Executive Summary: Coordination of Benefits and Subrogation: The Recovery Dollars Most Small Plans Leave on the Table
LFP-05.05 — The Operational Reality#
COB and subrogation are recovery functions that return real dollars to the claims fund. Industry practitioners estimate 2% to 4% of paid claims are recoverable. High-performing TPAs recover 60% to 80% of identified potential; low-performing TPAs recover less than 30%. For a 25-person plan with $500,000 in annual claims, the difference between high and low recovery performance is $7,000 to $15,000 per year. Most small employers do not know these functions exist, do not know whether their TPA performs them competently, and never see recovery reporting that would reveal the answer.
COB applies when a member has coverage under two or more health plans. The NAIC’s standard rules establish payment sequencing: the plan covering the member as an employee pays before the plan covering them as a dependent; the birthday rule determines primary coverage for dependent children. Member disclosure is the unreliable first identification method: members forget to report other coverage, do not update enrollment when circumstances change, and may not understand the question. Automated identification through clearinghouse data matching services like Experian Health and Change Healthcare is more effective, checking claims arrivals against databases of coverage information across plans. COB recovery after the fact, when the TPA identifies dual coverage after paying as primary, requires contacting the other plan, providing documentation, and negotiating repayment, a slow and sometimes contested process.
Subrogation identifies accident-related claims and pursues recovery from any third-party settlement the member receives. An auto accident, a slip and fall, a workplace injury covered by workers’ compensation, or a product liability claim all create potential recovery. The TPA must identify accident-related claims through member reporting and claims pattern analysis, send lien notices to the member and any third-party insurer, and track cases over the one-to-three years that personal injury matters typically take to settle. ERISA preemption under FMC Corp. v. Holliday may allow self-funded plan subrogation rights to override state law limitations that would apply to fully insured plans. Subrogation vendors such as The Rawlings Company, LLC, founded in 1977 and based in La Grange, Kentucky, specialize in identification and recovery, typically working on contingency at 25% to 33% of recovered amounts.
The employer should require recovery reporting as a contract term: COB savings identified and recovered, subrogation cases identified and status, and dollars returned to the claims fund. The TPA that cannot report recovery performance is either not tracking it or not performing well enough to want to share it. Recovery benchmarks should be established at the outset. The broker who evaluates recovery capability during TPA assessment and tracks recovery performance during the plan year is providing material financial value.