Final answer:
Coordination of benefits is a system used by insurance companies to determine the primary and secondary payers when an individual has multiple health insurance policies, ensuring payments for medical services are properly divided and do not exceed total costs.
Step-by-step explanation:
Coordination of benefits refers to the system used by insurance companies to prevent duplication of payment for the same medical service when an individual is covered by multiple health insurance policies. In practice, this means that the insurers coordinate with each other to determine which one will be considered as the primary insurer (the one billed first) and which will be the secondary (the one billed after the primary insurer has contributed its share).
Understanding the process of coordination is crucial to grasp health insurance complexities. Health insurance plans often come with a mix of deductibles, co-payments, and coinsurance. A deductible is an out-of-pocket amount paid before the insurance kicks in, a co-payment is a fixed sum paid for a specific service, and coinsurance is a shared percentage of service costs between the insurer and the insured.
Coordination of benefits ensures that the payment does not exceed the total medical cost and that the primary insurance is billed first before any secondary insurance is considered. This system is designed to streamline benefits and minimize the chance of overpayment or improper billing.