DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Group Coordination of Benefits
Adopted Amendments: N.J.A.C. 11:4-28.1, 28.2, 28.4, 28.6, 28.7, 28.9 and 11:4-28 Appendix A
Adopted New Rule: N.J.A.C. 11:4-28 Appendix B
Adopted Repeals and New Rules: N.J.A.C. 11:4-28.8 and 28.11
Proposed: August 6, 2001 at 33 N.J.R. 2578(a).
Adopted: March 5, 2002 by Holly C. Bakke, Acting Commissioner, Department of Banking and Insurance.
Filed: March 6, 2002 as R.2002 d.106, with substantive changes not requiring additional public notice or comment (see N.J.A.C. 1:30-6.3).
Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:30-13.1, 26:2J-15 and 26:2J-42.
Effective Date: April 1, 2002.
Operative Date: January 1, 2003
Expiration Date: November 30, 2005.
Summary of Public Comments and Agency Responses:
The Department received comments from the New Jersey Hospital Association, Delta Dental Plan of New Jersey, Inc., New Jersey Dental Association, Horizon Blue Cross Blue Shield of New Jersey, United Concordia Insurance Company, Jennifer Bogenrief, New Jersey Podiatric Medical Society, New Jersey Association of Health Plans, and Physicians Health Services of New Jersey, Inc. (Health Net).
COMMENT: Some of the commenters expressed their support of the Department's proposed regulations and their appreciation of the complexity of the task. A few of the commenters indicated that the Department's proposal provides an equitable and practical solution to the COB problems that have surfaced over the last few years.
RESPONSE: The Department appreciates these comments, and acknowledges its intent to propose COB rules that are fair and equitable to consumers, providers and carriers.
COMMENT: Two commenters submitted a similarly-worded comment stating that the Department's statutory authority to include health maintenance organizations (HMOs) within the scope of its Group Coordination of Benefits rules at N.J.A.C. 11:4-28 is unclear. The commenters stated that HMOs are not insurance companies, and that N.J.S.A. 26:2J-15 prohibits them from using any word descriptive of insurance in any of their literature. The commenters further stated that N.J.S.A. 26:2J-25 states that "Except as otherwise provided in this act [the Health Maintenance Organizations Act], provisions of the insurance law . . . shall not be applicable to any health maintenance organization granted a certificate of authority under this act."
The commenters further stated that the Unfair Trade Practices Act cited by the Department as part of its statutory authority provides no authority for subjecting HMOs to indemnity COB rules, and that the Department made no mention of it when the COB rules were originally developed.
One of the commenters stated that the Department of Health's citation "in its own regulations to DOBI's indemnity COB rules in 1997 does not give DOBI authority to adopt the rules at hand," and that neither New York, Pennsylvania nor Connecticut apply COB rules to managed care companies.
RESPONSE: N.J.S.A. 26:2J-15, which was cited as statutory authority for the Department's proposal, states that "The unfair trade practice provisions of the New Jersey insurance law (N.J.S. 17B:30-1 through 22) shall be construed to apply to health maintenance organizations, health care plans and evidences of coverage except to the extent that the commissioner determines that the nature of health maintenance organizations, health care plans and evidence of coverage render such sections clearly inappropriate." The Department believes that the Unfair Trade Practices Act (N.J.S.A. 17B:30-1 et seq.) is appropriate statutory authority for this proposal. Refusal by either an indemnity carrier or an HMO to pay a benefit or provide a service that is covered under a group contract based on the existence of other coverage is clearly a practice that falls within the scope of the Unfair Trade Practices Act, specifically N.J.S.A. 17B:30-13.1 addressing unfair claims settlement practices. Further, the Department questions the accuracy of the commenter's position that COB is limited to indemnity carriers since COB currently applies to service corporations, dental plan organizations, and HMOs that pay out-of-network claims under point-of-service (POS) contracts.
