South Carolina Life and Health Practice Exam

What is the purpose of the Coordination of Benefits provision in insurance plans?

1. To maximize the benefits paid to claimants

2. To avoid overpayment of claims

3. To reduce the premium costs for employers

4. To limit coverage for high-risk patients

The correct answer is: To avoid overpayment of claims

The Coordination of Benefits (COB) provision in insurance plans is designed to prevent the overpayment of claims when an individual is covered by multiple insurance policies. When a person has more than one health insurance plan, there is potential for both plans to pay for the same medical expenses, leading to a situation where the total benefits paid exceed the actual costs incurred. The COB provision lays out the rules for determining which policy pays first (the primary plan) and how much the secondary plan will contribute, if at all. This is essential for ensuring that benefits are distributed fairly among the various insurers involved and that the total payouts do not exceed the costs of the services rendered. By establishing clear guidelines, the COB provision protects both the insurer and the insured from the risks associated with overpayment, thus maintaining the integrity of the claims process within the insurance industry.