay if the secondary were primary. In this sense, a tertiary payor would consider both the actual primary and secondary payors as being “primary”.

Illustrative Examples

Example 1:

Charges $100k
Liability insurance (primary) pays $70k
Health insurance (secondary) would pay $80k if it were primary.
Health insurance (secondary) pays $10k – the difference between the $80k it would pay as primary and the $70k already paid by other sources.
Result: Patient owes $20k, the same as if only health insurance had paid.

Example 2:

Charges $100k
Liability insurance (primary) pays $70k
Health insurance (secondary) would pay $80k if it were primary.
Health insurance (secondary) pays $30k – the amount up to its $80k obligation that remains after the primary paid.
Result: Patient owes $0k.

Example 3:

Charges $100k
Liability insurance (primary) pays $70k
Health insurance (secondary) would pay $65k if it were primary. (As contrasted to $80k above.)
Health insurance (secondary) pays $0k – the total already paid by the primary exceeds the amount the health insurer would pay if primary.
Result: Patient owes $30k.

Why such different results with very similar facts? Differences in policy wording and/or interpretation.

COB provisions tend to be broadly worded, which can lead to conflicting interpretations. Also, it is not unusual for someone seeking to shift financial responsibility to misread or misapply COB-related provisions.

One-Payor Scenarios

A common “reverse” scenario is where there is only one payor – usually an auto liability insurer in a motor vehicle accident (MVA) case – but a patient’s attorney claims that the Provider should seek payment from a program such as Medicare or Medicaid. (Regarding terminology, in the healthcare payment context the term “single-payor” is generally used only to refer to socialized medicine programs where a single national or province-wide program pays for most medical treatment.)

Many government programs, including both Medicare and Medicaid, by statute are “payors of last resort.” If there are other sources of payment, by statute the Provider is expected to seek payment from those “third-party resources” first. In other words, if “third-party resources” are available Medicare and Medicaid are never primary. In fact, if third-party resources pay more than the government program rate, which is usually the case, the government program is not liable.

A similar “one payor” situation exists with Medicare Supplemental Policies (Medigap) – policies that pick up some of what Medicare does not pay. If a program or policy being supplemented is not liable, then the supplemental policy isn’t liable either.

Resolution Hurdles

COB situations can be favorable to both the Provider and the Patient because of greater availability of funds. However, Patient Accounts personnel, who normally only deal with one-payor scenarios, can quickly find themselves overwhelmed by a whole new range of arguments and issues they never normally see – and by the time and resources it takes to adequately respond.

Such hurdles may include repealed statutes, irrelevant decisions of out-of-state courts, misapplying managed-care contract terms, or misreading policy provisions – approaches often used in COB situations to try to minimize or avoid a payor’s payment obligation.

Added to those is the simple fact that multiple payors means more calls and more correspondence will be necessary, just for . . . coordination.

Multiple Payors and Coordination of Benefits (COB)