Coordination of Benefits and Subrogation: The Recovery Dollars Most Small Plans Leave on the Table

COB and subrogation are recovery functions that return real dollars to the claims fund. Industry practitioners estimate 2 to 4 percent of paid claims are recoverable through these mechanisms, though the figure varies significantly by population demographics and dual-coverage prevalence. High-performing TPAs recover 60 to 80 percent of identified potential; low-performing TPAs recover less than 30 percent. 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.

Coordination of Benefits

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When a member has coverage under two or more health plans, COB rules determine which plan pays first and which pays second. The member might have coverage through their own employer and through a spouse’s employer. The member’s children might be covered under both parents’ plans. Without coordination, both plans might pay the full claim, resulting in overpayment, or both might deny, resulting in coverage gaps.

Standard COB rules establish the order of payment. The plan covering the member as an employee pays before the plan covering the member as a dependent. For dependent children, the birthday rule applies: the plan of the parent whose birthday falls earlier in the calendar year pays first, regardless of which parent is older. If the parents are divorced, custody and court orders affect the sequence. These rules are standardized by the National Association of Insurance Commissioners, but variations exist.

COB identification is the critical first step. The TPA must identify that dual coverage exists before coordination can occur. Identification happens through member disclosure at enrollment (does the member or any dependent have other coverage?), claims data patterns (claims paid by another insurer visible in the provider’s submission), and data matching with clearinghouses that aggregate coverage information across plans.

Member disclosure is unreliable. Members forget to report other coverage. They do not update enrollment when circumstances change. They may not understand the question. A member who has coverage through their spouse’s employer and their own employer may not think to mention the spouse’s coverage because they do not expect to use it.

Automated COB identification through clearinghouse data matching is more effective. Services like Experian Health and Change Healthcare maintain databases of coverage information that TPAs can query. When a claim arrives, the TPA can check whether the member has other coverage on file. Automated identification catches dual coverage that member disclosure misses.

COB recovery occurs when the TPA identifies dual coverage after paying a claim as primary when it should have been secondary. The TPA determines which plan should have been primary and pursues recovery from that plan. Recovery involves contacting the other plan, providing claim documentation, and negotiating payment. The process is slow and sometimes contested. The other plan may dispute its primary obligation.

Small plans underperform on COB for predictable reasons. Small TPAs may not invest in automated identification tools because the per-plan cost is high relative to expected recovery. Manual identification depends on staff attention and member disclosure, both inconsistent. The dollar amounts per recovery may seem modest, discouraging investment. But the cumulative impact across the book of business is significant.

Subrogation

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When a plan member’s injury or illness is caused by a third party, the plan has a right to recover amounts paid from any settlement or judgment the member receives. An auto accident, a slip and fall at a business, a workplace injury covered by workers’ compensation, or a product liability claim all create potential subrogation recovery.

The subrogation process requires identification, lien notice, and recovery pursuit over an extended timeline.

Identification requires the TPA to recognize that claims are accident-related. Member reporting is one source: the member discloses that they were in an accident. Claims data patterns are another: an emergency room visit followed by orthopedic treatment and physical therapy suggests traumatic injury. Questionnaire programs send inquiry letters to members whose claims patterns suggest possible accidents.

Lien notice asserts the plan’s recovery right. The TPA sends notice to the member, the member’s attorney if one is involved, and any known third-party insurer. The notice states that the plan has paid medical expenses and asserts the right to be reimbursed from any settlement.

Recovery occurs when the member settles with the responsible party. The plan recovers its paid amounts from the settlement, subject to plan terms and applicable law. Some jurisdictions limit the plan’s recovery right through common fund doctrine (the plan must share in attorney fees) or make-whole doctrine (the plan cannot recover until the member is fully compensated). However, ERISA preemption may override state limitations for self-funded plans, as established in FMC Corp. v. Holliday.

The timeline is long. Personal injury cases may take one to three years to settle. The TPA must track the case throughout, monitoring for settlement and asserting the lien when payment occurs. Many small TPAs do not have dedicated subrogation staff or systematic tracking to maintain cases over this duration.

Subrogation vendors specialize in identification and recovery. The Rawlings Company, LLC, founded in 1977 and based in La Grange, Kentucky, is among the prominent firms in this space. Vendors typically work on contingency, receiving 25 to 33 percent of recovered amounts. Using a vendor is often more effective than in-house subrogation for small TPAs, but the TPA must still identify potential cases and refer them to the vendor.

The Financial Impact

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The dollars at stake are meaningful at the plan level.

