APPENDIX 6 - COORDINATION OF BENEFITS OF A&S CLAIMS

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1 APPENDIX 6 - COORDINATION OF BENEFITS OF A&S CLAIMS Topics in this section include: 1.0 Accident & Sickness (A&S) Insurance 1.1 General 1.2 Deductibles and co-insurance 1.3 More complicated situations 1.4 Still more complications 1.5 Coordination of benefits How do the plans coordinate benefits? Order of benefit determination Examples of how primary and secondary carriers calculate reimbursement of claims 1.0 Accident and Sickness (A&S) Insurance 1.1 General Accident & Sickness (A&S) insurance is designed to reimburse clients for medical expenses that they have incurred. Our provincial plans cover us for most of our medical expenses. If a person is hospitalized, the provincial plans cover all expenses in the hospital, including accommodation, nursing, drugs, etc. A person may have to pay some additional charges if the person wishes to have a private or semi private room. Our provincial plans cover most of medical expenses for outpatients, such as doctors fees, diagnostic tests, visits to specialists on referral, etc. Our provincial plans do not cover the costs of prescribed drugs and do not cover entirely the costs of visiting a physiotherapist or a chiropractor. Vision care is not covered by the province. Dental costs are not covered by provincial plans. The rule is that private insurance plans cannot duplicate any coverage offered by provincial plans. Therefore, these plans offer coverage such as prescription drug reimbursement, extended health-care costs, dental costs, etc. Copyright 2011 Oliver Publishing Inc. All rights reserved 1

2 An accident-and-sickness policy covers such expenses as the additional costs paid for private or semi-private accommodation in a hospital, costs of prescribed drugs as an outpatient, fees charged by physiotherapists, chiropractors, etc. Dental plans cover the costs incurred for dental care. 1.2 Deductibles and co-insurance A&S plans usually come with an annual deductible and a co-insurance factor. A plan may have, for example, a $50 deductible and a 80% co-insurance factor. A plan with an 80% co-insurance may be designated as an plan. If the insured has an expense of $1,000 and makes a claim, the reimbursement would be calculated as: Plan particulars Deductible $50.00 Co-insurance 80% Calculation for first claim: Claim 1: $1, Less deductible $50.00 $ Times co-insurance x80% $ Now the annual deductible has been used up. There will be no more deductible for claims made this year. Assume that the insured makes a second claim of $500 Calculation for second claim: Claim 2: $ Less deductible $0.00 $ Times co-insurance x80% $ Copyright 2011 Oliver Publishing Inc. All rights reserved 2

3 1.3 More complicated situations Prescription-drug reimbursement plans may be brand name plans or generic plans. If the insured is covered by a generic plan, the pharmacist will substitute the cheapest generic equivalent, if available, for the drug prescribed. If no generic drug is available at that time, the pharmacist will supply the brand name prescribed by the doctor. Generic drug plans will not reimburse the cost of brand-name drugs if a generic equivalent is available. Brand-name drug plans will reimburse the cost of the brand-name drug prescribed by the doctor. Obviously, brand-name drug plans are more expensive than generic drug plans. Let us assume that the insured has a generic drug plan with a $50 annual deductible. The insured incurs the following medical expenses as the first claim of the year: Generic drugs $400 Brand-name drug (for which generic is available) $500 The plan will not reimburse the $500 expense on brand-name drug. It will work as though the claim was only $400. Plan particulars Deductible $50.00 Co-insurance 80% Calculation for first claim: Claim 1: $ Allowable claim $ Less deductible $50.00 $ Times co-insurance x80% $ Similarly, dental plans come as: Basic coverage (oral exam, cleaning, scaling, X-rays, fillings, simple extractions, relining, rebasing, and repairing dentures). Comprehensive coverage may include: Endodontics (root canals); Periodontics (gum problems), crowns, new dentures, new bridges, complicated fillings, oral surgery; and Orthodontics (cosmetics). Copyright 2011 Oliver Publishing Inc. All rights reserved 3

