A problem that rarely came up before is arising now. Until recently, very few cases involved a person with both group and non-group (also known as individual or family) health coverage. Indeed modern courts rarely had a chance to consider the problem of how to coordinate such coverage.

To a large degree that’s because practically all health coverage is now provided through insured and self-insured group health plans. But as health care reform moves towards adoption, that’s likely to change. Insurers in the individual health coverage business will no longer be able to deny coverage based on pre-existing conditions. In addition, under health care reform, individual coverage will probably be more uniform and closer to group coverage. Especially in times like these today with large-scale unemployment, more people will buy their health coverage in the individual marketplace.

Since health coverage will continue to be very expensive, few individuals will maintain duplicate coverage. Most of those who buy individual coverage will drop that coverage if and when they get coverage through their jobs. But those who have active medical problems probably will keep both group and individual coverages to avoid large out-of-pocket expenses. And those plans will have to coordinate their benefits.

Thus, it’s very important to look at something we haven’t done before, that is, compare how group and individual health plans can coordinate their benefits. It won’t be easy because group and individual policies use different approaches to COB. And in most states, COB regulation prohibits coordination of group and individual (or non-group) plans. It’s not clear how that problem will be addressed if and when Congress passes some version of health care reform. Probably, the issue will be sent to some administrative agency to resolve.

Originally, the NAIC Model COB Regulation provided that group insurance not coordinate with “individual or family insurance contracts.” Health insurers that offered non-group health coverage always asked if an applicant had other health coverage, and if he or she did, they would not issue a non-group policy. Although some states prohibit medical underwriting of non-group medical policies, no state prohibits underwriting of duplicate health coverage. In addition, health insurers never offered policies to supplement group health coverage (except for MediGap insurance that is designated to supplement Medicare).

Most state COB regulations still preclude coordination by group plans with non-group health coverage, but things are changing. The 2005 version of the NAIC Model COB regulation was modified to permit coordination between group and non-group health coverage. A few years earlier, three states – Idaho, Utah and Washington – adopted rules that permitted COB between group and non-group insured policies if one such policies was issued in one of those states.

Now 10 states (Alabama, Idaho, Indiana, Nebraska, New Hampshire, North Dakota, Ohio, Oregon, Utah and Washington) base their COB regulation on the 2005 Model. Except New Hampshire, they allow group and non-group policies to coordinate their benefits. New Hampshire retains the provision that precludes coordination with non-group policies. Massachusetts allows individual medical policies to coordinate with group policies, but does not permit group medical policies to coordinate with non-group policies. Idaho is alone among states in that it has resolved the issue of how group and non-group medical policies will coordinate. That state provides that non-group policies are always secondary when they coordinate with group health plans. When Idaho revised its COB regulation to conform to the 1995 NAIC Model, it repealed the standard statutory provisions for pro-rata liability of coordinating non-group plans and had its COB regulation provide for coordination of group and non-group coverage with the rule that non-group insurance would be “always secondary.” Thus, the COB OBD rules apply when group and non-group insurance coordinate.

The Importance of Pro Rata

Virtually all states have provisions dealing with duplicate non-group health coverage, which provide as follows: If there is duplicate non-group coverage, each insurer pays the pro rata share of health expenses, and refunds the pro rata share of the premiums they received for the “excess” coverage.

Now, if a person has both group and non-group health coverage, under state laws applicable to non-group health coverage, the coordinating plans share liability on a pro rata basis, and the “excess” coverage is void. But under existing COB regulations applicable to group health coverage in all states, the group plan is either not permitted to coordinate with the non-group plan (in about 75 percent of the states), or if it is permitted to do so (in about 25 percent of the states), COB regulations would require it to use a sequential system. Under this system, there are order of benefits determination (OBD) rules whereby one plan pays its benefits first and the other plan pays secondary benefits up to maximum of the total allowable expenses that were incurred. That does not square with the pro rata approach.

Nothing in the state laws governing coordination of non-group medical policies explains how the coordinating plans are to determine their pro rata share of allowable expenses. Not surprisingly, very few reported cases have interpreted those laws over the years, and absolutely none have recently. If property is involved, there is usually some basis to determine the value of the building, vessel and cargo that was lost. At worst, experts on valuing property would provide different estimates of the value of the lost property, and the courts would make a decision. However, valuing medical policies is not as easy. Deductibles, coinsurance or copayments, exclusions and limitations of coverage vary greatly, as do the allowable charges for services provided by network health care providers. And non-network providers under one of the plans may be non-network providers of the other. Thus, if health plans had to pro-rate their liability, actuarial testimony would be required, and few lawyers, juries and courts would find it easy to sort out the actuarial issues.

The Complexity of Preemption

The issue of preemption arises when a self-insured group plan is subject to ERISA, and that will complicate this already complex situation. It’s cleat how federal courts will sort that issue out. What is clear is that: when group and non-group health plans coordinate, it will likely involve catastrophic medical claims; and those situations will likely have to be resolved by complex litigation involving issues of the value of the coordinating plans, whether the issues involve federal or state law (or both) – resulting in conflicts over whether the matter is to be resolved in federal or state court – ERISA preemption and incompatible laws determining how the coordinating plans are to share liability. In other words, a bonanza for attorneys and a disaster for both the insurers and those insured by them.

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This entry was posted by Adam V. Russo on Friday, February 12th, 2010 at 3:30 pm and is filed under Coordination of Benefits, Health Care Legislation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.