COB recovery potential is typically 1% to 2% of paid claims for plans where dual coverage exists. Not all plans have significant dual coverage, but plans with younger workforces where two-income families are common often do.

Subrogation recovery potential is typically 1% to 2% of paid claims, depending on the population’s accident frequency. Construction and trades populations may have higher subrogation potential due to accident exposure. Professional services populations may have lower potential.

Combined recovery potential of 2% to 4% of paid claims translates to $10,000 to $20,000 on a $500,000 annual claims fund. A high-performing TPA recovering 70% of that potential returns $7,000 to $14,000 to the claims fund. A low-performing TPA recovering 25% returns $2,500 to $5,000. The difference is real money that affects surplus return and renewal pricing.

How to Measure Recovery Performance

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Recovery metrics should be tracked and reported to employers.

COB savings identified measures the dollar amount of claims where dual coverage was identified and the plan’s payment was reduced or recovered. This metric captures both prospective savings (claims coordinated correctly at adjudication) and retrospective recovery (claims paid incorrectly and subsequently recovered).

Subrogation cases identified measures the number of potential subrogation cases flagged for pursuit. A TPA that identifies 10 cases per million dollars in claims is performing differently than one that identifies 2 cases.

Recovery rate measures dollars recovered divided by dollars identified as recoverable. A TPA that identifies $50,000 in subrogation potential and recovers $35,000 has a 70% recovery rate. A TPA that identifies the same potential and recovers $15,000 has a 30% rate.

Time to recovery matters for subrogation. Faster settlement produces faster recovery. A TPA that tracks cases actively and asserts liens promptly recovers sooner than one that lets cases languish.

The employer should see these metrics in regular reporting. A TPA that cannot report recovery performance is either not tracking it or not performing well enough to want to share it. The employer who asks for recovery metrics and receives vague answers should be concerned.

Why Recovery Is Neglected

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Recovery functions require investment that produces delayed and uncertain returns.

COB identification requires technology (clearinghouse data matching) and process (member questionnaires, claims analysis). The investment is ongoing. The returns depend on the population’s dual coverage frequency, which varies by group.

Subrogation requires specialized expertise (understanding personal injury law and settlement processes), persistent tracking (maintaining cases over years), and acceptance of contingency (many identified cases do not produce recovery because no settlement occurs or the member has no resources). The investment is substantial. The returns are unpredictable.

Small TPAs serving small plans face a scale problem. The recovery potential per plan may not justify dedicated recovery resources. A $500,000 plan with 3% recovery potential has $15,000 at stake. A dedicated recovery specialist costs more than that to employ. The economics improve across a book of business, but TPAs must reach sufficient scale for recovery investment to make sense.

The result is that many small TPAs do minimal recovery work. They may check for dual coverage at enrollment and forget about it. They may pursue subrogation only when members proactively report accidents. They may not use recovery vendors because the contingency fee seems expensive relative to the uncertain return.

The employer bears the cost of this underperformance. Claims that should have been recovered instead deplete the claims fund. Surplus return is lower. Renewal pricing is higher. The employer does not know what they are losing because they never see what recovery could have returned.

What Employers Should Demand

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The employer entering a level funded arrangement should set expectations for recovery performance.

Recovery reporting should be a contract requirement. The TPA should provide regular reports showing COB savings identified and recovered, subrogation cases identified and recovery status, and dollars returned to the claims fund. The employer who never sees recovery data cannot evaluate whether recovery is happening.

Recovery benchmarks should be established. The employer should understand industry benchmarks: recovery potential of 2% to 4% of paid claims, recovery rates of 60% to 80% of potential for high performers. The TPA should explain where they fall against these benchmarks and how they intend to perform for this employer.

Subrogation vendor relationships should be disclosed. If the TPA uses a subrogation vendor, the employer should understand the arrangement: which vendor, what contingency fee, what identification methods, and what historical recovery rates. The TPA that does not use a vendor should explain its in-house subrogation capability.

The broker should evaluate recovery performance as part of TPA assessment. Recovery is a material financial factor. A broker who ignores recovery in TPA evaluation is leaving money on the table for their clients. The broker should ask TPAs about recovery capability during the quoting process and track recovery performance during the plan year.

Recovery performance should be reviewed at renewal. The annual renewal process should include a recovery report: what was identified, what was recovered, what was not recovered and why. The employer should understand whether their TPA is performing and whether alternative TPAs might perform better.

The employer who actively manages recovery expectations and tracks recovery performance will see better results. The TPA that knows the employer is watching recovery performs better than the TPA that knows recovery is ignored. Measurement drives behavior.