Maryland Life and Health Insurance License Practice Exam

What does Coordination of Benefits allow regarding secondary payor payments?

1. Increases total claim amount

2. Reduces secondary payor's payment to avoid exceeding 100% of the claim

3. Allows secondary payor to pay the full claim amount

4. Offers preferential payment rates

The correct answer is: Reduces secondary payor's payment to avoid exceeding 100% of the claim

Coordination of Benefits is an important process in health insurance that helps prevent overpayment for medical claims when an insured has multiple policies. When a secondary insurance plan is involved, this coordination ensures that the combined payments from both the primary and secondary insurers do not exceed the total allowable amount for the claim. The correct understanding is that the secondary payor will adjust its payment to ensure that the total reimbursement from both plans does not surpass 100% of the total claimed amount. This means if the primary insurer has already paid a portion of the claim, the secondary insurer will consider that payment to determine how much more it can contribute without exceeding the overall costs of the claim. This coordination system is crucial to maintain fair practices and uphold the integrity of insurance funding, thereby preventing the insured from profiting from multiple claims. Other choices do not accurately describe the principles of Coordination of Benefits. For example, the notion that it increases the total claim amount misrepresents the purpose of this process, and stating that the secondary payor might pay the full claim amount or offer preferential payment rates contradicts the fundamental goal of keeping payments in check and within the claim limits.