Dual Coverage: Is It Worth It?
by Erick Kuhni and Nicole Smith
June 18, 2021
Is two always better than one? We're used to the idea that "more is more", and so it follows that we'd apply that same logic to health insurance. But, is more always "more"? No, not really.
What is Dual Coverage? It is when a person is covered by more than one health insurance policy. We use the descriptor "dual", but in reality, a person could have more than two insurance policies (though they shouldn't...they should only have one). Dual coverage is complicated, there are lots special considerations in how it works based on the type of coverage you have. This article isn't intended to be an exhaustive list of every special case, but it will provide a realistic overview about what you can expect with having more health insurance. We will also provide five reasons why we don't like it, and then we'll reluctantly admit to the one situation where, "sure, why not, go ahead and double up I guess...".
Terminology:
Coordination of Benefits - How multiple health insurance companies work with each other to pay claims for the same member.
Claims - The portion of your actual medical expenses to be paid by an insurance company
How does Coordination of Benefits work?
When a person is covered by multiple health insurance policies, there are three main things that have to be figured out before they can get their claims paid by their insurance companies:
1. What are the "allowable expenses"
2. What is the order in which each of the insurance companies will pay for claims
3. How will claims payments by the "secondary" insurer(s) be calculated
What are Allowable Expenses? They are the totality of all services that a person receives, which are considered covered services under at least one of your plans. A diagram will be helpful:
In a hypothetical scenario, a person accesses medical services during the year. In a normal situation with one insurance plan, many of their services will be covered, but some may not be. Perhaps a certain prescription drug isn't covered, or maybe they visited a doctor who wasn't covered by their plan's network. Those services not covered by their plan are called "excludable expenses", or sometimes they are called "non-allowable charges". Under dual coverage you increase the reach of allowable services, and so allowable expenses is the combination of those services allowed under both or either of their health insurance policies.
Two things to immediately note regarding Allowable Expenses; First, just because an expense is allowable, does not mean that it will be paid, in full or even partially. You still have deductibles, coinsurance, co-pays, pre-authorization, etc; Second, the purpose of determining Allowable Expenses is to ensure that the total benefits paid by both insurance company's does not exceed 100% of the Allowable Expense. Here is an equation that describes this:
claims paid by Plan A + claims paid by Plan B + ... + claims paid by Plan n ≤ Allowable Expenses
What is the order in which each of the insurance companies will pay for claims? Most States have adopted rules for how the insurance companies carry liability for a member if that member is insured by more than one health plan. At a very high level, the import thing is that the insurance companies have to agree on the order of benefits determination which defines
Who the Primary insurer is
Who the Secondary insurer is
*In cases where more than one Secondary exists, this process is expanded by determining an order for each of the secondary insurers.
The Primary insurer doesn't actually "coordinate", instead they are to pay for the members claims according to their insurance contract as though they were the only insurer. They pay the full amount of their contract. The Secondary insurer(s) are the ones who get to reduce their liability through coordination of benefits, but the order isn't static. Let's look at the diagram again:
Each plan will have certain areas of coverage which they offer, that are not considered covered services by the other plan. So from the diagram, Plan A and Plan B both have regions which do not overlap, the area colored in blue for Plan A, are services only covered by Plan A. If a member receives services in this area, then Plan A is the Primary insurer for those services and Plan B will pay nothing . Likewise, if a member receives services in the red part of the circle (ie, services covered by Plan B, but not covered by Plan A), then Plan B is the Primary insurer for those services, and Plan A will pay nothing.
Some services will be covered by both Plan A and Plan B, so for these services a Primary insurer is determined following legal standards set by the State. Some common examples how this might be determined:
Ex 1 Non-Dependent Rule: A husband and Wife are both employed, and both have elected the family health insurance coverage offered by their employers.
· Husband - His employer's plan is Primary for him, and his Wife's employer's plan is secondary for him
· Wife - Her employer's plan is Primary for her, and her Husband's employer's plan is secondary for her
*Called Non-Dependent Rule because it is based on the subscribers status as a the primary member, rather than being the "dependent" of the primary member.
Ex 2 Birthday Rule: Husband and Wife from Ex 1, have a child. Husband's birthday is March 2, 1975 and Wife's Birthday is January 19, 1975
· Birthday Rule: Wife's plan is primary for their child because her birthday occurs first during the calendar year
* Applies to dependent children only
There are literally pages of rules, that apply to every circumstance you can think of. What do we do if you are a retiree, or if you are enrolled through COBRA, or Medicare, or Tricare, etc? All of these rules come down to determining which insurer is Primary, and which is Secondary, so that claims can be calculated.
How will claims payments by the secondary insurer(s) be calculated? As we've already stated, the Primary insurer in all cases will pay the claims according to their contract, as though there were no other insurers. Generally there are two main methods a Secondary insurer will use to calculate their portion of the cost:
Full Coordination of Benefits - The Secondary insurer calculates how much it would have paid, after deductibles and coinsurance, had it been the Primary insurer. It then applies that amount towards the balance, but not to exceed 100% of allowable medical expenses
Non-Duplication - The Secondary insurer calculates what its expenses would have been had they been the Primary insurer, and then compares against what the actual Primary insurer paid. If the Primary insurer paid more than the Secondary would have, then the Secondary pays nothing. Otherwise they pay the difference only of what the Primary paid, and what the Secondary would have.