The commenters should further note that the Department's 1998 and 2001 proposals also include as authority N.J.S.A. 26:2J-42. That provision of the HMO law states that "No health maintenance organization contract, . . . shall be delivered or issued for delivery in this State unless its provisions comply with all of the requirements of P.L. 1973, c. 337 (C. 26:2J-1 et seq.) and any regulations adopted or guidelines published by the Commissioner of Insurance consistent with the requirements thereof." Further, the Department of Health and Senior Services HMO rules at N.J.A.C. 8:38-13.5(b) relating to trade and claims practices and coordination of benefits, states that "HMOs that elect to coordinate their benefits with those of other benefits or coverages available to members may do so subject to compliance with N.J.A.C. 11:4-28, Coordination of Benefits. HMOs that do not comply with N.J.A.C. 11:4-28 shall provide primary coverage to all members."
The Department believes a uniform national standard is unnecessary because, as an insurance matter, COB is regulated by the individual states. This Department has chosen to address the impact on consumers and providers when carriers refuse to pay benefits because of the existence of other coverage regardless of whether the carrier is an insurance company or an HMO.
COMMENT: A few commenters stated that the Department's attempt to apply insurance principles that make sense in an indemnity situation to situations involving HMOs results in provider windfalls at the expense of New Jersey consumers. The commenters stated that HMOs, unlike indemnity carriers, contract with their providers for certain fees, and that some provisions of the proposed rules (for example, N.J.A.C. 11:4-28.7(e)2 and corresponding Examples H through M) fail to recognize these contractual fees.
One of the commenters stated that the actuarial and underwriting departments of HMOs apply a factor to account for the percentages of times it figures it will be a secondary payor, which reduces the members' premiums. The proposed rules operate to make the HMO pay as if it were primary in almost all situations. According to the commenter, under proposed N.J.A.C. 11:4-28.7(e)2, the carrier should not pay the provider any more if the provider has received the amount it would have received if the HMO had been primary. The HMO will reimburse its member for any amount over and above the HMO's copayments, coinsurance, etc. up to the amount it would have paid the provider if primary. Also, the provider would be prohibited from balance billing the member pursuant to State law. The commenter added that the other provisions of the proposed rule, however, attempt to give proper recognition to managed care contracts.
Two of the commenters stated that the proposed rules potentially increase the liability of covered persons, and used proposed N.J.A.C. 11:4-28.7(e)1 as an example. The commenters stated that this provision permits a provider to collect from the primary plan, secondary plan and covered member up to the primary plan's contractual fee, and allows the secondary plan to pay no more than the secondary plan's contractual rate. This proposed structure potentially results in a member paying more than if that member were covered by only one plan. The commenters stated that using the assumptions in proposed Example J, and assuming that the $1,000 under the primary coverage is a contractual fee rather than a usual and customary fee, the increased liability of the insured becomes clear. The commenters stated that if the primary coverage did not exist in this example, the member would be liable for the $35.00 copayment rather than $85.00. The commenters stated that it is the insured who should benefit from having two plans, not the provider, and that there is no reason to increase a provider's reimbursement especially when it may be at the expense of the insured.
The commenters additionally stated that since the secondary carrier's liability is unconstrained by either its contractual arrangements or usual and customary fees, providers have incentives to bill at higher rates whenever dual coverage exists. This can lead to inflated claim costs and result in higher premiums. It can also cause members to reach benefit maximums sooner than they might otherwise.
RESPONSE: The first sentence of proposed N.J.A.C. 11:4-28.7(e) acknowledges the Department's recognition of indemnity carrier negotiated fee arrangements in stating that "[f]or purposes of this subsection, plans that pay network providers on the basis of contractual fee schedules shall include . . . those indemnity plans that have contracted with providers who have agreed to accept a negotiated payment." Also, the proposed definition of "allowable expense" refers to the charges for which a covered person is liable rather than to necessary, reasonable or customary charges. The argument that a provider should never receive more than the negotiated fee of the secondary carrier because the hold harmless provision in the secondary carrier's contract with the provider prohibits balance billing is flawed because the hold harmless provision only becomes applicable when the secondary carrier itself pays the provider the negotiated fee, not when the provider collects the negotiated fee from other sources.
COMMENT: One commenter stated that some provider contracts pay on the basis of usual customary and reasonable fees (UCR), and prohibit balance billing for excess amounts. The commenter suggested that the Department revise N.J.A.C. 11:4-28.7(a) to clarify that UCR is not a contractual fee schedule: "Where a benefit is payable by both the primary and secondary plans on a basis other than a contractual fee schedule . . . [.]" Also, an allowable expense should be capped at UCR.
