Coordination of Benefits and Secondary Claims: Getting Paid When a Patient Has Two Plans

A billing manager showed us a work queue called "Secondary pending" with 612 claims in it. Some had been waiting four months. Her team filed secondary claims by hand after the primary paid, when they had time, and they rarely had time. Several hundred of those balances had been sent to patients as statements in the meantime, which produced phone calls from patients who said, correctly, that they had two insurances and should not owe anything. The practice was spending money to collect balances it was not entitled to collect, while the payer that actually owed them sat unbilled.

Coordination of benefits is not complicated in principle: when a patient is covered by two plans, one pays first, the other considers what is left, and the rules for which is which are written down. It becomes expensive in practice because the order has to be established at registration, the secondary claim has to carry the primary's adjudication, and each kind of secondary payer calculates its payment differently. Get any of those wrong and the result is a CO-22 denial, a secondary claim that pays nothing, or a patient billed for a balance someone else owed.

The direct answer: coordination of benefits (COB) is the set of rules that decides which of a patient's plans pays first and how much the second plan pays after the first has adjudicated. For commercial plans the order follows rules modelled on the NAIC standard (subscriber before dependent, the birthday rule for children, active coverage before retiree or COBRA coverage); for Medicare the order follows the federal Medicare Secondary Payer (MSP) statute, which makes employer coverage primary for working patients and makes Medicare primary over retiree plans, COBRA and Medigap; Medicaid is always last. The secondary claim must show the primary's allowed, paid and adjustment amounts, and the secondary payer then pays according to its own method: traditional COB, non-duplication, Medicare's lowest-of-three calculation, or Medicaid's lesser-of rule. The four scenarios below work each one through with real numbers.

Who pays first: the order-of-benefits rules

Before any dollar figure, the order has to be right, and it is decided by facts gathered at registration, not by the claim. For two commercial plans the usual sequence runs: the plan that covers the patient as a subscriber or employee pays before the plan that covers them as a dependent; for a dependent child of parents who are married or living together, the plan of the parent whose birthday falls earlier in the calendar year pays first (the birthday rule, which uses month and day only, not year); for a child of divorced or separated parents, a court decree assigning responsibility controls, and absent one, the custodial parent's plan, then the custodial parent's spouse's plan, then the non-custodial parent's plan; a plan covering an active employee pays before a plan covering a retiree or a COBRA continuation; and when none of those rules settles it, the plan that has covered the person longer pays first. States adopt these rules by regulation and some vary them, so the plan documents govern when they differ.

For Medicare the order is federal law, and the Medicare Secondary Payer questionnaire exists to establish it. Medicare is secondary to a group health plan when the patient is 65 or older, covered through their own or a spouse's current employment, and the employer has 20 or more employees; when the patient is under 65 and disabled, covered through current employment of themselves or a family member, and the employer has 100 or more employees; and for the first 30 months of Medicare eligibility based on end-stage renal disease, regardless of employer size. Medicare is also secondary to workers' compensation, no-fault and liability insurance for the injuries they cover. Medicare is primary over retiree coverage, COBRA coverage (except during the ESRD coordination period), Medigap supplements, TRICARE For Life and Medicaid. Veterans Affairs benefits do not coordinate with Medicare at all; the patient chooses which to use for a given episode. The Benefits Coordination and Recovery Center (BCRC) maintains Medicare's record of other coverage, and when a claim arrives that contradicts the record, the result is a CO-22 denial ("this care may be covered by another payer per coordination of benefits") that no appeal letter will fix until the record is corrected by the patient or the employer calling the BCRC.

Scenario 1: two commercial plans, traditional COB

A 45-year-old patient is covered as a subscriber by her employer's plan and as a dependent on her husband's plan. Her own plan is primary under the subscriber rule. She has an established patient visit, CPT 99214, billed at $240. The practice is in network with both plans. Her primary plan's allowed amount is $160; her deductible is met and the plan pays 80 percent. Her husband's plan uses traditional COB, allows $150 for 99214, and would also pay 80 percent if it were primary.

The rule behind it: under traditional (sometimes "standard") COB the secondary plan pays the lesser of what it would have paid as primary and the balance the patient still owes after the primary's payment, so the patient ends up owing nothing. The practice cannot collect more than the primary's allowed amount, because its contract with the primary plan made the $80 a write-off; the secondary's lower allowed amount is irrelevant once the primary has adjudicated. The secondary claim must therefore carry the primary's allowed, paid and adjustment amounts, or the secondary cannot compute the remaining liability and will deny or pend with remark MA04 or its commercial equivalent.

Scenario 2: the same patient, but the secondary uses non-duplication

Same visit, same numbers, but the husband's plan uses a non-duplication (sometimes "carve-out" or "maintenance of benefits") method, which is common in self-funded employer plans.

The rule behind it: a non-duplication plan pays the difference between what it would have paid as primary and what the primary actually paid, and nothing when the primary paid as much or more. In the left column the primary's $128 exceeds the secondary's $120 normal benefit, so the secondary pays nothing and the patient owes the $32 coinsurance even though she has two plans. In the right column, where the primary applied the whole allowed amount to the deductible, the secondary pays its full $120 and the patient owes $40. This is the scenario that produces the phone call "I have two insurances, why do I owe anything?", and the honest answer is that the second plan's COB method leaves a balance. Having the method noted on the account at eligibility verification (the 271 response or the plan's benefit summary will state it) lets the front desk explain it before the visit rather than after.

