INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Group Coordination of Benefits

Proposed 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.

Proposed New Rule: N.J.A.C. 11:4-28 Appendix B

Proposed Repeals and New Rules: N.J.A.C. 11:4-28.8 and 28.11

Authorized By: Karen L. Suter, Commissioner, Department of Banking and Insurance.

Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:30-13.1, 26:2J-15 and 26:2J-42.

Proposal Number: PRN 2001-323.

Submit written comments by September 5, 2001 to:

Karen Garfing, Assistant Commissioner
Department of Banking and Insurance
Regulatory Affairs
20 West State Street
PO Box 325
Trenton, NJ 08625-0325

Fax: (609) 292-0896

E-mail: LegsRegs@dobi.state.nj.us

The agency proposal follows:

Summary

On July 20, 1998, the Department of Banking and Insurance (Department) proposed amendments to its coordination of benefits (COB) rules to include within their scope HMOs and other managed care entities (see 30 N.J.R. 2570(a)). The Department additionally proposed other changes it believed were necessary for clarification and other purposes, including revisions to certain definitions of terms contained in the rules, the addition of guidelines for a secondary payor's proper reduction of benefits, examples of the guidelines and provisions relating to payment of benefits between complying and noncomplying plans.

The Department received a number of comments on its initial proposal. Based upon some of those comments, the Department is concerned that the intent of its proposal -- to clarify application of the COB rules to traditional indemnity type health coverage and managed care plans -- may have been misinterpreted as an attempt to impose new or additional requirements on payors. Rather, in proposing its initial amendments to the COB rules, the Department believed that it became necessary to provide guidance on the proper application of the rules given today's health care environment consisting of not only traditional indemnity insurers, but a myriad of managed care plans as well. The COB rules, with which compliance has always been permissive rather than mandatory, have been in effect since 1988 in essentially the same form, and became applicable to health maintenance organizations (HMOs) when the Department of Health and Senior Services adopted rules regulating HMOs on February 18, 1997 at N.J.A.C. 8:38 (see 29 N.J.R. 625(a)). The rules provide order to those plans choosing to coordinate, ensure that the covered person's out-of-pocket costs are minimized and reduce a payor's total liability.

Based on some of the comments to the initial proposal, the Department additionally believes that it must dispel the misconception that the COB rules or the initial proposed amendments increase a payor's liability. One of the basic precepts of COB is that a secondary payor's liability can never exceed its liability if it were the primary payor. This is true whether the secondary payor is responsible under COB for payment of services or expenses not covered by the payor in the definition of "allowable expense" or the operation of the credit reserve.

Finally, the COB rules cannot increase the liability of the covered person. If the plans covering a person choose to coordinate benefits, application of the rules will prevent the covered person from receiving benefits exceeding the total billed charges. However, the rules will also ensure that the covered person's out-of-pocket costs are minimized by requiring the reduction or elimination of deductibles, copayments and coinsurance amounts where two or more payors can assume 100 percent of the covered person's liability and still either break even or even achieve savings.

Rather than adopt its initial proposal, the Department has decided to repropose its changes to the existing COB rules. The Department has made certain revisions to its initial proposal based on some of the comments. While some of the revisions merely clarify the original proposal language or are editorial or format changes, others are more substantive in nature.

The Department received comments from the following on its initial proposal: New Jersey Association of Health Plans, Atlantic Health System, BlueCross BlueShield of New Jersey, Delta Dental Plan of New Jersey, Physicians Health Services of New Jersey, Inc., Alliance Memorial Hospital of Burlington County, New Jersey Hospital Association, New Jersey Education Association, and Arthur Meisel, Esq. on behalf of Dr. Howard A. Schwartz and New Jersey Dental Association. The comments are summarized and responded to below.

COMMENT: Several of the commenters expressed their appreciation of the Department's efforts to standardize COB, and generally supported the Department's proposed changes.

RESPONSE: The Department appreciates the commenters' remarks.

COMMENT: A few commenters commented on the Department's Economic Impact statement.

(1) One of the commenters stated that certain costs are not discussed, such as those associated with the need for a large carrier with multiple lines of business to reprogram existing systems and program entirely new systems in order to administer COB. The commenter indicated that these costs would not be offset by savings from reduced secondary payments to providers resulting from the amendments. Another commenter stated that it would be unable to make the necessary computer and administrative changes, which would cost hundreds of thousands of dollars, because it is spending all of its time, energy and funds on coming into compliance with Year 2000 changes.

(2) One commenter stated that the Department's current COB rules and these proposed amendments encourage over-insurance and usage, increase the cost of health insurance, contribute to medical inflation by raising premiums and the cost of carrier administration, and encourage providers to continually raise their billed charges over UCR. According to the commenter, the fault rests with the rule's "COB Bank," which requires insureds to submit to their carrier all claims incurred during the determination period whether or not they are covered under the policy. The commenter stated that they are moving toward a paperless claims environment and that it will probably not be possible for insureds to submit all their claims because the insureds themselves will not be submitting them. The commenter further stated that the COB Bank requires each carrier to obtain confidential fee information from other carriers, possibly in violation of State and Federal antitrust laws. The COB Bank further requires carriers to expend large amounts of computer memory and staff time for no purpose other than to allow providers to exceed UCR and to encourage over-insurance.

