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What Is Medicare’s Coordination of Benefits System?

Copyright © 2014 AARP. All rights reserved.

Insurance for health care can come from a variety of different places as well as from Medicare. Let me count the ways: Medicaid, Medigap, a current or former employer or union, COBRA, the Federal Employees Health Benefits Program, TRICARE, Veterans Affairs, the Indian Health Service, the Federal Black Lung Benefits Program, workers’ compensation, and no-fault insurance or liability insurance. Phew — that’s quite a list!

So the question arises: What if you have two types of coverage — Medicare plus another? What if you have three types, four, or even more? How do your medical bills get paid? How does it all work together? Know how Medicare works in conjunction with each of the types of insurance.

As you may suppose, the regulations are different in each case. And whether Medicare or another insurance pays your bills first depends on the situation. So research any extra insurance you have to see how it fits in with Medicare and what action — if any — you need to take.

Medicare uses concept of coordination of benefits — a system set up by the federal government that determines when, and in which order, Medicare or other insurance pays your bills, saving you a lot of effort.

Here’s a nightmarish scenario to imagine: You go into the hospital for surgery. You have Medicare and two other types of insurance. You need to figure out which type pays your bill — or which type pays for different parts of the bill. And then you have to submit claims to each insurer, possibly receiving the money only after you’ve first paid the bills out of pocket.

Don’t freak! This scenario is only a nightmare. It isn’t real. You won’t have to go through such an ordeal (or at least not in the vast majority of situations) thanks to Medicare’s coordination of benefits system.

This system is primarily designed to ensure that Medicare doesn’t use taxpayer dollars to pay claims that are covered by other insurance. In other words, it’s a big cost-saving device. But the process also ensures that your medical bills are paid on time without your having to submit a whole lot of paperwork or take any other action.

Okay, maybe it doesn’t work perfectly every single time, and in some situations you may need to fill out claim forms. But on the whole, the coordination of benefits system is a godsend.

Here’s how it works: Each type of insurance you have, Medicare included, is known as a payer. If you have more than one payer, Medicare’s coordination of benefits rules determine which one pays first (or second or third). So when you go to a doctor or other provider, the bill is sent to the first payer — the primary payer — which pays what it owes.

If that amount doesn’t fully meet the bill, the provider sends the remainder to the next payer (the secondary payer) and maybe even a third. Mostly, all you do is check the statements that each of these payers sends you and pay for anything that’s not covered.

How smoothly the system works depends on its receiving huge quantities of information. This info comes from employers, insurance companies, doctors, and other medical service providers. It should also come from you, both when you first become eligible for Medicare and also later if your coverage changes.

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