Coordination of benefits is the practice of ensuring that insurance claims are not paid multiple times, when an enrollee is covered by two health plans at the same time. The idea behind coordination of benefits is to ensure that the payments of both plans do not exceed 100% of the covered charges. The provision coordinates the health care benefits in the order in which the multiple health plans must pay benefits. Under a COB provision, insurance companies share the burden without overpaying. COB determines which plan is primary and which is secondary. The primary plan will pay the claims first and the unpaid balance will be paid by the secondary plan to the limit of its responsibility. Benefits are coordinated between the two health plans to ensure that policyholder receives full coverage. However over insurance or excess coverage is not permitted under COB.
The following example will illustrate COB. Assume two working spouses have health insurance coverage at their respective places of employment. When one spouse becomes ill, his/her policy at work will become the primary plan and the health insurance plan of the other spouse becomes the secondary plan. The medical expenses incurred will be paid by the primary plan and all other medical expenses not covered by the primary plan will be paid by the secondary plan.