Coordination o benefits

[Guest Ruth]

In regards to dental coverage, when an employee has primary coverage at work and dependent coverage at the spouse's plan, and the secondary insurer is applying non-duplication of benefits, we are being told that the secondary coverage can be completely offset by the primary is their benefits are the same or higher than the secondary. For example, the primary covers basics at 85% and leaves 15% unpaid. The secondary is not picking up the 15% and is stating that their 80% benefit is competely offset. This is the first time I have encountered this. Is this a new way of adminstrating COB? Should employees have been told about this before they enrolled when the employer switched to this policy?

[Kirk Maldonado]

My understanding is that generally COB is covered by state insurance law, and my impression is that that a fully-insured plan cannot take the approach that you described.

On the other hand, if the plan is self-funded, then it is exempt from state law, so that they can do whatever they want. I am fairly certain about this latter point, but I must admit that I don't follow the nuances of state COB law.

[Guest Ruth]

Thank you for your reply.

The employer is fairly large and is most likely funding the claims. The benefits are administrated through an insurance carrier, probably on an ASO arrangement. I would assume that this would then make them subject to state laws again? I have contacted the insurance department and they need a claim form and copies of the SPD pages to get started.

[KIP KRAUS]

I didn't think COB was mandated by state insurance. However, an insurer more than likely has to file their COB provisions with the state.

That is an iteresting approach that the secondary plan is taking. They pay nothing when the primary plan has a higher benefit, but will in fact pay more when the primary plan has a lessor benefit. I understnad that non-dupilcation of benefits is intended to save money over the standard COB provisions, but to apply it this way seems a little cheesey at best, but I guess if it works for them that's great, but they had better explain this to their participants.

[Larry M]

Isn't this one of the three approaches used in Medicare situations - it is a "carve out" method where the seconday carrier will determine the benfits it will pay and subtract from that the benefits paid by the primary carrier.

The logic is simple: Company B (the one with the secondary plan) has decided it wishes to protect its employees from certain medical expenses - up to a point. Once the reimbursement to the employee reaches that point, the employee is on his own. The employer does not want to have its employee reach a situation where additional, perhaps marginally necessary medical expenses are incurred just because it costs the employee nothing.

[Greg Judd]

Larry's nailed this one. Non-dup COB is less a matter of self-insured vs insured than the sponsor's goals/philosophy regarding what the benefit plan is for (state laws may mandate particular COB terms, but I don't know of any state that prohibits non-dup provisions).

Greg Judd CEBS CLU ChFC

[KIP KRAUS]

I don't see this as an issue of defining Non-duplication of benefits. We know how that works, and with Non-dup the participant in most cases will not recieve 100% reimburesment between the two plans. It seems to me Ruth's issue is that the secondary plan is not going to pay even though they have a non-duplicaiotn of benefits COB provision. As I understand the original post, the secondary plan will not apply their COB if the primary plan pays higher benefits. Lets take Ruth's example. On a $100 expense the primary plan pays $85, and the secondary plan is paying zero. If the secondary plan applies its non-dup COB to this claim they would end up paying 80% of the $15, or $12, thus the participant recieves $97 in reimbursement between both plans, not 100% reimbursement. Of course under the standard COB provisions the participant would end up with 100% reimbursement. This is the reason employers opt for non-dup, and have been for years.

Now as to the apparent creativeness of this employer Ruth is talking about, unless they have a major number of employees in an area where other employers have dental plans that consitently pay higher co-pays, the savings they are experiencing in using this method may not out way the ill will they are creating among their employees. Creative? Perhaps.

[Kirk Maldonado]

I wouldn't even call the approach creative. I've encountered it many times in self-funded medical plans, some more than ten years ago.

[Guest Ruth]

It was a new approach for our region (Central PA). The most disturbing fact is that the company switched to this system the fist of the year but did not notify anybody during the open enrollment period in October. The prior coverage was allowing COB to 100%. A SPD with the provisions was not distributed until some time in January after elections have been made. The company states, that for medical and dental, if there is secondary coverage, they will not pay any more than what the level of their benefits are minus any reimbursements already received by the primary carrier.

No problem as long as this would have been fully disclosed upfront even though it is another take-away.