Let's look at some simple examples:
Member has a hypothetical claim of $8,000
Full Coordination of Benefits:
Primary Pays: ($8,000 - $500) * 80% = $6,000
Secondary Pays: ($8,000 - $1,000) * 80% = $5,600, but...
The balance owed is only $2,000 ($8,000 claim - Primary payment of $6,000), so
Secondary pays: $2,000
Member pays: $0
Non-Duplication
Primary Pays: ($8,000 - $500) * 80% = $6,000
Secondary Pays: ($8,000 - $1,000) * 80% = $5,600, but... The Secondary only pays the difference of what it would have paid had it been the Primary ($5,600 Secondary calculation vs $6,000 Primary payment). Since the Primary insurer has already paid more than what the Secondary would have paid:
Secondary pays: $0
Member pays: $2,000
Okay - So why is this a bad thing?
I think the effective way to approach this question is with an old fashioned Gripe Session - So here it goes:
Gripe #01 : More is in fact more - meaning more deductibles, more co-pays, more coinsurance, et. Looking at the diagram yet again:
A person accessing care for the services shaded in blue, would not receive any credit towards their Plan B deductible. So yes, you would receive "broader" coverage, but you also broaden your liability for out of pocket expenses at the same time. And that pretty quickly starts to mitigate the value of having insurance in the first place. In short with dual coverage you increase the range of coverage, and your range of liability!
Gripe #02 - This one goes along with Gripe #01, but the accounting becomes incredibly complicated. In short, it is nearly impossible to make sense of how both insurers are crediting deductibles and other member costs, so that you eventually give up and just hope that you got two-insurances worth of coverage (...and you probably didn't, see Non-Duplication for payment calculation, discussed earlier in this article).
Gripe#03 - The actual experience is confusing, particularly the first time you access medical care. In our experience, whenever a claim is submitted on dual insurances, both companies pull back and wait to see who “HAS” to pay out first. This can be an extremely frustrating ordeal for the policy holder because while the insurance companies are fighting over who is Primary, the medical bills keep rolling in. There have been a few times where claims end up being unpaid and going to collections while the policy holder is waiting for the carriers make a determination who is Primary.
Gripe #04: There are lots of tricky rules if at least one of your plans is an HSA. For example, you may not contribute any funds to and HSA account if one of your policies is not a Qualified High Deductible Health Plan (An "HSA plan" in everyday language). Under HSA rules, you must have a Qualified High Deductible Health Plan as your only type of major medical coverage to qualify for an HSA account. This is further complicated if your HSA plan is employer sponsored, and your employer is contributing funds to an HSA for you. Even in that case, it's your tax responsibility to make sure you aren't getting tax-favored funds that you are not eligible for.
and...
Gripe #05: It is the worst kind of charity! What do I mean? With insurance you pay a fee each month (called the "premium") to an insurance company that insures you according to their contract. Under dual coverage, insurance company A (The Primary in this example) charges you the full premium for a contract and then they carry the full liability for that contract. Insurance company B however (the Secondary in this example) still charges a full premium, but they carry a significantly reduced liability on their side of the contract. Particularly when they adhere so ardently to "principles" such as the "non-duplication of benefit" provision, which basically means that pay nothing or little to nothing for a claim. Apparently in the moral philosophy of insurance it is not okay for a plan member to be "double benefitted", but it is A-okay for an insurance company to collect premiums for services they won't have to deliver! Other things deserve your money more.
So when would you want dual coverage?
I would like to be able to just say, "you should never have dual coverage" and leave it at that. However it happens from time to time that I will be advising someone against taking dual coverage and they will say "yeah, but my employer and my spouse's employer both pay 100% of my coverage". Do you get more coverage if you elect dual coverage? Yes, in some instances. Do you get lots of extra coverage? No, not really, and it could lead you into inefficient and therefore costly behaviors. It's generally easy to make the case that the little benefit you get from having dual coverage is not worth the money or the headache...but, it's harder to make that case if you aren't actually paying for it. So, I reluctantly concede, that in this scenario you could benefit from a complete inefficient use of multiple employers benefit dollars. I can't disagree that you could benefit a little, I don't like the way that it tastes, but it is true. You could also end up doing it all wrong though, even in this case and end up spending way more money than you would have, again through more deductible, co-pays, coinsurance, etc. If you find yourself in this situation my strongest recommendation would be to talk to your employers about alternatives to their health insurance before just going along with dual coverage.
Special note to employers: This is a common scenario when you pay 100% of the health insurance premiums towards your employees. We commend efforts to be competitive, however it is generally recommended that you have your employees share in some portion of the cost of health insurance in order to avoid the scenario described above. Please contact us with questions.