RESPONSE: The Department does not believe it is necessary to clarify that UCR is not a contractual fee schedule by revising the rule as suggested by the commenter. N.J.A.C. 11:4-28.7(a) explicitly states that UCR refers to usual, customary and reasonable fees, while N.J.A.C. 11:4-28.7(e) refers to plans that pay on the basis of contractual fee schedules and capitation. Additionally, Appendix B provides examples of all the various types of payment. Accordingly, the distinction between UCR and fee schedules is apparent. Moreover, the commenter's suggested language would be incorrect because "other than a contractual fee schedule" would include capitation, which subsection (a) is not intended to address.
The Department previously considered the argument that an allowable expense should be capped at UCR, and chose not to accept that position. In Bulletin No. 96-17, the Department clarified for health insurers application of the COB rules where both the primary and secondary payers are indemnity carriers. In that bulletin, the Department explicitly rejected limiting allowable expense to the higher of the UCR where two indemnity plans are involved, and required payment up to billed charges as long as the secondary carrier paid less than it would have had it been primary. The basic concept behind coordinating benefits was to ensure that covered persons would collect their out-of-pocket expenses, but to preclude them from experiencing a windfall by collecting amounts in excess of billed charges from two indemnity carriers. The Department rejected the concept that coordination should be capped at UCR because covered persons would not recover the difference between billed charges and UCR. Accordingly, the Department's position has always been that the secondary payer should be responsible for paying up to billed charges as long as that amount was less than what it would have paid if primary.
COMMENT: One commenter stated its preference for the Department's proposed rules to use the lower negotiated (or "contractual") fee schedule in all instances because it assures that the patient's benefits are conserved while paying the provider the negotiated fee it agreed to accept. The commenter added, however, that it appreciates the practicality (and predictability) of recognizing the primary plan's negotiated fee as the maximum fee so long as the patient is protected from having to pay more out of pocket. Assuming that to be the Department's intention, the commenter suggested that the Department consider making that as explicit in N.J.A.C. 11:4-28.7(e)1 as it is in paragraph (e)2 by adding the same language as appears in paragraph (e)2 (that is, "In no event shall the covered person be responsible for any payment in excess of the copayment, coinsurance or deductible for the secondary plan.") This will assure that covered persons do not pay more by having two coverages than if they had only the negotiated fee plan's coverage. The commenter refers to examples D and R of Appendix B, where there are no patient copays. The commenter states that it assumes that the Department intends that same result even if the secondary plan made a smaller copayment or no copayment.
RESPONSE: The Department agrees with the commenter, and is adding the suggested language at N.J.A.C. 11:4-28.7(e)1 for clarification.
COMMENT: One commenter questioned whether the rules apply to preferred provider organizations (PPOs).
RESPONSE: The proposed rules apply to insurance companies, service corporations, HMOs and DPOs. If a PPO is paying claims for any such entities for commercial business, the rules should be followed.
COMMENT: One commenter requested that the rules include payment examples for Medicare as either a primary or secondary payor.
RESPONSE: The rules apply to Medicare only where a carrier's policy or contract form defines a plan to include Medicare for purposes of COB pursuant to the definition of "plan" at N.J.A.C. 11:4-28.2. Further, Federal law determines when Medicare is the primary or secondary payor. The examples set forth in Appendix B of these rules do not identify specific payors, but rather describe the basis for the payment of benefits or the provision of services and supplies. The examples address negotiated fee schedule plans that would include Medicare's payment based on a fee schedule.
COMMENT: One commenter stated that the definition of "allowable expense" at proposed N.J.A.C. 11:4-28.1 turns on the liability of the covered person. Under plans that provide covered services rather than indemnify liabilities, covered persons are not liable for the expense. The commenter suggested revising the definition to items of expense for which the covered person "or plan" is liable.
RESPONSE: The Department does not believe it is necessary to revise the definition as suggested by the commenter because the term "allowable expense" is only used at N.J.A.C. 11:4-28.7. That section deals with two indemnity plans, and such plans provide benefits rather than arrange for services.