(3) One commenter stated that the Department's Economic Impact statement indicated that cost shifting may occur among various payors as a result of these amendments. The commenter stated that it would not object to such cost shifting if it leads to a fairer apportionment of costs among payors, but would strongly object to any adverse impact on consumers. To that end, the commenter expressed concern about certain provisions contained in the amendments: (a) the commenter states that the amendments exclude from the definition of "allowable expenses" certain dental, vision, prescription and hearing care expenses, and questions whether this will result in less cost to payors and a shifting of cost to consumers; (b) the commenter questions whether the changes to N.J.A.C. 11:4-28.7 will result in any reductions in benefits to those who may be eligible for dual coverage; and (c) the commenter questions whether N.J.A.C. 11:4-28.7(e)7 will cause consumers to lose coverage that they may have under current rules.

RESPONSE: (1) The Department recognizes the costs involved for many carriers to program and reprogram computer systems to administer COB, and noted that cost in its Economic Impact statement. Moreoever, COB is permissive because insurers have the option to choose to always pay as the primary plan regardless of the existence of other coverage. Note that COB is required for the standard plans under the Small Employer Health Benefits Program. Carriers will be required to make the necessary changes to their systems in order to comply with COB only if they elect to coordinate benefits with other plans. However, because these rules are being reproposed many months after the Department's original timeframe for adopting the rules, carriers should have completed all Y2K system work well before the effective date of any changes to the rules.

(2) The concept of the COB bank has been part of the COB rules since their initial adoption, and is consistent with the traditional design and operation of a health insurance policy. The application of both a deductible and coinsurance factor are typically on a claim determination period basis. Each time a new claim determination period begins, a new deductible, and in some cases, a higher coinsurance factor are applied. Therefore, it is appropriate that the review of claims for COB purposes be done on a claim determination basis. Additionally, the COB bank does not require carriers to obtain confidential UCR fee information from other carriers, but only the amount a carrier actually paid on a claim which is set forth on the explanation of benefits (EOB) provided to covered persons.

(3) (a) The revised language in the definition of "allowable expenses" is merely for clarification purposes, and does not exclude any expenses that were not already excluded under the previous definition. The revision makes no substantive change to the existing rule. Thus, the change would not result in less cost to payors or a shifting of cost to consumers.

(b) The proposed amendments to N.J.A.C. 11:4-28.7 will not result in reduced benefits to consumers with dual coverage. The rules will allow them to recover up to the billed amount of medical expenses. The rules reduce consumer out-of-pocket costs for copayment, coinsurance, deductibles and charges in excess of UCR that are not paid by the primary plan. The amendments are intended to reduce the out-of-pocket costs of consumers with multiple coverage by requiring secondary payors to pay for deductibles, coinsurance, copayments and charges in excess of UCR up to the amount the secondary plan would have paid had it been primary.

(c) The Department is unaware of any way in which the proposed changes to N.J.A.C. 11:4-28.7(e)7 will cause consumers to lose coverage they have under the current rules. To the contrary, consumers are provided greater protection under these rules because secondary plans cannot refuse to make individuals whole for deductibles, coinsurance, copayments and excess charges where covered charges which are the liability of the covered person remain unpaid and the secondary payor has not paid its liability as it would have as the primary plan.

COMMENT: (1) One commenter stated that the proposal does not address the current statute, regulation and proposed regulation regarding prompt payment of claims to providers, specifically whether the prompt pay rule applies to secondary payment; how much time a secondary payor has to satisfy a secondary payment; when the 60-day payment period begins for secondary carriers; whether the payment period is contingent upon the satisfactory settlement of the claim by the primary carrier; whether the secondary payment is held up by the primary carrier's resolution of the claim; and whether the secondary payor is liable for the interest penalty and/or civil monetary penalty.

(2) The commenter also questioned how the Department contemplates the process working if consumers do not file claims in their entirety given the rapid transition to electronic payment of claims. The commenter states that the proposal appears to assume that claims events will occur during a discrete time period that can be easily examined by the carrier, but that more realistically claims will span multiple contract years and will require bridging more than one data base to determine if coinsurance, copayments and deductibles have been met. Otherwise, significant overpayments may be made by both primary and secondary payors.

RESPONSE: (1) First, the Department notes that the law regarding payment of claims has been altered with the enactment on July 1, 1999 of P.L. 1999, c. 154. Second, the rule amendments do not change the obligations of the secondary carrier to process a claim in accordance with statutory and regulatory time frames. Currently, as well as under the amendments, the secondary carrier's obligation to pay the claim arises when it receives all necessary information to establish liability and process the claim, including the amount paid by the primary carrier. The secondary payor will be responsible for interest and penalties if it does not pay the claim within the required time period.

(2) The Department is unclear as to the commenter's concern. These proposed amendments to the COB rules do not expand upon claims paying protocols that have been in effect for some time. Carriers should already be processing electronically-submitted claims in compliance with the claims-paying process.

COMMENT: One commenter stated that the proposal may be in violation of ERISA, and that the Federal Standards Statement is incorrect. A second commenter questioned the proposed rule's applicability when implemented in conjunction with a self-insured plan operating pursuant to ERISA. Both commenters stated that ERISA requires each ERISA plan to be operated solely for the benefit of its participants under the plan, and using ERISA funds to pay for benefits not covered under the ERISA plan appears to be a diversion of ERISA funds. One commenter added that the regulation of insurance argument would only have merit if the regulation provided that a policy must have a certain benefit. This regulation, however, is requiring a payment to be made under an ERISA plan which arises under other coverage which is not the ERISA plan's coverage, thus diverting the ERISA plan's funds.