4 Therefore, for example, an insured with a basic dental plan will not be reimbursed the costs of a root-canal treatment. Normally a higher-level plan will cover all the items covered by the lower-level plan. If the insured has a periodontic plan, it will cover the insured for all expenses covered under a basic plan, an endodontic plan, as well as expenses covered under a periodontic plan. It will not cover the insured for expenses covered under an orthodontic plan. So the premiums for a dental plan are dependent on the type of coverage selected (i.e., basic, endodontic, periodontic, or orthodontic). Assume an insured has a basic dental plan and incurs the following expenses: Cost of oral examination $200 Cost of root-canal treatment $700 The plan will consider only a claim of $200, since expenses for an oral examination are covered by the basic plan. So, if the insured has an plan with an annual deductible of $50, and this was the first claim of the year, the reimbursement would be calculated as follows: Dental plan particulars Deductible $50.00 Co-insurance 80% Calculation for first claim: Claim 1: $ Allowable claim $ Less deductible $50.00 $ Times co-insurance x80% $ Still more complications While the foregoing discussions on reimbursement plans are complicated, everything gets even more complicated when a person is covered by more than one plan, and this situation occurs frequently. Consider spouses who are working for two different employers, both of which offer a group prescription drug or dental plan, and both spouses are group members at their respective workplaces. The group plans generally cover the employee and his/her family. Therefore, the family of this couple is covered by two plans. These plans are reimbursement plans, and therefore the couple is entitled to be reimbursed Copyright 2011 Oliver Publishing Inc. All rights reserved 4

5 from both plans put together, up to the maximum of their expenditure. These plans are reimbursement plans and not income-generating plans. For this reason benefits received under an accident-and-sickness plan is tax-free to the insured. 1.5 Coordination of benefits To ensure that an insured covered under multiple plans gets reimbursed maximum up to the incurred expenditure as well as to set rules about which plan will be the primary payer, the Canadian Life and Health Insurance Association (CLHIA) has set up guidelines How do the plans coordinate benefits? The plan that determines benefits first (the primary carrier) will calculate its benefits as though duplicate coverage does not exist. The plan that determines benefits second (the secondary carrier) limits its benefits to the lesser of: (i) The amount that would have been payable had it been the primary carrier; or (ii) 100% of all eligible expenses, reduced by all other benefits payable for the same expenses by the primary plan. This means that an individual may receive reimbursement for up to 100% of the eligible expenses Order of benefit determination (1) The plan with no coordination-of-benefits provision in the contract or plan document determines benefits first. (2) If the other plan(s) has/have a coordination of benefits provision, priority goes to the plan in the following order: Employees/members: (i) The plan under which the person is covered as a member. (ii) If a person is a member of two plans, priority goes to: (a) The plan where the member is an active full-time employee; (b) The plan where the member is an active part-time employee; (c) The plan where the member is a retiree. Copyright 2011 Oliver Publishing Inc. All rights reserved 5

6 Dependents: Spouse (iii) The plan where the person is covered as a dependent spouse. Dependent Children (iv) The plan of the parent with the earlier birthdate (month/day) in the calendar year. (v) The plan of the parent whose first name begins with the earlier letter in the alphabet, if the parents have the same birthdate. (vi) In situations where parents are separated/divorced, then the following order applies: (a) The plan of the parent with custody of the child; (b) The plan of the spouse of the parent with custody of the child; (c) The plan of the parent not having custody of the child; (d) The plan of the spouse to the parent in (iii) above. Dental Accidents For dental accidents, health plans with dental accident coverage determine benefits before dental plans. Other Situations If priority cannot be established in the above manner, the benefits will be prorated in proportion to the amounts that would have been paid had there been coverage by just that plan. Copyright 2011 Oliver Publishing Inc. All rights reserved 6