COMMENT: A few commenters stated that the proposed rules deviate from the National Association of Insurance Commissioners (NAIC) model COB regulation. The commenters stated that it may be difficult to coordinate benefits between a plan following the proposed rules and a plan following the NAIC model. Since numerous states have adopted language similar to the NAIC model, one commenter suggested that New Jersey consider amending its rule to conform to the model.
RESPONSE: The NAIC model COB regulation does not address coordination of benefits among managed care plans with the degree of specificity required to determine the liability of carriers under the myriad of circumstances discussed in the Department's proposed rules. The Department was therefore obligated to develop its own rules in this area.
COMMENT: One commenter stated that under the proposed rules, the allowable expense would be whatever the provider bills unless under contract with the primary insurer, in which case the primary insurer's contract would govern. The commenters suggested that if both plans limit payment based on usual and customary fees (UCR), an allowable expense will not exceed the higher of the two plans' UCR. If one is based on negotiated fees, the primary plan's payment method would prevail.
RESPONSE: In Bulletin No. 96-17, the Department clarified for health insurers application of the COB rules where both the primary and secondary payers are indemnity carriers. In that bulletin, the Department explicitly rejected limiting allowable expense to the higher of the UCR where two indemnity plans are involved, and required payment up to billed charges as long as the secondary carrier paid less than it would have had it been primary. The basic concept behind coordinating benefits was to ensure that covered persons would collect their out-of-pocket expenses, but to preclude them from experiencing a windfall by collecting amounts in excess of billed charges from two indemnity carriers. The Department rejected the concept that coordination should be capped at UCR because covered persons would not recover the difference between billed charges and UCR. Accordingly, the Department's position has always been that the secondary payer should be responsible for paying up to billed charges as long as that amount was less than what it would have paid if primary.
COMMENT: A few commenters suggested that where contracts with secondary carriers limit provider compensation, the liability of the member and secondary carrier should be defined in accordance with the terms of those contracts.
RESPONSE: Contracts between providers and carriers require the carrier itself to pay the provider the negotiated amount and do not state that the provider's compensation is limited to the negotiated amount regardless of the source of payment of that amount to the provider.
COMMENT: Two commenters raised concern with proposed N.J.A.C. 11:4-28.7(f), which prohibits a secondary plan from reducing eligible expenses on the basis that precertification, notification or second surgical opinions were not given where the services or supplies in question were determined to have been medically necessary. One commenter stated that cost containment can be hindered where precertification or authorization are not obtained. Moreover, enrollees in the same plan are treated disparately by excusing enrollees with two coverages from certain plan requirements. The commenter suggested modifying the proposal to permit plan terms such as precertification or authorization to apply for quality, cost containment and consistency reasons.
One commenter questioned whether the proposed provision pertains to providers seeking precertification, and whether "notification" means providers seeking authorization for services through utilization review such as when a patient is hospitalized. The commenter requested clarification that (1) if the primary plan determines medical necessity either through precertification or utilization review, the secondary plan does not have the right to make such a determination; and (2) when the primary plan does not determine medical necessity, the secondary plan may render a determination.
RESPONSE: As the Department stated in an earlier response to a comment on N.J.A.C. 11:4-28.7(f) appearing in the August 6, 2001 proposal (see 33 N.J.R. 2578(a)), the Department agrees that a secondary payor has the right to determine the medical necessity of services and supplies when determining what it would have paid had it been primary. However, it would be unreasonable to require an insured to comply with the notification or precertification requirements of a secondary plan when the primary plan has determined medical necessity exists.
COMMENT: One commenter stated that the proposed language required to be included on the explanation of benefits form (EOB) would, in its own case, be duplicative. The commenter stated that the issue of other coverage and the coordination of benefits is already addressed in its Certificate of Coverage document, and it currently prints messages on the EOB advising the covered person to submit the other carrier's information.
RESPONSE: The explanation of COB in a Certificate of Coverage is general in nature, and would not provide a covered person with sufficient information on a case-by-case basis. Accordingly, the Department requires a separate explanation on each EOB that is issued where full or partial denials are made based on COB.