RESPONSE: The COB rules do not apply to self-funded or ERISA plans, but such plans may choose to coordinate benefits in accordance with these rules. By doing so, such a plan would be providing the same treatment to all plan participants. As it applies to either a self-funded or an insured employer ERISA plan, COB does not cause the plan to use funds to benefit anyone other than the plan participants. Still, it must always be kept in mind that a plan never pays more with COB provisions than it would without them. The amount paid through application of COB will never exceed the amount that would be paid without application of the rules. This is true notwithstanding the recognition in some instances of expenses not covered under the secondary plan and the operation of the credit reserve. Plans can only reduce claim payments through COB. Since compliance with COB is permissive rather than mandatory, as an alternative ERISA plans may choose to always pay as primary.

COMMENT: One commenter stated that in the examples in Appendix B, it appears that the secondary plan's cost-sharing amounts are being waived unless the secondary plan's payment rate was inadequate to cover the primary plan's cost-sharing amounts. In some cases, secondary plans are being asked to offer first dollar coverage when the plan was priced to include cost-sharing amounts. A secondary plan's obligation for payment should begin after the cost-sharing amounts are applied, and a covered person's liability should include any cost-sharing amounts of both the primary and/or secondary plan.

RESPONSE: Cost sharing refers to the amounts paid by the covered person under the health benefits plan, typically deductible, coinsurance and copayments. Through these devices, the covered person "shares" the cost of his health care services with the insurer. The secondary plan does not provide first dollar coverage and does not waive its cost sharing under the rules because it considers its cost-sharing requirements when determining what it would have paid had it been primary, and is not required to pay more than that amount. If the plan had been primary and would have paid $100.00 for a particular service after all deductible, coinsurance and/or copayment requirements had been satisfied, then the plan is expected to pay no more than $100.00 towards the remaining allowed expenses as the secondary payor. That the covered person may not have to pay anything out-of-pocket does not mean that the cost-sharing requirements have been waived. Indeed, after the primary and secondary plans pay, there may still be some remaining amount that the covered person must pay for allowed expenses. That amount will probably be the result of consideration of a cost-sharing requirement, and whether it happens to be the primary or secondary plan's cost-sharing requirements is irrelevant. The Department does not believe that a person should have to pay the deductible, coinsurance and copayments of both the primary and secondary plans before the secondary plan pays any benefit because this results in the person paying more when he or she has multiple coverage than when he or she has single coverage. The Department believes such a result is unduly harsh and inappropriately penalizes persons having multiple coverage. The commenter's point about pricing is not relevant because a plan is priced to provide primary coverage, and nonrecognition of cost sharing when a plan is secondary will not produce premium increases.

COMMENT: One commenter stated that the Department should consider keeping copayments distinct from other cost-sharing amounts because they are usually set amounts that a covered person must pay each time they access health care services and are often required at the time of service. Deductible amounts accrue with each service, and have a maximum level after which the insurance plan pays 100 percent of the allowable expense. Deductibles and coinsurance are usually not payable until after services are received and the claim has been fully adjudicated.

RESPONSE: As stated above in the Summary, the Department believes that a covered person's out-of-pocket costs should be minimized when two or more payors are able to assume 100 percent of the covered person's liability and still achieve a savings or break even. The reproposal and corresponding examples in Appendix A reflect the Department's position. As reproposed, N.J.A.C. 11:4-28.7(e)1 eliminates the requirement that the covered person be responsible for the copayment under the secondary plan unless the secondary plan has no liability. Reproposed N.J.A.C. 11:4-28.7(e)2 also eliminates the requirement that the covered person be responsible for any copayment under the secondary plan. N.J.A.C. 11:4-28.7(e)2 additionally has been changed to state that the secondary payor's payment shall first be applied to any liability of the covered person; that the covered person shall only be liable for a copayment, deductible and coinsurance under the secondary plan if he or she has no similar liability under the primary plan, and the total payments by both the primary and secondary plans are less than the provider's billed charges under the secondary plan; that the covered person shall not be liable for any billed charges in excess of the sum of the benefits paid by the primary plan, the secondary plan and the copayment, deductible or coinsurance paid by the covered person under either the primary or secondary plans; and that the covered person shall never be responsible for any payment in excess of the copayment, coinsurance or deductible of the secondary plan.

COMMENT: Three commenters commented on N.J.A.C. 11:4-28.7(f) as it was originally proposed in the Department's July 1998 proposal, which states that a "secondary plan is deemed to have waived its authority to evaluate medical necessity or to perform utilization review in those cases in which the primary plan has determined that medical necessity is present."

(1) One commenter requested that the Department clarify whether this provision also means that the secondary plan similarly waives its right to precertification and notification when the primary plan has determined medical necessity exists.

(2) The second commenter stated that the proposed amendments deprive secondary plans of the right to review medical necessity. The commenter stated that not all plans actually evaluate medical necessity; that the stake of the primary plan may be relatively small compared to that of the secondary plan, causing the primary plan to pay the claim with little or no review; and that not all carriers have the same resources or the same level of expertise, yet the proposal would prohibit the plan with the greater resources and expertise from evaluating the claim.

(3) The third commenter stated that "utilization review" as used in the originally proposed N.J.A.C. 11:4-28.7(f) should be expanded to include precertification, pre-authorization and/or notice of admission procedures. Additionally, the commenter stated language should be added stating that if a covered person misidentifies which coverage is primary, providers should not be penalized by a managed care organization.

RESPONSE: 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. Accordingly, the Department is revising proposed N.J.A.C. 11:4-28.7(f) by deleting the term "utilization review" and stating that the secondary plan may not reduce eligible expenses on the basis that precertification, notification or second surgical opinions were not given.