Scenario 3: Medicare secondary to an employer group health plan

A 67-year-old patient still works for a company with several hundred employees and is covered by its group health plan; he also has Medicare Part B. Under the working aged rule his employer plan is primary and Medicare is secondary. The MSP questionnaire at registration captured his current employment and the employer's size; the practice billed the employer plan first and is in network with it. Office visit 99214, billed $240. The employer plan allowed $170 and paid 80 percent, $136, leaving $34 coinsurance. The Medicare physician fee schedule amount for 99214 in this locality is, for the purposes of the example, $130, and the patient's Part B deductible is met.

Medicare computes its secondary payment as the lowest of three figures, set out in the Medicare Secondary Payer Manual, Chapter 3 and Chapter 5.

Now change one fact: the patient had not met the employer plan's deductible, so the plan allowed $170 and paid nothing. Calculation 1 becomes $170 minus $0, or $170; calculation 2 is still $104; calculation 3 becomes $170 minus $0, or $170. The lowest is $104, Medicare pays it, and the patient owes $66, the difference between the $170 the practice may collect and the $104 Medicare paid. Medicare does not fill the whole gap when the primary pays little, which surprises both patients and billers.

The rule behind it: Medicare as secondary never pays more than it would have as primary, never pays more than the remaining balance, and respects the higher of the two allowed amounts as the ceiling on what the practice collects. The "obligated to accept" amount matters: when the practice is in network with the primary, that contracted allowed amount caps calculation 1; when it is out of network with the primary, the billed charge is used. On the claim, the 837P carries the primary payer in loop 2320 with the payer responsibility code, the MSP insurance type code (12 for working aged with an employer group health plan, 43 for disability with a large group health plan, 13 for ESRD, 14 for no-fault, 15 for workers' compensation, 47 for liability), the primary paid amount in the AMT segment, and the primary's adjustments as CAS segments at claim or line level; the paper CMS-1500 equivalent puts the primary insurer in items 11 through 11c, the paid amount in item 29 and the primary's remittance as an attachment. A Medicare secondary claim without the primary's adjudication detail denies or returns with MA04.

Scenario 4: Medicare primary, Medicaid secondary, and the QMB rule

A 72-year-old patient has Medicare Part B and is enrolled in Medicaid as a Qualified Medicare Beneficiary. Office visit 99213, billed $180. Medicare allows $92 (again an illustrative figure; the real amount is in the fee schedule look-up tool for the year and locality), the deductible is met, and Medicare pays 80 percent. The claim crosses over automatically to the state Medicaid programme under the Coordination of Benefits Agreement, so the practice files nothing further unless the crossover fails. The state pays Medicare cost sharing on a lesser-of basis: it pays up to the Medicaid fee schedule amount for the service, minus what Medicare paid, and never more than the actual coinsurance and deductible.

The rule behind it: Medicaid is the payer of last resort and most states pay Medicare cost sharing only up to their own rate, which for many office services is below Medicare's, so the crossover often pays nothing. The $18.40 does not then become the patient's. Federal law prohibits billing a QMB patient for any Medicare deductible, coinsurance or copayment, and providers must accept the Medicare payment plus whatever Medicaid pays as payment in full. QMB status shows in the HETS eligibility response and on the Medicare remittance with remark codes N781 and N782. A practice that sends that patient a statement for $18.40 has violated its Medicare provider agreement, and CMS has sent compliance letters to practices that do it. The write-off goes to a specific adjustment code so the practice can see what the dual-eligible population costs it, which is a legitimate input to the decision about how many Medicaid patients to accept.

What goes on the secondary claim, and when

Three mechanics decide whether a secondary claim pays. First, the primary's adjudication must be on it, at the level the secondary expects: the primary's allowed amount, paid amount, patient responsibility and adjustment reason codes, usually at line level. Most practice management systems build the secondary claim from the posted 835, which is why posting primary remittances electronically and accurately is a prerequisite; a hand-keyed primary payment with no adjustment detail produces a secondary claim that pends. Second, the timely filing clock for the secondary usually runs from the date of service, not from the primary's payment, unless the contract says otherwise, so a primary that takes 60 days to pay has already consumed 60 days of a 90-day secondary limit. Third, Medicare crossover and Medigap crossover happen automatically only when the information is there: the Medicaid or Medigap plan must have a Coordination of Benefits Agreement with CMS and the Medigap policy information must appear on the Medicare claim (on paper, in item 9 with its fields, and electronically in the other subscriber loop) for the claim to be forwarded. When a crossover does not occur, the remittance says so, and the practice files the secondary directly with the Medicare remittance attached.

