How Does Secondary Health Insurance Work?

Secondary health insurance covers and pays for the gaps in a person's primary health insurance policy. When a person has two health insurance policies, the total payments cannot exceed the amount of the medical bill. In other words, the policyholder cannot make money off a claim. Rules exist that determine which policy is primary and how benefits are coordinated.

Three examples demonstrate how a person ends up with two health insurance policies. One is when he qualifies for two group plans. An example is a husband and wife who are both covered as employees at their place of employment. They also are eligible to be covered as a dependent under the other spouse's plan. A second reason is coverage under a government plan like Medicare. The person is either over 65 and covered under his employer plan or purchases supplemental insurance to cover the gaps in Medicare. The third examples involves an individual who purchases a separate individual policy to cover gaps in his primary coverage.

General rules exist for determining which health insurance coverage is primary. These rules govern in absence of policy language or laws to the contrary. Coverage as an employee is primary while coverage for the same person as a dependent or a retiree is secondary. For an adult with two jobs and two employer group plans, the plan covering the employee the longest is primary. For children, the birthday rule governs when a dependent child is covered under the health care plan of both parents who live together. The parent whose birthday come first in the calendar year is the primary insurance plan and the parent whose birthday comes second is the secondary plan. If the parents are separated or divorced, the insurance plan of the custodial parent is primary.

One type of individual secondary, or supplemental, health insurance policy is one that pays money directly to the policyholder. It may be limited to hospitalization, or it may pay for outpatient treatment, critical care or cancer. The policyholder has the flexibility to use the money to pay co-pays, deductibles, private room expenses or any other non-covered expenses. Another type is Medigap, supplemental health insurance for medicare recipients, which pays medical costs not covered by medicare.

A person with two policies incurs medical expenses. The bill goes first to the primary carrier who pays the bill as if there is no other insurance. Annual deductibles and co-pays apply, leaving a balance owing by the policyholder/patient. The underpaid portion goes to the secondary carrier who pays according to the terms of its policy. In most cases, the bill will be paid in full. Exceptions occur when one policy does not cover certain treatments or both deductibles occur on the same billing.