COMMENT: One commenter stated that the amendments as drafted deprive groups, providers and carriers of the right to contract to establish maximum fees for health care services rendered to covered persons. According to the commenter, the proposed amendments recognize negotiated arrangements only if the particular coverage is primary. If the negotiated fee limit is secondary, the insured forfeits his protection. As an example, the commenter cites N.J.A.C. 11:4-28.7(e)1, which requires the covered person to pay the primary carrier's contractual fee even if it is greater than the fee the provider has contracted to accept as full payment. The commenter suggested amending the proposal to preserve the right of employers, providers and carriers to agree to an absolute limit on the amount the provider can charge without another plan's primary coverage increasing the fee the provider can charge to the insured or the plan. To effectuate this change, the commenter suggests expanding the definition of "allowable expense" by adding the following language as paragraph (e) 4: "When a provider has expressly agreed in writing to limit the provider's charge to a covered person for one or more services to a specific fee without regard to the existence of other coverage (whether primary or secondary), the "allowable expense" is the lesser of the actual fee charged to the covered person or the specific negotiated fee for the respective service(s). The amount of the claim submitted to any plan shall be limited to said allowable expense." Additionally, the commenter suggests adding the following language to the beginning of N.J.A.C. 11:4-28.7(e)1, 2 and 6: "Except where the conditions contained in No. 4 of the definition of 'allowable expense' are met, . . .".

RESPONSE: The Department does not believe that if the negotiated fee limit is secondary, the insured forfeits his or her protection. Rather, in such a situation the insured is protected for the amount of any copayment, deductible and coinsurance up to the amount of the secondary fee schedule. The Department also does not believe that a provider's agreement with one carrier should be used to set a cap on the fees he or she can receive as a result of his or her contractual arrangement with another carrier.

COMMENT: (1) One commenter stated that application of some of the provisions contained in the Department's proposed amendments allow providers to reap the benefits of COB, rather than the insured or covered member. The commenter cites Example J in Appendix B. According to the commenter, this is faulty public policy and has the effect of driving up the cost of health care when just the opposite should be occurring. The commenter makes the following suggestions: (a) the rules should require that when a participating provider is presented with an HMO identification card, the provider should not under any circumstances accept an up-front payment from a member, except for a copayment; and (b) whenever possible, the contract between a provider and an HMO must be given effect. The commenter distinguishes between situations where both plans have an agreement with the provider, and where just one has an agreement with the provider. In all "one contract" situations, the contract should be given effect even if it is with the secondary payor. The commenter states that the outcome in several of the Appendix examples would differ if these suggestions were adopted.

(2) Another commenter stated that in the majority of cases, a secondary payor is liable only for the balance remaining after the primary payor has made its payment, up to the secondary payor's negotiated fee. The commenter questions why, in cases where a patient is paying two premiums to two different insurers, both insurers are not liable for payment of the providers' charges, limited to each insurer's negotiated payment rate. According to the commenter, it would be more equitable if each insurer were required to pay the provider as if it were primary, up to the provider's actual charges, which would remain constant regardless of the pecking order of the insurers. This would not result in duplicate payments because a provider could never collect more than its actual charges, nor would the patient be prejudiced because the secondary payor would first have to satisfy any balance of deductible and copay from the primary payor.

RESPONSE: (1a) The Department regulates insurers and health maintenance organizations, and has no statutory authority to regulate providers.

(1b) The order of benefit determination must be based on primary or secondary status, and not on the nature of a provider contract.

(2) Requiring each insurer to be responsible for paying providers as if it were the primary payor would result in a windfall for providers after they have already agreed to a certain negotiated fee for a specified service. The provider should not collect more than the higher of the two negotiated fees.

COMMENT: One commenter stated that Examples A through G present an operational difficulty in making accurate claims payments that can be easily resolved with a slightly different approach. The problem is that it is often extremely difficult for the secondary plan to discern whether the primary plan is making payment based upon a negotiated fee or UCR. When the secondary payor's approach to payment would differ depending on whether the primary payment is based on a negotiated fee or UCR, determining how the primary payor made its calculation becomes an enormous task. According to the commenter, the solution is to allow the secondary carrier to make payment to the maximum of either the amount necessary to have the provider paid at either the secondary carrier fee (taking into consideration what the primary payor paid) or the amount the provider was not paid because it was the member's liability. In this way, the member's liability is extinguished and secondary plans do not need to discern whether the primary payor paid pursuant to a negotiated fee or UCR.

RESPONSE: The Department is unclear as to how the commenter's proposed solution would resolve the problem presented. To follow the commenter's first suggestion would require that the secondary payor know the basis on which the provider was paid. To follow the commenter's second suggestion could result in an overpayment. The Department suggests that the secondary payor obtain an explanation of benefits (EOB) from the primary payor before making any payment.

COMMENT: One commenter stated that N.J.A.C. 11:4-28.9 continues to perpetuate the possibility that a plan can be "noncomplying." The commenter stated that the rule should dictate that no plan can be "noncomplying"; or, at the very least, if a plan can be "noncomplying" by virtue of being "excess" or by using order of benefit rules inconsistent with the rule, the "noncomplying" plan should be forced to cooperate with the complying plan by providing the necessary information referred to in this section.

RESPONSE: Unfortunately, these "noncomplying" plans (for example, self-funded plans or plans delivered out-of-State) fall outside the Department's scope of statutory or regulatory authority, and the Department cannot force them to comply with COB.