7 1.5.3 Examples of how primary and secondary carriers calculate reimbursement of claims: Example 1 Claim: Drug 1 $ Drug 2 $ ineligible under carrier A Drug 3 $ Total $ Carrier A Claim submitted $ Claim ineligible $ Eligible claim $ Deductible $ $ X 80% coinsurance $ Out-of-pocket $ $ $ Carrier B Claim submitted $ Claim ineligible $ 0.00 Eligible claim $ Deductible $ $ X 80% coinsurance $ Carrier B pays the lesser of the out-of-pocket amount or the reimbursement amount that would be paid if Carrier B were the first or sole payer. Or $80.00 Copyright 2011 Oliver Publishing Inc. All rights reserved 7

8 Example 2 Claim: Drug 1 $ Drug 2 $ Drug 3 $ Total $ Carrier A Claim submitted $ Claim ineligible $ 0.00 Eligible claim $ Deductible $ $ X 80% coinsurance $ Out-of-pocket $ $ $ Carrier B Claim submitted $ Claim ineligible $ 0.00 Eligible claim $ Deductible $ $ X 80% coinsurance $ Carrier B pays the lesser of the out-of-pocket amount or the reimbursement amount that would be paid if Carrier B were the first or sole payer. Or $80.00 For detailed examples see the CLHIA s Guideline G4 for Coordination of Benefits at Copyright 2011 Oliver Publishing Inc. All rights reserved 8

9 1.5.4 Example Assume the following: John and Joyce are spouses with two children. John has a group prescription drug plan at work which is a brand-name drug plan with $50 single deductible, a $150 family deductible, and 100% co-insurance. The plan has a limit of $3,000 per year. Joyce has a generic plan at her workplace, with a $50 single deductible, a $150 family deductible, and an 80% co-insurance factor. Both plans cover the employees and their families. John and Joyce have two daughters, Mary and Jenny, aged eight years and six years respectively. Joyce was born on February 10, and John was born on August 8. Both the plans coordinate benefits. They have the following expenses, which they submit one after another in the sequence given. How much will be reimbursed by each plan: Claim 1 John $1,000 Brand-name drugs Claim 2 Joyce $900 Generic drugs Claim 3 Jenny $1,500 Generic drugs Claim 4 Mary $800 Generic drugs Claim-1 John $1, Carrier A payment (John's Plan) 1, Maximum deductible % co-insurance $ Out-of-pocket $50.00 Cumulative payment $ Carrier B payment (Joyce's plan) 1, submitted 1, ineligible 0.00 ineligible 80% co-insurance $0.00 The insurer will pay 0.00, as brand name drugs are ineligible under its plan. Copyright 2011 Oliver Publishing Inc. All rights reserved 9

10 Claim-2 Joyce $ Carrier A payment (Joyce's plan) deductible % co-insurance $ Out-of-pocket $ Cumulative payment $ Carrier B payment (John's plan) submitted deductible % co-insurance $ We pay $ Cumulative payment $1, Claim-3 Jenny $1, (The primary carrier will be Joyce's plan, because of her earlier birthday.) Carrier A payment (Joyce's plan) 1, deductible 1, % co-insurance $1, Out-of-pocket $ Cumulative payment $1, Copyright 2011 Oliver Publishing Inc. All rights reserved 10

11 Carrier B payment (John's plan) 1, submitted 0.00 deductible 1, % co-insurance $1, We pay $ Cumulative payment $2, Claim-4 Mary $ (The primary carrier will be Joyce's plan, because of her earlier birthday.) Carrier A payment (Joyce's plan) deductible % co-insurance $ Out-of-pocket $ Cumulative payment $2, Carrier B payment (John's plan) submitted 0.00 deductible % co-insurance $ We pay $ Cumulative payment $2, So we have John s plan reimbursing $1,710 and Joyce s plan reimbursing $2,440. John s Plan Joyce s Plan Claim 1 $950 $0 Claim 2 $220 $680 Claim 3 $380 $1120 Claim 4 $160 $640 Total $1,710 $2,440 Total reimbursed: $4,150 Total claim: $4,200 Copyright 2011 Oliver Publishing Inc. All rights reserved 11