Coordination of benefits (COB) is the set of rules that decides how two or more health plans pay when a person is covered by more than one. One plan is primary and pays first as if no other coverage existed; the other is secondary and may pay remaining allowable expenses, so total payments don't exceed 100% of allowable expenses. Most states base their rules on the NAIC Coordination of Benefits Model Regulation (#120).

Why it matters

Many people are covered twice, such as under their own employer's plan and a spouse's plan. Without COB, they could collect more than the bill, which conflicts with the principle of indemnity and drives up premiums.

Who pays first (Model #120 order of benefits)

1. The plan covering the person as an employee is primary over a plan covering them as a dependent.
2. Birthday rule – for a child of parents who are married or living together, the plan of the parent whose birthday (month and day, ignoring the year) falls earlier in the calendar year is primary.
3. For a child of divorced parents with no court decree: the custodial parent's plan, then the custodial parent's spouse's, then the noncustodial parent's, then the noncustodial parent's spouse's.
4. Active employee coverage is primary over coverage as a retiree, laid-off employee, or COBRA continuee.
5. If no other rule decides, the plan that has covered the person longest is primary.

Separate federal Medicare secondary payer rules decide when Medicare pays second; for example, an employer group plan is primary for a worker 65 or older at an employer with 20 or more employees.

A simple example

A child is covered by both parents' plans. Mom was born July 2, 1980; Dad was born March 10, 1985. Dad's plan is primary because March comes before July. Mom's plan is secondary and may pay remaining allowable costs, but combined payments won't exceed the allowable expense.

Don't confuse it with…

• COB coordinates the insured's own health plans; subrogation recovers from a negligent third party.
• The birthday rule uses month and day, not which parent is older.

On the exam

Know that COB keeps total payments at or below 100% of allowable expenses, that employee coverage beats dependent coverage, and how the birthday rule and the divorced-parent order work.