The denial codes that signal COB problems are worth memorising. CO-22 means the payer believes another plan is primary; fix the order with the patient and the payer's COB unit, or the BCRC for Medicare, and refile to the right primary. OA-23 on a secondary remittance is not a denial at all; it reports the impact of the primary's adjudication and explains why the secondary paid less than its allowed amount. CO-109 means the claim went to the wrong contractor or payer. Remark MA04 means the secondary cannot process without the primary's information. Our denial code lookup lists these with the usual fixes.

The registration questions that prevent all of this

Every scenario above was decided before the patient saw the physician. The front desk needs, for every patient at every visit: every insurance card the patient holds, including Medicare and any Medicaid or Medigap card; whether the patient or spouse is currently employed and the approximate size of the employer; whether the visit relates to an accident, injury or work; for a child, which parent's plan is which and the parents' birth dates and custody arrangement; and for Medicare patients, the MSP questionnaire answers, updated at least every 90 days for recurring services. Run eligibility on every plan, read the 271 for other-coverage indicators, and record the COB method the secondary uses when the response states it. Practices that do this see secondary claims pay on the first pass; practices that do not run a 612-claim queue. The secondary cycle is part of the claims workflow in our medical billing service, and if your current biller is sending patients statements for balances a second plan should have paid, that is one of the first things we fix when a practice is switching.

Questions we hear

How does secondary insurance pay? Does it always cover what the primary did not?

No. A secondary plan pays according to its own method. Under traditional COB it pays the lesser of its normal benefit and the remaining balance, which usually clears the patient's share. Under non-duplication it pays only the amount by which its normal benefit exceeds the primary's payment, which often leaves a balance. Medicare as secondary pays the lowest of three calculations and may leave a balance when the primary paid little. Medicaid pays up to its own rate and often pays nothing, but the patient cannot be billed. Check the method at eligibility verification and tell the patient before the visit.

What is the birthday rule, and does the year matter?

For a dependent child covered by both parents' plans, when the parents are married or living together, the plan of the parent whose birthday comes first in the calendar year is primary. Only the month and day count; the year of birth is irrelevant. If both parents share a birthday, the plan that has covered a parent longer is primary. For divorced or separated parents the rule changes: a court decree assigning responsibility controls, and otherwise the custodial parent's plan is first. Some plans and states modify the rule, so when two payers disagree, ask each for its COB determination in writing.

When is Medicare secondary?

When the patient is 65 or older and covered by a group health plan through their own or a spouse's current employment with an employer of 20 or more employees; when the patient is disabled and under 65 with coverage through current employment and an employer of 100 or more; during the first 30 months of Medicare eligibility based on end-stage renal disease; and for injuries covered by workers' compensation, no-fault or liability insurance. Retiree coverage, COBRA (outside the ESRD period), Medigap and TRICARE For Life all pay after Medicare. The MSP questionnaire exists to capture exactly these facts.

Can we bill the patient when the secondary pays nothing?

Sometimes. If a commercial secondary with non-duplication COB pays nothing, the remaining coinsurance is the patient's and may be billed. If Medicare as secondary pays less than the gap, the difference up to the higher of the two allowed amounts is the patient's. If Medicaid pays nothing on a QMB patient, the balance may never be billed. And if a secondary paid nothing because the practice filed the claim late or without the primary's information, the balance is the practice's, not the patient's.

Why did Medicare deny our claim with CO-22 when the patient told us Medicare is primary?

Because Medicare's record at the BCRC says otherwise, usually because an employer or an old insurer reported group coverage that has since ended, or because an accident claim was reported and never closed. The practice cannot change the record. The patient (or the practice, with the patient on the line) calls the BCRC, the record is updated, and the claim is resubmitted. Ask the patient about employment and other coverage at every visit; a retired patient whose record still shows employer coverage will deny every time until someone makes the call.

How do Medigap crossover claims work?

When a Medicare patient has a Medigap supplement, the practice bills Medicare only. If the Medigap insurer participates in the crossover programme and the policy information is on the Medicare claim, Medicare forwards the adjudicated claim and the Medigap plan pays its share (for most plans, the Part B coinsurance) directly to a participating provider. The Medicare remittance indicates whether the claim crossed over. If it did not, the practice bills the Medigap plan directly with the Medicare remittance. Nothing is owed by the patient beyond what the Medigap plan does not cover, which for most current plans is only the Part B deductible.

Sources and references

• Coordination of Benefits & Recovery Overview, CMS: the Medicare Secondary Payer programme, the Benefits Coordination and Recovery Center and how COB rules decide who pays first.
• Provider Services, CMS: what providers must do about other coverage, how MSP records are investigated and updated, and the Coordination of Benefits Agreement crossover programme.
• Medicare Secondary Payer Manual, Publication 100-05, CMS: Chapter 3 on provider billing requirements and Chapter 5 on how contractors calculate Medicare's secondary payment.
• Medicare Secondary Payer (MLN006903), CMS Medicare Learning Network: the provider booklet on when Medicare is secondary, the MSP questionnaire and conditional payments.
• Qualified Medicare Beneficiary (QMB) Program, CMS: the prohibition on billing QMB patients for Medicare cost sharing and how to identify QMB status on eligibility and remittance responses.
• Claim Adjustment Reason Codes, X12: the official list and current text of CO-22, OA-23, CO-109 and the other codes that appear on COB remittances.