COMMENT: One commenter stated that it would be preferable for the effective date of the rules to be at the beginning of a month or calendar year. Since most groups renew either on January 1 or July 1 of each year, the financial ramifications of these rules on each health plan can be built into its rates if either of those dates is chosen as the effective date. A second commenter suggested that compliance be moved up to within 60 days following the effective date of the amendments rather than 180 days.

RESPONSE: The Department is revising the language at N.J.A.C. 11:4-28.11 to implement an operative date of January 1, 2003 for these amendments .

COMMENT: One commenter stated that N.J.A.C. 11:4-28.1(b) should be amended to add that the subchapter applies to group contracts that are delivered in New Jersey.

RESPONSE: The Department agrees with the commenter, and is revising N.J.A.C. 11:4-28.1(b) in accordance with the commenter's suggestion.

COMMENT: (1) One commenter stated that the amended definition of "allowable expense" now includes any "charge" for health care service for which the covered person is liable, rather than the "necessary, reasonable, and customary item of expense." The commenter suggests that the definition explicitly include deductibles, coinsurance and copayments to facilitate the identification of payment responsibilities between the primary and secondary plans.

    1. The commenter further stated that the definition of "allowable expense" should be amended to reflect "N.J.A.C. 11:4-14.2(1)c" (that is, if a covered person's primary plan is a government program that calculates its benefit payments on the basis of prospective payment rates, any amount in excess of 100 percent of the prospective payment rate for a specified benefit is not an allowable expense).

RESPONSE: (1) The Department does not believe it is necessary to revise the definition of "allowable expense" pursuant to the commenter's suggestion. Initially, the Department notes that deductibles, copayments and coinsurance are not expenses. Rather, they are amounts deducted from charges when a carrier determines its liability for eligible expenses. Eligible expenses are usually defined within each contract and represent which charges or what portion of a charge is eligible for payment under the terms of the contract.

(2) If the covered person is not liable for more than 100 percent of the prospective payment rate, neither is the insurer. This would be controlled by the contract terms, typically within the definition of eligible or covered expenses.

COMMENT: One commenter suggested certain enforcement language to be included in the COB rules, which proposes the adoption of a strict regulatory compliance mechanism to address and enforce all regulations governing health care coverage payment issues including, but not limited to, COB and timely payment of claims.

RESPONSE: The commenter's remarks are outside the scope of these proposed amendments.

COMMENT: One commenter stated that proposed N.J.A.C. 11:4-28.7(e)2 and Exhibits H through M appear to prohibit practitioners from collecting from the patient the difference between "billed charges" and "UCR," which is inconsistent with the Department's Bulletin No. 96-17 and may be beyond the scope of the Department's statutory authority and regulatory power. Absent some contractual agreement between the provider and the primary "traditional indemnity" plan for the benefit of the patient, the patient should be bound by the agreed-upon fee-for-service.

RESPONSE: Bulletin No. 96-17 involves a situation where both the primary and secondary payors are traditional indemnity insurers that pay on the basis of UCR. In such an instance, the Department agrees that the covered person would be liable for any billed charges not covered by either the primary or secondary plans. However, the Department's proposed Examples H through M in Appendix B illustrate the situation where the primary payor is a traditional indemnity plan that pays on the basis of UCR, the secondary payor pays by a contractual fee schedule with the provider, and the provider is in the secondary plan network. The Department believes that it would not be appropriate for the provider to collect the difference between UCR and billed charges if doing so would mean that the covered person would incur additional out-of-pocket liability. The Department's reproposal, however, contains revisions to N.J.A.C. 11:4-28.7(e)2 and Examples H through M so that in most cases the provider would collect the billed charges.

COMMENT: One commenter stated that the proposal should define the term "UCR," specifically and objectively identify the manner in which UCR is calculated, and establish the percentile of UCR at which reimbursement must be made. Otherwise, serious disputes concerning the covered person's liability are likely because different insurers have different UCRs for the same procedure.

RESPONSE: The Department is unable to provide a definition of UCR because no objective methodology exists to determine UCR other than in the individual and small employer health insurance markets . Carriers may choose to use their own data, the prevailing healthcare charges system data or some other data base for making that determination.

The Department proposes the following amendments:

N.J.A.C. 11:4-28.1 is amended to clarify the scope of this subchapter, and includes HMOs within its scope.

N.J.A.C. 11:4-28.2 is amended to clarify the definition of "allowable expense," and includes definitions of "HMO plan," "HMO point of service plan" (or HMO POS plan) "hospital indemnity benefits," "indemnity plan" and "selective contracting arrangement" (or SCA plan).

N.J.A.C. 11:4-28.6(a)3 is being amended for clarification purposes to add retirees to those groups whose benefits will be determined first before those of the plan covering the person as a dependent. This change will avoid confusion, and at times conflict, in applying the general order of benefit determination provisions, and is consistent with the NAIC model COB regulatlion. N.J.A.C. 11:4-28.6 also includes a new provision at subsection (e) requiring a person's coverage under a right of continuation pursuant to Federal or State law to be secondary when the individual is also covered under another plan unless the other plan does not contain a provision allowing it to coordinate benefits.

N.J.A.C. 11:4-28.7 includes all the guidelines for a secondary payor's proper calculation of benefits. This provision differs from the original proposal in that at N.J.A.C. 11:4-28.7(e)1, the covered person is not liable for the copayment under the secondary plan. Also, proposed N.J.A.C. 11:4-28.7(e)2 has added language that the payment of the secondary plan shall be applied first toward satisfaction of the covered person's liability for any copayment, coinsurance or deductible of the primary plan; that the covered person shall only be liable for the copayment, deductible and coinsurance under the secondary plan if the covered person has no similar liability under the primary plan and the total payments by both the primary and secondary plans are less than the provider's billed charges; and that in no event shall the covered person be liable for any payment in excess of the copayment, coinsurance or deductible of the secondary plan.