COMMENT: One commenter requested that the following concerning EOBs be included in the Department's rules: (1) that insurers send copies of all EOBs to the provider whether or not payment is made. In many cases, patients collect payment from two carriers in excess of the provider's fees, but never pay the provider. The provider has no knowledge of the claim's status, and the carrier will not inform the provider of the amount or date of the claim payment to the patient. (2) that there be a central location available to all providers containing all patient coverage information, such as number of plans, which plan is primary/secondary, etc. and (3) that carriers provide their EOB to other carriers. The commenter stated that often one carrier requests another carrier's EOB, neither complies, and the claim is in limbo. The patient refuses to pay out of pocket because they have coverage with two carriers. Often, the amount of time and money providers spend in administrative fees trying to track and coordinate benefits exceeds the amount they receive as reimbursement for services.
RESPONSE: The commenter's concerns deal with the contents of EOBs generally, who should receive copies of EOBs, and access to providers of all patient coverage information, rather than EOBs in the context of COB. As such, the comment is beyond the scope of this proposal.
COMMENT: Since the COB rules are permissive rather than mandatory, one commenter questioned what alternative one has when carriers are non-compliant with the rules.
RESPONSE: Carriers are not required to comply with the COB rules. However, those choosing not to comply are required by N.J.A.C. 11:4-28.3 and 8:38-13.5(b) to pay as primary. If a carrier fails to comply with the rules, an aggrieved party may seek a remedy by following a carrier's internal appeals process, filing a complaint with the Department's Consumer Protection Unit, or pursuing legal action.
COMMENT: Three comments concerned the rules' proposed compliance date. Two of the commenters stated that the January 1, 2003 compliance date is too far off, and should be shortened considerably. The commenters argued that the Department's proposal is merely a formalization of existing policy of which carriers have been aware since 1998 or before, when the Department issued its first proposal applying COB to managed care plans. The commenters stated that the proposed compliance date rewards those carriers that have disregarded their secondary payor responsibilities in the past by permitting them to continue to do so for another year or more at the continuing expense of providers and consumers.
One of the commenters expressed its support of the proposed compliance date, stating that some plans will be required to change their level of payments, as well as its logic for determining the patient's copayment liability. The commenter stated that the proposed window for compliance is necessary, especially in light of other required changes for compliance with HIPAA and ERISA. Moreover, most claim determination periods begin as of January 1 of each year.
RESPONSE: While the Department agrees with the commenter that the requirements contained in these rules are a formalization of its existing policy, many managed care plans have not been complying with these requirements. Accordingly, the Department believes that a January 1, 2003 compliance date is appropriate given the complex changes that some carriers must make to programming, claims processing, contract documents and EOB forms.
COMMENT: One commenter urged the Department to permit a provider to contract with a carrier to limit the amount of the fee which the provider will charge the covered person without regard to whether the carrier's coverage is primary or secondary so long as that fee limitation is explicit in the contract with the provider. This would enable providers, individually or as a network, to commit to limit their charges to established fee levels for any person covered under the arrangement with the carrier. The commenter additionally states that this fee limit would be totally independent of the COB rule, and would constitute a separate contract between the provider and the third party (with the covered person as a third party beneficiary). The contract would be self-executing, with the provider limiting his fee and inserting that reduced fee on all claims. This would give carriers the same opportunity as self-funded groups to achieve additional cost savings on terms fully acceptable to all interested parties.
RESPONSE: As the commenter indicated, such a provider fee limitation is beyond the scope of these rules. Accordingly, it will not be addressed here.
Summary of Changes Upon Adoption:
1. In response to one of the comments received, N.J.A.C. 11:4-28.7(e)1 is being revised by adding the same language appearing at N.J.A.C. 11:4-28.7(e)2 ("In no event shall the covered person be responsible for any payment in excess of the copayment, coinsurance or deductible for the secondary plan.") to ensure that covered persons do not pay more by having two coverages than if they had only a negotiated fee plan's coverage.
2. At N.J.A.C. 11:4-28.7(f), the Department is changing "eligible expenses" to "allowable expenses" because the rules define "allowable expenses."
Federal Standards Statement
These adopted amendments and new rules regarding coordination of benefits do not attempt to regulate an area already regulated by the Federal government through statutes, rules or otherwise. Thus, no Federal standards analysis is necessary.
