Making Claims with More Than One Insurance Company

Insurance companies have always been very concerned about the problem of a policyholder having duplicate coverage with more than one insurance company with the result that you make a profit from the claims you submit to more than one insurance company for the same expenses. In other words, double-dipping.

One might argue that the Insured has a right to do that if he is paying the premium on each policy. There are several problems with that position. First, insurance policies are designed to insure against financial risk, not to provide an opportunity for the insured to make a profit. Second, the premium pricing of policies is based on very careful actuarial assumptions as to what amount of expenses you, the Insured, are likely to incur and submit as claims each year.

If more claims are submitted than expected, the insurance company will go out of business. And if an individual is submitting claims to multiple insurance companies for medical treatment and expenses, this means there will be more claims in the industry that must be absorbed by various insurers than they anticipated. In response, they will either try to raise their premium rates to stay ahead of the multiple claim scenario or, if they can't, they will go out of business.

In either case, it is bad for the honest insurance consumer. Insurance rates will either go through the roof and policies will become too expensive for most people or there won't be any insurance company from whom to buy insurance. Those are both bad options.

The following is a typical provision that you are likely to find in an individual health insurance policyas a means of attempting to deal with this issue.

(Typical wording*):

Insurance with Other Insurers

If an Insured maintains other valid coverage, not with this Company, providing benefits for the same loss on a provision of service or an expense incurred basis and of which this Company has not been given written notice prior to the occurrence or commencement of loss, the only liability under this Policy shall be for such proportion of the loss as the amount which would otherwise have been payable hereunder plus the total of the like amounts under all valid coverage for such loss, and for the return of such portion of the premiums paid shall exceed the prop rata portion for the amount so determined.

Other valid coverage means any other health insurance coverage You maintain under any of the following: a group health plan or group health insurance coverage; individual health insurance coverage; a government or church plan; any union, employer or employee health benefit plan; Title 19 (Social Security Act), 42 United States Code, Section 1396 et seq. (Medicaid), other than coverage consisting solely of benefits under Section 1928 [42 United States Code, Section 1396s] (distribution of pediatric vaccines); Chapter 55 of Title 10, United Stated Code (uniformed services); a medical care program of the Indian Health Service or of a tribal organization; a state health benefits risk pool; a public health plan offered under Chapter 89 of Title 5, United States Code (Members of Congress, etc.); or a health benefit plan under Section 2504(e) of Title 22, United States Code (Peace Corps). Other valid insurance coverage does not include coverage under Medicare and/or amendments thereto.

This somewhat difficult-to-read provision results in limiting coverage under your policy when you have coverage for the same services and treatment through other insurance policies. You may be covered under several insurance policies that cover expenses for medical services and treatment. Public policy dictates that you not profit from incurring medical expenses and that insurance costs be kept low. Ideally, benefits paid by all insurers should not exceed 100% of the covered loss.

The way this works is as follows:

  1. Assume the loss is $800.
  2. 2. Assume that under this policy $500 would have been payable.
  3. 3. Assume you have 3 other valid coverages not with this Company providing benefits for the same loss for which this Company had not been given notice and these three coverages were in the amounts of $350, $425 and $475, respectively.
  4. 4. Without the other coverages, Company would pay $500 (62.5% of the loss). Because of the other coverages, Company will only pay $228.57 (28.67% of the loss). This is calculated as follows: ---$500 (the amount otherwise payable) divided by $1,750 ($500 + $350 + $425 + $475, the total like amounts under all valid coverages).

A pro rata portion of premium is also returned reflecting the coverage not provided by the company because of this rule.

*Wording may vary from contract to contract and from state to state