Proposed N.J.A.C. 11:4-28.8 is a new rule requiring language to be included in a plan's explanation of benefits form that a person who is covered under more than one plan must file all claims with each plan and provide each plan with information concerning the other plans.

N.J.A.C. 11:4-28.9 as amended adds new language relating to payments of benefits between complying and noncomplying plans where one plan declares itself "excess" or "always secondary." This amendment differs from the original proposed amendment in that the Department has deleted the provision stating that the complying secondary plan could choose to pay its benefits first, but determine the amount paid as if it were the secondary plan and not exceed the limit of its liability as the secondary payor. This reproposed amendment instructs the complying secondary plan to assume the primary position and pay its benefits as the primary plan if the noncomplying plan is unwilling to do so or fails to provide the complying plan with the information necessary to determine its liability as the secondary payor. The Department made this change to be consistent with the NAIC Model COB regulation approach to conflicts involving always excess COB provisions. The NAIC approach allows for subrogation by the complying secondary plan where the noncomplying plan fails to pay as primary.

Proposed N.J.A.C. 11:4-28.11 is repealed and a new rule proposed containing new language requiring compliance with these amendments by January 1, 2003, requiring all plans to include the notice language set forth in proposed N.J.A.C. 11:4-28.8 by that date, and requiring use of Appendix A model language on or after that date to comply with the language of amended Appendix A.

This proposal additionally amends the Model COB Provisions contained in Appendix A, and includes as Appendix B the COB examples of the guidelines set forth at proposed N.J.A.C. 11:4-28.7.

Social Impact

These proposed amendments and new rules will have a favorable social impact on payors, providers and consumers in that the language clarifications, as well as the guidelines and examples for determining secondary payor reduction of benefits, will lead to a better understanding of COB by all affected parties.

Economic Impact

The Department anticipates that these proposed amendments and new rules will have both a positive and adverse economic impact upon affected carriers and others. Some carriers and some insurance service organizations will have to alter their current claims processing methods, including programming or reprogramming their computer systems, in order to comply with the proposed amendments and new rules, and will incur costs in doing so. Some carriers may pay out greater benefits in certain situations than they have been under the current rules, thereby incurring additional costs. Many carriers, however, will pay out less benefits as a secondary payor than is the case under the current rules, and will experience a positive economic impact.

The Department anticipates that it will initially incur certain costs related to form filings, but that these costs will be offset, in whole or in part, by fees collected from carriers. These increased costs will be absorbed by current resources with the expectation that provider and consumer complaints will dissipate over time, resulting in fewer resources being dedicated to investigating complaints regarding coordination of benefits.

The Department anticipates that the health care industry will be affected economically by these proposed amendments and new rules as well. The effect will vary among the various types of health care providers, and may depend somewhat upon their individual payor mixes. Some health care providers will see their revenues increase initially, while others may see their revenues decline. If the proposed amendments and new rules are followed correctly by all regulated entities, however, the administrative costs for health care providers should decrease because of greater certainty as to the rules that apply, and less follow-up between the providers and the various payors. The reduction in administrative costs may result in a positive economic impact for the health care providers in the long term.

Federal Standards Statement

These proposed 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 statement is necessary.

Jobs Impact

The Department anticipates that there will be no impact on jobs in this State as a result of these proposed amendments and new rules.

Agriculture Industry Impact

Pursuant to the Right to Farm Act at N.J.S.A. 4:1C-10.3, and the Administrative Procedure Act at N.J.S.A. 52:14B-4(a)(2), the Department does not expect any agriculture industry impact from this new rule.

Regulatory Flexibility Statement

These proposed amendments and new rules are unlikely to directly affect any small businesses as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., because those carriers located in New Jersey typically have a work force in excess of 100 people. Therefore, a regulatory flexibility analysis is not necessary.

Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

SUBCHAPTER 28. GROUP COORDINATION OF BENEFITS

11:4-28.1 Purpose and scope [; applicability]

(a) (No change.)

(b) This subchapter applies to group contracts providing health care benefits which are issued, amended, [or] delivered or renewed in New Jersey by [health] insurers transacting the business of health insurance, health service corporations, hospital service corporations, medical service corporations, dental service corporations, dental plan [corporations] organizations, health maintenance organizations and all similar organizations.

11:4-28.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise:

"Allowable expense" means the [necessary, reasonable, and customary] charge for any health care service, supply or other item of expense [or health care when the 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 otherwise specified in this subchapter.

1. [Notwithstanding the above definition,] A plan's COB provision may exclude from allowable expenses items of expense arising under coverages such as dental care, vision care, prescription drug or hearing aid programs [may be excluded from the definition of allowable expense]. [A] When a plan [which] provides benefits only for [any such item of expense] dental care, vision care, prescription drugs or hearing aids, the COB provision of the group contract may limit [its definition of] allowable expenses to like items of expense.

[2. When a plan provides benefits in the form of services, the reasonable monetary value of each service shall be considered as both an allowable expense and a benefit paid.]

[3.] 2. (No change in text.)

[4.] 3. When a plan restricts COB [is restricted in its use] to specific coverage in a contract (for example, major medical or dental), [the definition of allowable expense] the group contract shall [include] consider only the corresponding expenses or services to which COB applies as allowable expense.

. . .