Full text of the adoption follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus]*):
11:4-28.7 Procedure to be followed by other than primary plans to calculate benefits
(a) – (d) (No change from proposal.)
(e) For purposes of this subsection, plans that pay network providers on the basis of contractual fee schedules shall include HMO plans, HMO POS plans as permitted by N.J.A.C. 8:38-14, indemnity plans using an SCA as permitted by N.J.A.C. 11:4-37 and those indemnity plans that have contracted with providers who have agreed to accept a negotiated payment.
1. Where both the primary and secondary plans pay network providers on the basis of contractual fee schedules, and the provider who provides or arranges for the services or supplies is a network provider of the primary and secondary plans, the allowable expense shall be considered to be the contractual fee of the primary plan. The primary plan shall pay the benefit it would have paid without regard to the existence of other coverage, and the secondary plan shall pay any deductible, coinsurance or copayment for which the covered person is liable up to the amount the secondary plan would have been required to pay if primary and provided that the total amount received by the provider from the primary plan, the secondary plan and the covered person does not exceed the contractual fee of the primary plan. *In no event shall the covered person be responsible for any payment in excess of the copayment, coinsurance or deductible for the secondary plan.* This guideline is illustrated in examples A, B, C, D, E, F and G of Appendix B.
2. – 7. (No change from proposal.)
(f) The secondary plan shall not reduce *[eligible]* *allowable* expenses on the basis that precertification, notification or second surgical opinions were not given where the services or supplies in question were determined to have been medically necessary.
(a) - (b) (No change from proposal.)
(c) Explanations of coordination of benefits provisions using the model language set forth in Appendix A to this subchapter issued to contractholders, certificateholders and covered persons on or after January 1, 2003 shall comply with the language of Appendix A as amended effective *[(the effective date of these amendment)].* *April 1, 2002.
MODEL COB PROVISIONS
COORDINATION OF THE GROUP CONTRACT'S BENEFITS WITH OTHER BENEFITS
(I) (No change.)
(A) through (C) (No change.)
(D) "Allowable Expense" means the charge for any health care service, supply or other item of expense for which the covered person is liable when the health care service, supply or item of expense is covered at least in part under any of the plans involved, except where a statute requires a different definition or as specified in this subchapter.
The following are examples of expenses or services that are not allowable expenses:
i. The difference between the cost of a private hospital room and the cost of a semi-private hospital room unless the patient's stay in a private hospital room is medically necessary either in terms of generally accepted medical practice, or as specifically defined in the plan.
ii. An amount in excess of the negotiated fee of whichever plan is primary when a person is covered by plans all of which provide benefits or services on the basis of negotiated fees.
iii. An expense or service that none of the plans cover.
(E) (No change.)
(III) ORDER OF BENEFIT DETERMINATION RULES.
(A) (No change.)
(B) Rules. This Plan determines its order of benefits using the first of the following rules which applies:
i. - iv. (No change.)
v. Continuation coverage. If a person whose coverage is provided under a right of continuation pursuant to federal or state law also is covered under another plan, the plan covering the person as an employee, member, subscriber or retiree (or as that person's dependent) is primary, and the continuation coverage is secondary. If the other plan does not have this rule, and the plans do not agree on the order of benefits as a result, this rule is ignored.
vi. (No change in text.)
(IV) EFFECT ON THE BENEFITS OF THIS PLAN.
(A) (No change.)
(B) Reduction in This Plan’s Benefits. The benefits of This Plan will be reduced when the sum of:
i. The benefits that would be payable for the Allowable Expenses under This Plan in the absence of this COB provision; and
ii. The benefits that would be payable for the Allowable Expenses under the other plans, in the absence of provisions with a purpose like that of this COB provision, whether or not claim is made; exceeds those Allowable Expenses in a Claim Determination Period. In that case, the benefits of This Plan will be reduced so that they and the benefits payable under the other plans do not total more than those Allowable Expenses.
(C) When the benefits of This Plan are reduced as described in (B) above, each benefit is reduced in proportion. The amount paid is then charged against any applicable benefit limit of This Plan.
(V) - (VI) (No change.)