Seminar Fact Sheet: Deductibles and Co-Insurance
The A & S policies that include the prescription drug reimbursement policies and dental policies come
with a deductible and co-insurance. These deductibles and co-insurance factors are used by insurers to
bring down the cost of claims and, thus, the premiums. The deductible is an annual deductible, which
means that it applies every year.
The deducible is treated in different ways by different insurers. For the purpose of this course, we will
assume that a plan has a specified single deductible and a family deductible. These are usually in group
plans. The single deductible is the amount that is deducted from the first claim made by the covered
member during the year. For a family the maximum that is deducted from all family members together
is the family deductible. So, if a plan has a single deductible of $50 and a family deductible of $100, the
single deductible will apply to the first two members of the family who make a claim during the year.
Let us work the following example:
Let us assume that a plan has a $50 single deductible and a $150 family deductible. Let us also assume a
co-insurance factor of 80%. (This means that the single deductible will be used for three family members.
If there are more than three members in the family, the single deductible of $50 will apply only for the
first three members of the family.)
First claim of the year for the oldest child, Tom, of plan member, John: $200
Claim =
Deductible
Amount after deductible =
Amount reimbursed =
$200
–$50
$150
$150 x 80% = $120
Deductible status after this claim:
Deductible used up to this claim: $50
Deductible remaining:
$100
Second claim of the year is again for Tom, the oldest child of the plan member, John for: $300
As this is Tom’s second claim and the single deductible was used in his earlier claim, there will be no
deductible applicable to this claim.
Claim =
Deductible
Amount after deductible =
Amount reimbursed =
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$300
–$0
$300
$300 x 80% = $240
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Deductible status after this claim:
Deductible used up to this claim: $50
Deductible remaining:
$100
Third claim of the year for the plan member John: $200
Claim =
Deductible ($50 deductible applies)
Amount after deductible =
Amount reimbursed =
$200
–$50
$150
$150 x 80% = $120
Deductible status after this claim:
Deductible used up to this claim: $100
Deductible remaining:
$50
Fourth claim of the year for the spouse of plan member, Mary: $300
Claim =
Deductible ($50 deductible applies)
Amount after deductible =
Amount reimbursed =
$300
–$50
$250
$250 x 80% = $200
Deductible status after this claim:
Deductible used up to this claim: $150
Deductible remaining: $0
Fifth claim of the year for the younger child, Susan: $200
No more deductible for the rest of the year as family deductible has been used up.
Amount after deductible =
$200
Amount reimbursed =
$200 x 80% = $160
Co-ordination of Benefits
When a person is covered in more than one plan, the maximum they can be reimbursed by all plans put
together is the amount of their expense. There are special rules that address this situation. These rules
are called the coordination of benefits rules. A plan that has a coordination of benefits clause checks to
see the amount that has been reimbursed against the claim by another plan and will reimburse only to
the amount due against the claim.
Let us assume that John’s family is covered by his own plan and that the family is also covered by his
wife, Mary’s, plan.
Assume the following:
John’s plan: $50 single deductible and $100 family deductible with 80% co-insurance
Mary’s plan: $50 single deductible and $100 family deductible with 100% co-insurance
Assume John was born on 1st October and Mary on 5th July.
First claim of the year is for John for $300.
The first payor is the plan where John is the primary member and the second plan is the plan where he
is a secondary member. Therefore, the first payor for this claim is John’s plan.
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Rule :
When both plans have COB, the
first payer is the plan where the
claimant is the member and the
secondary payer is a plan where
the claimant is a dependant.
Claim 1
John
John
$50/$100/80%
COB (Yes)
Mary
$50/$100/100%
COB (Yes)
Claim 1
A
Claim
Deductible
$300.00
$50.00
$250.00
80.00%
$200.00
$300
Out-of-pocket
Claim
Reimbursed
B
$300.00
$200.00
$100.00
C
$300.00
$50.00
$250.00
100.00%
$250.00
The secondary
carrier
reimburses the
lesser of Steps
B and C =$100
Step A
First Payor: Claim =
$300
Deductible
–$50
Amount after deductible =
$250
Amount reimbursed =
$250 x 80% = $200
Step B
Out-of-pocket =
$300 – $200 = $100
Step C
Secondary payor: Mary’s plan (will calculate how much it would have reimbursed had it been the first
payor)
Second Payor: Claim =
$300
Deductible
–$50
Amount after deductible =
$250
Amount reimbursed =
$250 x 100% = $250
Mary’s Plan will then check and pay the lesser of the amount it would have paid as first payor or the outof-pocket.
In this case $100 is the out-of pocket amount. So it reimburses $100.
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Assume that the second claim is for Mary for $200.
Claim 2
John
$50/$100/80%
Claim 2 Mary
$200
COB (Yes)
Claim
Deductible
C
Mary
$50/$100/100%
COB (Yes)
A
$200.00
$50.00
$150.00
80.00%
$120.00
The secondary
carrier
reimburses the
lesser of steps
B and C =$50
Step A
Mary’s plan is the first payor:
First Payor: Claim =
Deductible
Amount after deductible =
Amount reimbursed =
Step B
Out-of-pocket =
$200.00
$50.00
$150.00
100.00%
$150.00
Out-of-pocket
Claim
Reimbursed
B
$200.00
$150.00
$50.00
$200
–$50
$150
$150 x 100% = $150
$200 – $150 = $50
Step C
Secondary payor: John’s plan (will calculate how much it would have reimbursed had it been the first
payor)
Second Payor: Claim =
$200
Deductible
–$50
Amount after deductible =
$150
Amount reimbursed =
$150 x 80% = $120
John’s plan will then check and pay the lesser of the amount it would have paid as first payor or out-ofpocket.
In this case $50 is the out-of pocket amount. So it reimburses $50.
Now the $100 family deductibles have been used up in both plans.
What happens if the third claim of the year is for their child Tom, who has a claim for $300? The rule is
when a dependent member of both plans makes a claim, the plan of the parent whose birthday falls first
in the year is the first payor. Since Mary was born on 5th July and John on 1st October, Mary’s plan is the
first payor.
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4
Rule :
When the claim is for the
children, who are dependants
in both plans, the claim goes
to the plan of the parent
whose birthday falls first in
the year.
Claim 3
John
$50/$100/80%
COB (Yes)
Claim
Deductible
If birthdays are the same, it
goes in the alphabetical order
of names.
Claim 3
Birhdays
John
Mary
Tom
$300
01-Oct
05-Jul
The secondary
carrier
reimburses the
lesser of steps
B and C = $0
Step A
Mary’s plan is the first payor:
First Payor: Claim =
Deductible
Amount after deductible =
Amount reimbursed =
Step B
Out-of-pocket =
C
Mary
$50/$100/100%
COB (Yes)
A
$300.00
$0.00
$300.00
80.00%
$240.00
$300.00
$0.00
$300.00
100.00%
$300.00
Out-of-pocket
Claim
Reimbursed
B
$300.00
$300.00
$0.00
$300
–$0
$300
$3000 x 100% = $300
$300 – $300 = $0
Step C
Secondary payor: John’s plan (will calculate how much it would have reimbursed had it been the first
payor).
Second Payor: Claim =
$300
Deductible
–$0
Amount after deductible =
$300
Amount reimbursed =
$300 x 80% = $240
It will then check and pay the lesser of the amount it would have paid as first payor or the out-of-pocket.
In this case $0 is the out-of-pocket amount. So it reimburses $0.
Personal Notes:
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