"HMO plan" means a plan offered by a health maintenance organization that provides covered services and supplies through a network of providers that have contracted with or are employed by the health maintenance organization, and which excludes benefits for services and supplies rendered by other than network providers except in cases of emergency or referral by the health maintenance organization.

"HMO point of service plan" or "HMO POS plan" means a plan offered by a health maintenance organization that provides covered services and supplies through a network of providers that have contracted with or are employed by the health maintenance organization, and which also pays benefits for services and supplies rendered by providers who are not in the network of the health maintenance organization.

"Hospital indemnity benefits" means those benefits not related to expenses incurred. The term does not include expense-incurred benefits, even if they are designed or administered to give the insured the right to elect indemnity-type benefits at the time of claim.

"Indemnity plan" means a hospital and/or medical expense insurance policy, hospital service corporation contract, medical service corporation contract, health service corporation contract, or dental service corporation contract.

"Plan" means coverage with which coordination is allowed. The definition of "plan" in the group contract must state the coverages which will be considered in applying the COB provision of that contract. The right to include a coverage shall be limited by 1 through 3 below.

1. - 2 (No change.)

3. A "plan" may include:

i. - iv. (No change.)

v. Medicare or other governmental benefits, except those benefits as provided in 4[vii] ix below. This part of the definition of "plan" may be limited to the hospital, medical and surgical benefits of the governmental program.

4. "Plan" shall not include:

i. - iv. (No change.)

v. Group or group-type coverage where the cost of coverage is paid solely by the employee, member or subscriber, except that coverage provided under a right of continuation pursuant to Federal or state law shall be considered a plan;

vi. - ix. (No change.)

["Hospital indemnity benefits" means those benefits not related to expenses incurred. The term does not include expense-incurred benefits, even if they are designed or administered to give the insured the right to elect indemnity-type benefits at the time of claim.]

. . .

"Selective contracting arrangement" or "SCA plan" means a plan offered by a health insurer operating pursuant to Title 17B of the New Jersey statutes using an arrangement as set forth at N.J.S.A. 17B:27A-54 for the payment of predetermined fees or reimbursement levels for covered services by the carrier to preferred providers or preferred provider organizations.

. . .

11:4-28.4 Model COB contract provision

(a) Appendix A of this subchapter contains Model COB Provisions [for use] that may be used in group contracts, and is incorporated herein by reference as part of this subchapter. The use of the Model COB Provisions shall be subject to [the provisions of] (b) below, N.J.A.C. 11:4-28.5 and N.J.A.C. 11:4-28.6.

(b) (No change.)

11:4-28.6 Rules for coordination of benefits

(a) The general order of benefit determination shall be as follows:

1. - 2. (No change.)

3. The benefits of the plan which covers the person as an employee, member, [or] subscriber or retiree (that is, other than as a dependent) shall be determined before those of the plan which covers the person as a dependent.

(b) - (d) (No change.)

(e) When a person provided coverage 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 unless the other plan does not contain a provision allowing it to apply this rule and as a result the plans do not agree on the order of benefits.

[(e)] (f) (No change in text.)

11:4-28.7 Procedure to be followed by [secondary plan to reduce] other than primary plans to calculate benefits

(a) A plan determined to be a secondary plan pursuant to N.J.A.C. 11:4-28.6 may reduce its benefits so that the total benefits paid or provided by all plans during a claim determination period are not more than the total allowable expenses. Where a benefit is payable by both the primary and secondary plans on the basis of usual, customary and reasonable fees (UCR), the secondary plan shall pay the difference between billed charges for allowable expenses and the amount paid by the primary plan as long as such amount is no greater than the amount the secondary plan would have paid if primary. The amount by which the secondary plan's benefits have been reduced shall be used by the secondary plan to pay allowable expenses, not otherwise paid, which were incurred during the claim determination period by the person for whom the claim is made. As each claim is submitted, the secondary plan shall determine its obligation to pay for allowable expenses based on all claims which were submitted up to that time during the claim determination period. This guideline is illustrated in examples W, X, Y, Z and AA of Appendix B.

(b) - (d) (No change.)

(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. This guideline is illustrated in examples A, B, C, D, E, F and G of Appendix B.

2. Where the primary plan pays a benefit on the basis of UCR, and the secondary plan pays on the basis of a contractual fee schedule, and the provider who provides or arranges for the services or supplies is a network provider of the secondary plan, the primary plan shall pay the benefit it would have paid without regard to the existence of other coverage. The secondary plan shall pay the difference between the provider's billed charges and the benefit paid by the primary plan up to the amount the secondary plan would have paid if primary. The payment of the secondary plan shall be applied first toward satisfaction of the covered person's liability for any copayment, coinsurance or deductible of the primary plan. The covered person shall only be liable for the copayment, deductible and coinsurance under the secondary plan if the covered person has no liability for a copayment, coinsurance or deductible under the primary plan and the total payments by both the primary and secondary plans are less than the provider's billed charges. The covered person shall not be liable for any billed charges in excess of the sum of the benefits paid by the primary plan, the benefits paid by the secondary plan, and the copayment, deductible or coinsurance paid by the covered person under either the primary or the secondary plans. In no event shall the covered person be responsible for any payment in excess of the copayment, coinsurance or deductible of the secondary plan. This guideline is illustrated in examples H, I, J, K, L and M of Appendix B.

3. Where the primary plan pays providers on the basis of a contractual fee schedule, and the secondary plan pays for the particular benefit on the basis of UCR, and a service or supply is provided by a network provider of the primary plan, the allowable expense considered by the secondary plan shall be the contractual fee of the primary plan. The secondary plan shall pay any copayment, coinsurance or deductible for which the covered person is liable under the terms of the primary plan up to the amount that the secondary plan would have been required to pay if primary. This guideline is illustrated in examples N and O of Appendix B.

4. Where an HMO plan, other than an HMO POS plan, is primary, and the provider is not a network provider of the HMO, and the services and supplies are not covered by the HMO as urgent care, emergency care or a referral to an out-of-network provider, and an HMO POS, SCA or indemnity plan is secondary, the secondary plan shall pay as if it were primary. This guideline is illustrated in example P of Appendix B.

5. Where the primary plan pays providers on the basis of capitation, and the secondary plan is either an HMO plan that pays network providers on the basis of a contractual fee schedule or an SCA, and a service or supply is provided by a network provider of both the primary and secondary plans, the secondary plan shall pay any copayment, coinsurance or deductible for which the covered person is liable under the terms of the primary plan up to the amount the secondary plan would have been required to pay if primary. This guideline is illustrated in examples Q and R of Appendix B.

6. Where the primary plan pays network providers on a basis of capitation or a contractual fee schedule or pays a benefit on the basis of UCR, and the secondary plan pays network providers on the basis of capitation, and a service or supply is provided by a network provider of the secondary plan, the secondary plan shall not be obligated to pay to such network provider any amount other than the capitation payment required under the contract between the secondary plan and the network provider, and shall not be liable for any deductible, coinsurance or copayment imposed by the primary plan. The covered person shall not be responsible for the payment of any amount for eligible services. This guideline is illustrated in examples S, T, U and V of Appendix B.

7. Where both the primary and secondary plans are HMO plans, and the covered person obtains services or supplies from a provider who is in the secondary HMO plan's network but is not in the primary HMO plan's network, the primary HMO plan shall have no liability and the secondary HMO plan shall pay or provide benefits as if it were primary except for emergency services or referrals authorized by the primary plan.

(f) The secondary plan shall not reduce 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.

[11:4-28.8 Reasonable monetary value of services

A secondary plan which provides benefits in the form of services may recover from the primary plan the reasonable monetary value of providing the services to the extent that benefits for the services are covered by the primary plan. Nothing in this section shall be interpreted to require a plan to pay a covered person money for the value of services provided by a plan which provides benefits in the form of services.]

11:4-28.8 Notice to covered persons

An explanation of benefits provided to covered persons under a plan shall include the following language: "If you are covered by more than one health benefit plan, you should file all your claims with each plan and provide each plan with information regarding the other plans under which you are covered."

11:4-28.9 Excess and other nonconforming provisions

[Where a plan has order of benefits determination rules which are inconsistent with this subchapter and declares that the plan's coverage is "excess" or "always secondary" the following shall apply. Such inconsistencies and declarations can occur because certain plans may not be subject to this subchapter or because some group contracts have not yet conformed to the requirements of this subchapter pursuant to N.J.A.C. 11:4-28.11.]

[1.] (a) A plan with order of benefit determination rules which comply with this subchapter (complying plan) shall coordinate its benefits with a plan [which is] that declares itself "excess" or "always secondary" or which uses order of benefit determination rules which are inconsistent with those contained in this subchapter (noncomplying plan) on the following basis:

[i.] 1. If the complying plan is the primary plan, it shall pay or provide its benefits on a primary basis;

[ii.] 2. If the complying plan is the secondary plan, it shall [attempt to coordinate in the secondary position with benefits available through the noncomplying plan.] :

i. [The complying plan shall attempt] Attempt to secure the necessary information from the noncomplying plan[.] to make the determination of the complying plan's liability as the secondary plan; or

ii. [If the noncomplying plan is unwilling to act as primary plan or to supply the necessary information, the complying plan shall assume] Assume the primary position and pay its benefits as the primary plan, if the noncomplying plan is unwilling to act as the primary plan or does not supply the information necessary for the complying plan to determine its benefits as a secondary plan .

11:4-28.11 Compliance

(a) [Every group contract which provides health care benefits and which is issued on or after January 1, 1989, shall comply with the subchapter.] Administration of coordination of benefits provisions for all plans shall be in compliance with this subchapter by January 1, 2003.

[(b) A group contract which provides health care benefits and which has been issued before January 1, 1989, shall be brought into compliance with this subchapter by the later of:

1. The next anniversary date or renewal date of the group contract following January 1, 1989; or

2. The expiration, following January 1, 1989, of any applicable collectively-bargained contract under which it was written.]

(b) All plans shall include the notice required pursuant to N.J.A.C. 11:4-28.8 in their explanation of benefits forms by January 1, 2003.

(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).

g:\inoregs\COBrepro

APPENDIX A

MODEL COB PROVISIONS

COORDINATION OF THE GROUP CONTRACT'S BENEFITS WITH OTHER BENEFITS

(I) (No change.)

(II) DEFINITIONS.

(A) through (C) (No change.)

(D) "Allowable Expense" means [a necessary, reasonable and customary] the charge for any health care service, supply or other item of expense [for health care, when the 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 [by one or more] under any of the plans [covering the person for whom the claim is made] 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 [is not considered an Allowable Expense under the above definition] 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.

[When a plan provides benefits in the form of services (as is typical for HMOs), the reasonable cash value of each service will be considered an allowable expense and a benefit paid.]

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]] vi. (No change in text.)

(IV) EFFECT ON THE BENEFITS OF THIS PLAN.

(A) (No change.)

(B) Reduction in This Planís 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.)


APPENDIX B